“Grand Designs” – for small communities.

Like thousands of others, I’m an avid watcher of the UK top rating program, ‘Grand Designs.’ The projects inspire such a passionate drive for the progress of new and inventive property development, there’s a distinct feeling each individual designer has a ‘higher’ sense of purpose in their creation.

Rarely – if ever – is it focused on investment potential or capital appreciation.  Rental returns, “property clocks” and speculative bubbles are thankfully never mentioned. Instead, each home is to be a ‘haven of shelter’ for the occupants, and the common denominator in the features valued most, should form the basis of a detailed study for developers and town planners, employed with creating the modern landscape of each State Capital’s 2030 expansion plan.

The series has taken us on an adventurous journey, visiting and re-visiting the projects to test their viability and sustainability for the purpose of each individual design.  The commonalities that form the needs of each participant involved in the program are relatively simple.  They broadly focus on developing a ‘space’ where family and guests can enjoy a sense of community with their surrounds, with great emphasis placed on designing an environmentally sustainable habitat.

Although money facilitates the design, profiting from the development is not the end focus.  For the families involved, the concentration remains firmly on lifestyle.

No one can deny that financial independence is a fundamental requirement in how we perceive an individual’s level of ‘well being’ – but even without a change in financial status, an upgrade in living standards provided primarily through wise and well thought out development, is enough to bring lasting happiness to the occupants involved regardless of personal income. Something the series proves with its weekly case studies.

It’s a somewhat obvious assumption – however it’s one thats bore a need to be proven in various housing studies across the globe.  For example,  in the mid 1990’s, the U.S department of Housing and Urban development in Boston, commissioned a 10 year research project entitled ‘Moving to Opportunity for Fair Housing’ (MTO) The social experiment was designed to analyse how a change in living standards would affect people in poverty outside of any change in status to their financial circumstance.

You could argue that results emanating from any improvement in living standards would be easy to predict.   However, as with all Government departments, money spent on “Captain Obvious” studies, tend to burn a hole through common sense.  This aside, the survey produced some interesting results which should form a motivation for ‘social policy’ reforms across our geographical borders.

The survey addressed the question, if living in a “poor” neighbourhood would have a flow on effect in education standards, crime statistics, well being, and general lower levels of achievement. To do this, public housing residents were split into three groups with the help of a random ‘lottery’.

Each group received a set of ‘vouchers.’ One set enabled residents to subsidize the yield they paid enabling an ‘upgrade’ into private rental accommodation in an area where ‘poverty’ was defined as being less than 10 per cent.  A second group received vouchers entitling them to move ‘wherever they wanted.’  And the third group unfortunately had to stay put.

Despite the move, the financial status of each group remained predominately the same.  Salaries didn’t increase and jobs weren’t changed.  However, the 15 year study proved without doubt – those who were entitled to ‘upgrade’ their environment, experienced a substantial reduction in obesity, diabetes, mental illness, bullying, harassment, and an overall general improvement in their family’s well being.

According to the findings, the subsequent ‘happiness’ effect a change of lifestyle had on the recipients of the vouchers, was equal to a $13,000 a year salary increase – and all that had altered to produce this effect, was the provision of better housing within a well facilitated, established community.

In case you’re reading this and making the assumption that the above ‘happiness effect’ can only be achieved by calling on more tax payer dollars, the next experiment will hopefully put this concern to rest because Kevin McCloud, the British presenter of Grand Designs, conducted his own experiment into the effects of our living environment. Whether he did it consciously or not, he took the two commonalities I outlined above, and wove them into a project called the ‘Big Town Plan.’

The concept involved a 42 house community development, primarily for families confined to ‘social housing.’ He wanted to prove that through intelligent design, a housing estate could be established to enable an active community environment, as well as substantially lowering the environmental footprint and subsequent energy costs of each home. In doing so, he set about to prove the development would cost no more than any other – but the effect would advantage the families and their children in such a way, it would enable the opportunity to get a ‘leg’ up – if only in wellbeing, rather than wealth.

The project picked social housing residents who felt their current accommodation was having a compounding effect on their ability to provide a good foundation in which their children could ‘flourish.’ The atmosphere created by the current council housing estate in which they resided, isolated a ‘disadvantaged’ section of society in such a way, it resulted in a compounding, ‘depressive’ and visionless environment, that expressed itself in higher rates of violence and crime.

There was no higher ‘purpose’ in the development to foster a sense of community which would enable the residents to join together and improve their immediate surrounds.  It was developed with cost as the sole dictator and as a consequence, children were not encouraged to venture outside to play, and neighbours did not socialise.

Kevin’s design would put the same emphasis on cost but couple it with ‘purpose’ driven design. The houses were to be built in a triangular shape around a mini park and community garden.  This would enable residents to socialise whilst at the same time, provide a safe area for children play which was visible from their parent’s homes.

The houses are designed with features to diminish their carbon footprint and keep energy bills low. Natural light was important and although there were faults along the way, the unique design of each property maximised a sense of ‘space and tranquillity’ which had one couple describing the feeling akin to being in a holiday home in “sunny Spain.”

When Kevin returned to his ‘experiment’ a year down the line, he found the community flourishing.  Children were happily playing, neighbours were socialising – there was no isolation, and each family knew the other.

Households previously ‘cut off’ through fear of their environment, were experiencing an atmosphere in which their children could benefit. Pride and vision had been returned on a personal level, and the effect fed into individual aspiration.

It had nothing to do with the redistribution of wealth, but everything to do with providing an atmosphere in which individuals can endeavour to improve.  The houses weathered well over the period monitored – with residents expressing how they enjoyed the feeling of ‘coming home’.  All in all it was a resounding success.

Kevin may not have provided the grandeur of individual designs featured on his program, but he had at least provided the essential qualities all these homes had in common – principally an atmosphere to enhance the social and physical connection to the surrounding environment.

It was therefore with interest I watched Four Corners last week, which focused on the community of Claymore – situated roughly 54 km south west of Sydney.

The housing estate featured was designed and funded by the Housing Commission of New South Wales and initially built, to provide housing for ‘blue collar’ factory workers.  When employment didn’t follow, the suburb became a social housing estate and the people living there were thrown together from a range of backgrounds – low income workers, discharges from psychiatric hospitals, single parents, Samoan refugees, and so forth.  Currently, the suburb has a median age of 20 and median income – when last measured – of just $237 per week.

The project was a social disaster.  The support services desperately needed for the predominant demographic never followed.  Employment opportunities were scarce to nonexistent.  The community was isolated in terms of facilities and essential infrastructure. Public transport was lacking, and the design of the estate had no clear community objective.

Throughout the years various volunteer groups and educators have made inroads in their attempts to create a social purpose within the estate – but as the producers of Four Corners witnessed – there is a huge amount of work yet to be done.

If we’re to take the studies above in any seriousness, the high rates of domestic violence, crime, teen pregnancy and so forth, are not necessarily the fault of the social mix, but the result of isolating a group of people in a poorly designed and facilitated suburb.  Something which is a feature of many newly created ‘fringe’ suburbs which are popping up in the state of Victoria, prior to the development of any essential infrastructure such as public transport, schools, parks, medical facilities, and so forth.

Some of these fridge locations have attracted substantial population growth in recent years because the house and land packages offered are the answer to affordable accommodation for many of the residents. However, a majority suffer from higher rates of crime and social issues than the inner suburban towns, which I theorise to be principally related to failings in their initial design.

It is a far more cost effective venture to provide suitable well facilitated suburbs than it is to provide a patchwork of support organisations to service long term welfare commitments. But, in order to do so, town planners and government heavyweights, must move from behind their desks and involve, listen, and most importantly adhere to, the voices of local community.

Perhaps the answer lay in a plan, compiling of a vision similar to the UK’s ‘The Big Society.’ A policy reform, which aims to place more power into community hands and empower problem solving from ‘the ground up,’ rather than the top down.  Whatever the answer, we’d be a poorer society if we didn’t all agree – there must be a better way.

Catherine Cashmore

High Vendor Expectation – getting to the bottom of the issue.

Emotional Economics.

Now that we’ve established that the ‘Spring’ selling season has not immediately transformed the housing market from its winter of discontent, and the barrage of ‘Spring has Sprung’ headlines have once again done the rounds and subsequently been exhausted.  We can perhaps start looking at the reality that’s facing a rather sick real estate market which needs a little more than a Paracetamol to recover from recent lows.

It’s easy to come up with excuses to explain the current malaise.  Consumer confidence is a favourite – albeit – overused term.  However, it tends to suggest the market doldrums are nothing more than a brief bout of post winter ‘blues,’ which simply require a short term prescription of ‘Prozac’ to recover.

The sickbed approach to market movements always assumes healing will eventuate sooner or later and based on the well quoted premise of historical cycles, it’s not an altogether foolish assumption.

After all, although we’re consistently told the consumer has a new aversion to debt, it doesn’t stop Australian’s ‘over’ spending in areas where they perceive value – areas such the recent surge in overseas travel for example, and the lending ‘boom’ for new and used vehicles – both of which have been influenced by the strong Aussie dollar and recent tariff cuts.

We’re fickle creatures when it comes to finance and completely subject to our ever changing emotions.  How we gather our perception of confidence or fear in an economy, broadly dictates how we spend or save our dollars – albeit, as the cost of living rises, there are limitations to every budget.

But for the housing market, at the very floor of sickness, lies the fear a far more serious diagnosis could be at play.  It may not be the long awaited Armageddon bubble ‘pop,’ however over the past 2-3 years many vendors have experienced a slow deflating puncture of lost equity as the weakness in home loan data and lower rates of turnover continue.

Even with previous and prospected interest rate drops there’s been little to motivate an uplift of market movement and it’s clearly going to take more than a monetary stimulus to see lasting recovery.

The problem reflects a game of ‘stalemate’ – consumers have a need to purchase real estate, but no desire to spend ‘big’ in an arena of slow deflating equity. Unlike other industries, where price drops can attract a flurry of spending – Australian’s have been somewhat brainwashed by a decade long credit inflated property boom. Consequently, residential real estate is broadly considered a vehicle for investment over and above its basic value as a ‘place of shelter.’

It’s therefore highly debateable whether further drops in median values would motivate purchasers to ‘perceive’ a bargain and get out their credit cards as they would for a local retail sale.  Furthermore, because the selling price is set with a large dose of ‘emotion,’ it’s harder to recognise if a drop in price represents a ‘true’ bargain.

As a general point, the last thing owner occupiers will let drop in times of uncertainty are the mortgage re-payments.  The perception of security home owner’s gain from their principle place of residence is a tonic in turbulent times. Not only this, but the home is an extension of the occupant’s life – a place of precious memories and personal passions which dictate why we often see vendor’s ‘withdraw’ from the market rather than sell for a price they don’t consider ‘worthy.’

The owner occupier market (which forms the largest market in Australia) splits the real estate landscape between the ‘need to sell’ owners and those who’ll only budge if they can get their ‘pre conceived’ price.  This is the price they have formulated based on invested emotions and one that often bears little relation to the dictates of today’s ‘property shoppers.’

Although we’ve seen an uplift in ‘forced’ sales on the vendor’s side – and affordability issues on the purchaser’s side – the vast majority of purchasers and vendors are not willing to meet mid-way (hence low rates of turnover,) – and with nothing on the horizon to suggest Australia’s economy is on the precipice of financial disaster – producing wide spread job losses – or conversely about to flourish into another ‘boom’ of growth, I’m afraid we could be looking at a long period of property market ‘stalemate’ which won’t be broken by the cliché of spring headlines, interest rate cuts, or mortgage lending’ sweeteners.’

Vendor expectation is such a fundamental part of any acquisition process; it deserves a lot more attention than simply stating that vendors currently have ‘unrealistic’ ideals.  “Vendor education” – the commonly used term by realtors who are charged with breaking high ideals in order to achieve a sale – is a fine tuned art which splits those who are experienced in the industry, from those who still have ‘stars in their eyes’ of easily earned commissions.

The barriers dissuading vendors from taking a monetary loss are not clear cut and form a game of behavioural economics.   Broken down you could term it the ‘endowment effect’ – the differentiation between  what a person is willing to accept compared to a what an individual is prepared to pay.

It was the American economist Richard Thaler who first made inroads into our ‘irrational’ emotions and their concurrent effect on economic data – an effect, which often hinders analysts from making predictable assumptions.

He aptly demonstrated how we place a higher value on ‘emotional’ objects we own compared to the price we’d be willing to pay for a replica offered for sale.  In the 1990’s, he demonstrated his theory, with a famous social experiment involving ‘coffee cups.’

A group of students were divided into two. One half were handed mugs whilst the other were given dollars.  The two groups were then asked to separately devise both an asking price and a selling price.

The sellers valued their mugs at $5.25, whilst the buyers were only willing to pay $2.25 -$2.75.  Even though it was assessed that the sellers would not consider paying their own inflated prices should the shoe be on the other foot, they were unwilling to drop the ‘mug’ price below their pre-perceived notion of value.

A different experiment was derived to see if the effect carried over into ‘non’ emotional items – items for which a value has already been ‘pre-determined’.

One set of students were given a ‘token’ and each student ‘assigned’ a mythical sell value. The other half were given money and each assigned a fictitious ‘buy’ value.

In line with rational thinking, when token holders were offered more than the pre-consigned value, they agreed to sell.  Equally, when the buyers were offered a ‘deal’ less than their pre assumed value, they purchased.  It was a perfect example of basic ‘buy/sell’ economics.

The difference between the two experiments comes down to the value we place on ‘property’ and possessions – or in the context of this article – real estate.  We have a tendency to be truly ‘irrational’ about our homes when it comes to placing monitory value on the holding.  An irrationality which has no place in basic economics, yet affects a market which in Australia, is worth an estimated $4 Trillion.

To emphasis the point, I was recently in discussion with a developer who wanted to offer a home owner 2 and a half times the value of their block to induce a sale.  The developer naturally saw the deal as a ‘win win’ for both parties.

The home/land owner would receive a ‘windfall’ enabling them to ‘upgrade’ from their principle place of residence and move no more than a stone’s throw away if desired.

The developer on the other hand would reap the benefit of acquiring a piece of land, which was strategically located to enable his personal commercial endeavours to profit over the long term. For the developer – the inflated price he was offering was a worthy investment.

The developer naturally felt a ‘valuation’ and ‘market appraisal’ of the block would be enough to form the basis for a calculation of appropriate ‘compensation.’  What they hadn’t factored in however, was ‘endowment effect.’

Despite all available evidence proving the home owner would reap over half a million ‘tax free’ profit on top of comparable ‘market value’ if they accepted the developer’s offer – they still considered the figure ‘unworthy’ of the personal emotional commitment they had invested in their ‘home.’

It may seem crazy to those reading, however it’s a very real example of our irrational ‘relationship’ with property.

If a deal such as the one above, can’t achieve success in a highly deflated ‘buyer’s market’ – you can clearly comprehend why Australia’s property market is not moving at a more microscopic level. In other words, forget about analysing a ‘property clock,’ – because it’s simply not ticking!

Whether purchasers have the dollars or not – they’re not likely to profit from the downturn until vendors are forced to change – and with nothing forcing vendor’s to change, we’ve got a long Chess game ahead, before someone knocks over the Queen.

With this in mind, current conditions favour the investor who can hang out for that ‘nugget of gold’ whilst at the same time indentifying the ‘property owners’ who – for personal reasons – have little choice but to reduce expectation.

Home buyers or existing owner occupiers however, face the challenge of finding a suitable ‘home,’ in a sea of advertised listings, few of which tick their ‘ideals’ with a price tag to match.

Keen negotiation skills are the key to shifting the current game of ‘checkmate’ – however, this can’t be achieved without ample ‘on the ground’ due diligence, patience, and legwork. Unless a buyer is prepared to leave their emotions at the ‘front door’ prior to entering into negotiation, they may find the current well termed ‘buyer’s market’ frustratingly difficult to advantage from.

 

Catherine Cashmore

 

Being In the Zone

Being ‘in the zone.’

For all the complaints about our current Government, Julia Gillard has always been a passionate advocate for education reform.  Although the recent Gonski review into school funding has been heavily criticised by the Opposition, our current Prime Minister aims to introduce the improvements cited from 2014 as part of an ‘education crusade.’

Teachers and unions will no doubt have their own views on the changes planned and there’ll plenty of forthcoming issues and disputes the Prime Minister has to overcome.  However, out of all the industry bodies looking and hoping for a better qualified nation, the housing industry should be at the forefront.

The UK’s leading real estate ‘number one’ property website, has produced some interesting research indicating a university education is a “vital” ingredient for current first home buyers, aspiring ownership within the next 12 months.  Seven out of ten surveyed on the above criteria, were educated with either a graduate, or post graduate degree – and despite the fees associated with higher education, the analysts at Rightmove concluded;

“Those school-leavers who are set to embark on a university education this autumn will be encouraged by the fact that further qualifications seem to be an important qualifying factor in getting onto the housing ladder.”

The reasons are no doubt numerous and to some extent obvious.  A higher education generally ensures a fatter wage packet enabling prospective buyers to build their deposit quicker.  However, money isn’t the only part of the equation.   A quality education builds self esteem, enhancing an individual’s critical thinking skills – enabling them to filter through a plethora of conflicting advice widely available through digital and print media.   In many cases, it also also equips individuals with the basics of money and business management which are essential requirements to 21st century home ownership.

However, whilst education plays a valuable role in the fight to stem the reducing number of first home buyers and issues of affordability – a trend many would like to close their eyes to – getting a child into the best school available for their needs – thereby enabling them to get a ‘leg up’ on the “prospective” housing ladder by securing long term employment and a healthy working wage – often fails, principally due to the expense of acquiring adequately ‘zoned’ accommodation.

For example, if you analyse the statistics, being in a school zone for one of the top 20 or so government schools in Melbourne, can increase the price of properties in the area at the very least 10 to 15% – and the smaller the zone, the greater the pain.  Hence why there’s a strong connection between the top public schools and the price of residential property.  Add onto this property taxes and other costs associated with moving into a school zone initially, and perhaps the only thought a family can comfort themselves with during the early hours of a sleepless night, is the ‘nest’ egg they’ll be left with once the kids leave home and they eventually decide to sell and ‘downsize.’

Rental yields for family accommodation are also significantly inflated for properties located in a popular school zone, providing an attractive incentive for investors seeking good growth and yield.   Neither is it unheard of, for an old property within the neighbourhood to be rented by a ‘desperate’ family never intending to move in, but simply using the address to meet the criteria for enrolment into year 7.  I’ve even heard of school principals ‘camping’ out early mornings and late into the evening, to assess the level of activity in a property ‘suspected’ of sitting vacant whilst the family lives elsewhere. But if you think that’s bad, a story was recently relayed to me regarding one school principal asking to check a family’s electricity bill with threats to hire a private detective to chase up suspect ‘zone cheaters.’ School zones are without doubt ‘hot property’ in the real estate fraternity.

However, it’s an unfortunate example of how restrictions on both housing and education through the implication of strict school boundaries, can oft  feed into a culture of separation between various groups of society, thereby producing wide areas of proportional in-equality for which I admit, there’s no easy answer.

It’s also worrying that newer suburbs created with the intention of increasing the provision of affordable family sized accommodation, are woefully inadequate in their application principally because they often have little more than a small ‘village sized’ primary school servicing the area.

At worst, it results in a significant ‘disconnect’ for families spilling into fringe areas and consequently  suffering un-intentional discrimination as they are unable to easily access suitable educational facilities due to their choice to move ‘out of town’ to find both affordable and appropriately sized accommodation in the first place.

As a case in point, earlier this year Melbourne’s State Government announced the development of six new fringe suburbs – Diggers Rest, Lockerbie, Lockerbie North, Manor Lakes, Merrifield West and Rockbank North which are planned to accommodate no less than 100,000 ‘new’ residents.  Planning minister Mathew Guy made a point of stressing these suburbs would be ‘adequately’ planned and facilitated with appropriate infrastructure and I don’t doubt the goodness of his intentions.  Currently there are barely a handful of small local primary facilities servicing the area.

However, locating an appropriate ‘pocket’ zoned specifically to facilitate academic amenities is only one part of the equation – attracting teachers into the area is quite another.  This would seem to especially so, following the largest teacher’s strike in the State’s history barely more than a week ago.  In light of this, it would seem the prospect of attracting additional educators to take up the slack is not currently looking encouraging.

Melbourne’s Docklands are another area lacking in educational facilities with residents complaining they are encouraged to move out of the suburb before their children reach 5, and whilst I welcome the recent announcement of an inner city site in South Melbourne, recently acquired to provide the proposed development at Fisherman’s bend with primary school facilities, it’s a mere blip on the horizon in combating a far larger problem at hand.

Earlier this year, the Herald Sun flagged a concern citing “220 government schools” in Victoria alone turn away local families due to pressures of capacity.  According to reports, 224 primary and secondary schools across Melbourne now have specific zoning and district restrictions.

The unfortunate ‘bubble’ effect on real estate prices in well established popular and restrictive school boundaries is an issue of concern especially when school zones are either reduced or extended based on under, or over capacity.  Should a recently purchased property suddenly be placed ‘outside’ the zone – it would result in an instant loss of equity to the families ‘nest egg’. The same would result if a school moved or for some reason closed.  Mowbray College in Melbourne – recently forced into administration – is one such example.  A family home, previously marketed as being ‘walking distance’ to the college, could no longer carry this attraction.

Furthermore, housing in school zones tends to be held for longer periods – period’s lasting ‘at least’ the length of a child’s secondary education and often beyond.  Issues of supply are therefore at the forefront of concern for families hoping to move in and get a bite of the educational ‘cherry.’ And whilst school zoning may protect against over capacity thereby ‘keeping kids local’, it also restricts some families to either the local state facilities – good or bad – unless they are prepared to ‘up-sticks’ and move, or pay for private tuition.

No-one would deny that financial literacy and the ability to see through the common myth that residential property ‘doubles every 7 – 10 years’ is becoming all too ‘essential’ in navigating a successful ‘plan’ to home ownership.

In an era of stricter lending requirements, sky high debt to household disposable income ratios, and what could promise to be an era of long term economic uncertainty, it is vital we teach young ‘potential’ home buyers how to minimise risk and save before they spend.

It would also be nice to think the new “Australian dream” would evolve around the vision that ‘no one’ in 2050 should be hitting their 30’s living ‘wage to wage’ – with little idea where their super goes and no long term financial plan.

However, in order to achieve the above, a good education is required – and whilst I’m in no way suggesting that a child not attending a good school will never be a property owner.  I’m making a point for the perception that accessing quality education is causing families substantial pressures of affordability.

It subsequently leaves the question – do we do away with school zones all together – encouraging a greater competitive environment between educational institutions?

Increase the number of education facilities in ‘poorer’ suburbs and in doing so, meet the demands of teachers by pouring greater funding into the education coffers?

Encourage financial literacy, real estate acquisition, and critical analysis within every school curriculum?

I have no answer – however there does seem to be a case for highlighting the unfortunate social divide between accessing quality education and the consequential ‘bubble’ prices of accommodation in popular school zones.

 

Catherine Cashmore

 

 

Today’s minority is tomorrow majority.

Today’s minority is tomorrow majority.

Last week, Terry Ryder once again stressed the argument against issues of affordability, citing anyone seeing a ‘crisis in affordability, needs to ‘get back to the drawing board’ and ‘stop wasting everyone’s time.’  According to Mr Ryder – we need do nothing to address housing affordability and the only participants pushing prices higher are emotionally driven second time buyers who get a little ‘wallet happy’ when purchasing their ‘dream’ home.

Although Australia may still possess a good proportion of owner occupiers to renters – enabling some in the industry to close their eyes to distress calls coming from the increasing numbers locked out all together, both state and federal Governments would be foolhardy to ignore the downward trend in ownership and the reducing pool of first home buyers.

What may seem in some people’s eyes, nothing more than a ‘molehill’ on a well trodden historical path, is slowly threatening to evolve into a future generation’s mountain.  If we sit back today and tell everyone to ‘smell the roses’ we risk leaving our grandchildren to inherit a problem unable to be ignored, prevented or for that matter, fixed.

You don’t need to look far for the evidence.  With each census released the level of home ownership slides downwards, the numbers in mortgage stress or struggling to service rising yields increase, not to mention the astronomical rise in residents living in ‘rooming’ accommodation – up fourfold since 2006.  It’s important not to dismiss the factors associated with the above trends because the growing problem – wherever you choose to lay the blame – is undeniable.

It would also be foolish to ignore – as some would have us do – lessons we can reap from the far larger ‘housing crisis’ occurring in Europe and the USA. We have fared better for a number of reasons; however this doesn’t dismiss the flaws associated with high levels of debt financed ownership.

Australia still has a comparatively low number of mortgage defaults, however, the rising numbers suffering ‘mortgage stress’ are enduring their own ‘crisis’ trying to balance the family budget.  Once again this is broadly evidenced in ABS data – which goes to substantiate other data proving that housing is increasingly used as a buffer to meet welfare needs, with greater numbers dipping into the pot of reducing equity and reaching retirement whilst still servicing mortgage repayments.  Once again, you don’t need to look far for the evidence – I have cited the data in previous articles I’ve written for Property Observer.

Should our economy go belly up, there is little protection against the investment risks associated with this trend.  In such a circumstance, the precarious nature of the situation would be fully exposed and felt by a majority – not just the ‘minority’ we’re being told to ignore.

Policies such as the FHOG and negative gearing were put in place under the guise of ‘aiding’ affordability and increasing the supply of rental accommodation.  However, based on the data above they are, to a large extent, failing to address either.  Proponents arguing that the First Home Owners Grant and subsequent GFC First Home Owners Boost did ‘nothing’ to fuel an unprecedented boom of price growth during 2009 because it only applied to a ‘minority,’ show a degree of ignorance on the broad effects of market influences.

Certainly, first home buyers are a minority; however an increased surge at the bottom of any market automatically spurs momentum across the buying landscape as a whole.  The snowball effect witnessed in 2009, was a result of the First Home Owners ’Boost’ stimulating a ‘buzz’ of excitable market activity, along with unnaturally low interest rates, and a consequential jump in the average size of home loans across all price points.  In short – it was fuelled by an impulsive snowball of cheap credit.

It encouraged first time buyers to ‘rush’ in – many opted for new homes and off the plan developments for which in excess of $30,000 was often ‘gifted.’  Consequently they purchased into a bubble, and as soon as the incentives ended, prices in the new estates plummeted.  These are the estates Mr Ryder correctly points out to be comparatively ‘affordable.’  Of course they are – few want to live there unless there’s a large dangling carrot ‘clouding’ the way.

I’m still coming into contact with vendors who – riding high on the wave of momentum – purchased into the sparsely facilitated fringe suburbs and four years later continue to fund a mortgage worth more than their principle place of residence.  They are essentially ‘locked’ into an estate, sparse on amenities, unable to sell because buyers not buoyed on by the momentum of a rising market and Mickey Mouse grants, take the time to ‘think’ before they buy. There is no activity to motivate growth or build a pool of equity, and consequently a proportion of vendors are well and truly ‘stuck’ in their own housing nightmare.

The other ‘minority’ argument citing investors as only being a small ‘uninfluential’ 30 per cent proportion of activity– is once again somewhat misleading and only applicable if you lump Australia’s entire investment market under one ‘dismissive’ umbrella.  Price rises caused by this demographic occur because 93% of investor transactions are in the highly sort after inner-suburban localities where most people need and want to live for work purposes.  Consequently, the number of renters servicing unprecedented yields in established capital city locations – up 49.2 per cent over the previous five years, – now frequently exceeds 50 per cent.

Furthermore, Australia wide, 58 per cent of apartments are owned by investors. Break this data down to a state by state ‘capital city’ level and the investor owned percentage of inner city apartments rises closer to 70 per cent and in some states exceeds even this.  Apartments are broadly considered to be the stepping stone to enable first home buyers to get an initial foothold. Therefore, investors and first home buyers are generally targeting the same reducing pool of established stock.  Two ‘minorities’ competing for the same properties, in the same areas, at the same price points and the problem no longer looks quite so ‘minor.’

This is by no way an argument to reduce the amount of investors Australia fosters, but rather reduce competition in established ‘home buyer’ markets (something negative gearing in its current capacity fails to do) and encourage investment in outer suburban and regional townships. In doing so, we not only increase the supply of affordable accommodation, but increase pressure to fund these regions with public infrastructure – most importantly, train lines and other essential community facilities which are vital to stimulate growth.

This was principally why the urban ‘sprawl’ was successful back in the 1800’s when Melbourne (a city ahead of others in this regard) was in the initial stages of outer suburban development.  However, with the onset of the motor car in the 1950’s it was all too easy to excuse the need to extend public transport systems further outwards and consequently, following a population boom, we’re now gridlocked with over congested inefficient transport arteries.  Regardless of whether people ‘choose’ to commute by car or not – I have yet to meet one buyer who is happy locking themselves into a car dependant lifestyle.

There is not one ‘quick fix’ answer to the question of affordability or how to tackle very real and growing crisis. However, boxing it up under the guise of a ‘minority’ or dismissing subsequent commentary as an exaggerated headline grabbing indulgence would be overwhelmingly short-sighted and foolhardy.

For millions of existing owners, their future security is dependent on maintaining the value of their properties and utilising the existing pool of equity – however for a growing proportion of young and old Australians, the cost of accommodation is becoming unmanageable even on the average wage.

It’s a 21 century quandary and getting the balance right will take time and a number of long term policy changes – however, the issue cannot be ignored.  A few months ago in April, the Australian Housing and Urban Research Institute, published their own analysis of the crisis in a report – funded by the Government – entitled ‘Sustaining home ownership in the 21st century; emerging policy concerns’ In it they pose a number of possible solutions citing;

“We believe there is clear evidence that home ownership will prove unsustainable for increasing numbers of Australians in the 21st century.”

I too believe there is clear evidence of a growing crisis in housing affordability – and it’s one which requires an attitudinal shift from the view that it’s simply limited to a ‘minority’ market.

 

Catherine Cashmore