AFFORDABILITY

This is an extract from an article by Robert Gottliebsen in the Australian

dated 14 August 2023 which still applies.

The national concentration on issues like interest rates, inflation and the

referendum is obscuring the fact that the Australian community of 2024

will be different to anything we have seen in the post WWII era.

Bankers tell me that in most cases couples on average incomes cannot

obtain the finance to buy a capital city dwelling unless it is rundown or

very small.

Renters aged in their late 40s find the finance door has been shut and

they can no longer buy the most valuable asset they can have for

retirement – a dwelling.

Accordingly, they must live with their family, rent and later get

themselves into an aged care facility. The social ramifications of these

fundamental changes are only just emerging.

Another fundamental change is also taking place. The affluent people in

the community have cut back their spending partly because they fear a

significant downturn and partly as almost a social contribution to help the

Reserve Bank. Perhaps they know their children/grandchildren will need

help.

In part the politicians of both major parties plus the regulator APRA have

been key contributors to this state of affairs and so altering the

environment will require them to change their policies.

In the case of home loans, the “risk buffer” APRA requires banks to

calculate over and above the interest rate being charged means that the

interest rate calculations for loan eligibility are now around 10 per cent.

That means few people on average incomes can pass the test.

Meanwhile, partly as a result, we are set to experience a build for rent

boom in our major cities, although in Sydney the bureaucracy mess

which delays approvals and contributes to higher building costs will need

to be first dismantled.

And to all that we can add higher power prices because of the

renewables cost miscalculations.

In most cases couples on average incomes cannot obtain the finance to

buy a capital city dwelling unless it is run down or very small.

After the banking royal commission and when rates were low, APRA set

interest rate rules for home lending that are now making it impossible for

ordinary Australians with good jobs to buy dwellings.

In normal times that would cause the dwellings to fall in price to bring

those people back into the market. But a series of events including the

crashes of building companies and difficulties in getting approvals has

cut back supply and at the same time there has been a huge rise in

migration.

Accordingly, dwelling prices have not fallen and indeed in recent times

the prices have risen slightly. The banks want to lend more for housing

but are not able to do so.

Unless the rules are changed bank profits are going to be tightened

because their past great driver of profitability – home loans – particularly

in Sydney – will be a low growth earner. Non bank lenders with higher

funding costs will fill some of the gap. But we will become much more of rental a society.

Accordingly, first overseas institutions and later our local institutions will

build large complexes on a ‘build for rent’ basis so creating a very

different Australian society to anything we have seen post war.

The process of course may be delayed if politicians make more mistakes

by trying to artificially push down rents rather than foster greater supply.

One of the great drivers of the Australian nation has been the belief that

if a couple had reasonable jobs, they would be able to buy a house or an

apartment. In turn that has been a major force in the aspirations of

Australians. I fear that if it is removed then Australia will be a far less

aspirational nation and that will reduce the productivity in smaller

enterprises, large companies and of course the public service. That’s an

assumption that will be legitimately debated.

Leaving that aside, clearly, we need more rental stock, and we will also

need to make a decision as to whether we want to reserve home

ownership to the affluent. And if that happens then don’t be surprised by

further rises in the sort of community upheavals we are now starting to

see particularly among males. (of course, the reason for those

upheavals extends beyond housing issues).

But the group of people that I really feel sorry for are individuals and they

can be couples but are often single females who suddenly discover that

banks are not allowed to lend to them because they are too old to take

out a 30-year loan.

And that leads us to a pillar that may be required to change if we want to

restore a situation where people with reasonable jobs can buy a house.

We established our superannuation movement in an era where people

could buy dwellings. In my view the superannuation movement must

now be adjusted to help members buy dwellings because superannuation has always been a secondary aid in retirement.

The first essential is a dwelling.