Australia's property market is in for a long, flat long road ahead
The Reserve Bank has decided to backpedal and heeded the demands of economists who have been up in arms ever since the central bank kept the cash rate on hold last month. We had the usual surge of tables splashed over the front of the dailies highlighting the savings to the average mortgage holder should the banks pass on the full cut. Sellers in the property industry are rubbing their hands together, expectantly waiting for prices to rise, and the focus for the next few weekends will be firmly on the clearance rate for any indication of a change in sentiment. However, after all the celebratory drinks have been clinked over the table as those who “bet” on the exact basis point drop get their “told you so” moment, perhaps we can get back to reality. It’s unlikely we’re going to see a surge towards the property market – at least not in the near future.
It’s clear the RBA has lost some element of persuasion over the banks, with the statement that 50 basis points drop was to “encourage” the banks to at least pass a proportion of the rate cut onto customers. To all outside eyes, we’ve managed to end up with a system where the banks are in the controlling seat and the RBA’s influence and relevance to home owners is diminishing. Wayne Swan has warned the banks to pass on the full amount – however, his threat can only be addressed with an “…or what?”. The banks no longer need to bow to the demands of those we voted into power – they are a ruling power unto their own interests and profit margins.
One minute we are exhorted to save, pay down debt, hunker down and tighten our belts. The next we are told we need to march out and stimulate the economy. Retail needs it, the housing market is apparently crying out for it – and Swan is dancing around as if he’s personally responsible for the whole charade, with his obsession with a surplus by 2012-13.
The drop would stimulate confidence it was reported; however, it does just the reverse. It tells everyone what we already know: anyone not in mining is struggling – particularly if they own a small business, work in the retail and manufacturing sectors, or are one of the millions on the average Australian wage trying to service rental or mortgage payments. For those struggling on the minimum wage (around 1.4 million people, or roughly one in six workers), it’s a lifestyle of ball juggling as it’s now well accepted that the majority of Australians spend at least 50% of their disposable income simply putting a roof overhead.
With the banks passing on a proportion of the rate cut, home buyers and mortgage holders will gain a marginal benefit in disposable income, however unless your mortgage is in the top percentile, the drop is only slightly beneficial at most. For the majority of new home buyers it does little to improve affordability. Anyone who has managed to save a deposit is most likely out there shopping already – a lot of them dual income couples, high-income earners, or beneficiaries of a gifted deposit. A growing majority of low-income earners are simply locked out while struggling to service growing rental yields.
In the recent Victorian budget, it’s welcome that more funds have been dedicated to dropping stamp duty costs by 30% for first-home buyers (details of which can be found here.) However, in order to do so, the government stripped away the $13,000 grant offered for the purchase of new homes. In light of the fact that new supply is essential for reducing competition and inflation on established stock, there’s not much to celebrate really.
Then again, as we’re told repeatedly, despite promises to the contrary, there isn’t as much in the coffers to hand out at the moment. Ted Baillieu should be well adverse to the adage that you always “promise less and deliver more”. However, apparently, due to the softness in the housing market, less than expected came in from stamp duty payments, therefore tough luck to the taxpayer. The only way government, both local and federal, know how to raise money is to raise taxes. To think outside the square never gets further than an expensive research paper. However, to be fair, much of Victoria’s problems did have their beginnings in poor management from previous administrations.
Different states offer a range of different policies for first home buyers (aside from Tasmania, which offers nothing outside the federal government’s $7,000 grant.) All are introduced for periods of time, however all are subject to change by subsequent governments providing no confidence of consistency. Some policies are better than others, however, the minimal assistance that is available arguably inflates the market rather than the reverse (as evidenced by the boom and bust cycles as various the schemes are introduced and subsequently scrapped).
Billions has been thrown at first-home buyers over the years, which is amazing when you consider evidence proves it’s not achieving the desired result. Should the current trend continue, we’ll see today’s 35- to 44-year olds reach retirement with a quarter still renting – and when the 25- to 34-year-old bracket reach retirement, a third will still be renting. How long until 50% are reaching retirement while paying someone else’s mortgage?
If you’re reading this and already hold a mortgage you’re probably understandably too concerned with meeting your own bills to take a close look at the bigger picture that is growing to be a crisis of monumental proportions. Some may have read or heard about the latest Anglicare report that has taken a snapshot nationally to look at the supply of affordable rental accommodation for those on a low wage or on government allowances. Not surprisingly, the results are truly dire – you can read the full report on Anglicare’s website – however the outcome emphasises “people on the minimum wage need two incomes to rent a house. In many places even that is not enough”.
Two incomes to rent a house? If you can’t rent on two incomes, you certainly won’t be in a position to buy – renting is still the cheaper option, and house prices are not reducing by any significant proportion to change this ratio. In Anglicare’s report, it surveyed more than 65,000 advertised rental properties across Australia. For singles living on an aged or disability support pension there were no affordable options in any urban area across Australia, and for singles on the minimum wage the options were so limited that in Sydney, not even 1% of all the advertised properties met the requirement. This is in a nation envied worldwide for its prosperous economic status – one of the few that “beat” the recession.
I only have practical experience of the Melbourne rental market, which has a reported vacancy rate of 2.5% – this is up from 2.2% last year. When it announced the latest vacancy figures, the REIV commented, “the reduction in population growth and increase in construction of new dwellings is now beginning to provide easier conditions for renters”. Well, it may look that way on paper, but in reality, it couldn’t be further from the truth.
The rental agency I deal with has demand at such a level that – whatever the condition - an advertised property will be marketed for no more than a few hours before numerous enquiries are received requesting and inspection. It’s a common story repeated within every management company across the metro area. Most recently, I witnessed a line of prospective tenants queue outside an old untouched one-bedroom-plus-study house that could can only be described as highly unsuitable for a family.
The location on a busy main road arterial, coupled with the “rawness” of the internal condition, including an oven that didn’t work and no laundry facilities, gave doubts it would attract any enquiry at all. However, it rented after being on the market for less than a day. The successful application was a couple with a two-year-old child – both of whom had full-time employment. They’d been looking for a number of weeks and offered to paint the property at their own expense by way of an incentive.
Current yields in Melbourne are advertised around 5% for inner-city apartments – however, other states such as Perth for example are easily achieving yields around 5.5% in inner city suburbs. To secure accommodation, it’s not unusual for many applicants to offer in excess of the advertised price. For prospective tenants unable to provide an incentive, options are virtually nonexistent. I can’t over-emphasise the problems this is causing.
It’s in the rental market, homeless numbers, and waiting lists for public housing, where you’ll find the true story of
As the RBA points out in its latest analysis of the market, “rental vacancy rates have been around 2 per cent since 2009”. It’s the consequence of years of poor planning that has squeezed everyone into urban areas close to centralised employment centers. As such, we have ended up in a situation where rental applicants have to compete against each other to acquire some sort of shelter, a little like some pseudo form of the Hunger Games.
Under current conditions, whether buying or renting, “housing stress” is almost an understated term. We all need a home and in this prosperous nation of ours, everyone should have access to feasible options to provide shelter for their family – whether renting or purchasing. If you have a system where growing numbers are unable to attain the basic essentials for their families without experiencing significant stress, there’s no room for innovation and development of ideas that are the key to increasing productivity and consequently a country’s overall wealth.
As always, it’s those most in need who come bottom of the pile – and based on the Anglicare report, we can now add full-time employees to that number. The solution to the problem should not be concentrated on a market driven by incentives or tax breaks, which simply pits one buyer against another.
Instead, it’s important to start listening to local voices, real community needs. To give one example, Point Cook in Victoria, located 25 kilometres from the CBD, was marketed as a “vibrant new retail and commercial development being created in Melbourne's western suburbs”. Expected to provide housing for over 12,000 families and a 25-minute drive from the CBD, it’s been one of Melbourne 's fastest-growing residential areas.However, the residents that moved there discovered the 25-minute drive is only applicable if you leave for work at 3am, otherwise – with only one major road in and out of the suburb, it can end up being a two-hour commute.
The residents are crying out for more roads, schools, leisure facilities, and so forth, however the house building continues and as more families move in, the problems worsen. Unfortunately, there’s no end in sight for Point Cook residents. In the recent Victorian state budget, Melbourne’s fastest-growing region was completely overlooked. No one listened.
As such, it’s no surprise that turn over in some areas of the suburb is three times the Melbourne average and land banking from speculative investors (or residents “changing their minds”) has resulted in many empty lots sitting undeveloped.
Considering the billions of tax incentives and home owner grants that have been handed out over the years, it’s clear protecting growing house prices has always been a priority – and building thriving communities has not.
From an outside perspective, Australia’s land mass, wealth, skills shortage, ageing baby boomers, along with many regional locations simply crying out for an increase in population, I’ve always seen ample opportunity to channel population growth to our social advantage. However, it’s clear that successive governments have judged the health of our economy as figures on paper not adequately planning for our growing community’s needs.
The wealth of any nation should be judged on the standard of living provided for all – not a select group. Seeing as we can hardly cope with housing those who already live here, and as there is no reasonable policy shift to aid a rapid improvement of the situation, perhaps it’s time to close the doors all together aside from fulfilling our obligation to provide refugee protection? Based on current data, the population would stabilise around 2050, however in my mind, it would be a terrible admission of failure.
As for improvement in the housing market, well, don’t look at clearance rate figures for a sign of recovery, instead look towards the polls. Because only when people feel their voices are heard and basic needs provided for (without breaking the bank), will the polls improve and confidence return. Until such a time, we’re in for a long, flat road ahead.
Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition. She is Channel Ten’s property expert on The Circle and a senior consultant for National Property Buyers servicing the needs of property owners Australia wide.