I had my popcorn. I had my Milo. I’d taken up most of the couch. My anticipation level was high: a Four Corners Home Truths special was about to explode all over my television screen. This was my Eurovision.
As a property commentator and real estate industry writer, I was looking forward to incisive debate and genuine reflection on Australia’s housing affordability issues, including negative gearing and its possible reframing. I live for this stuff. But rather than a discussion about factors which put upwards pressure on the housing market (read: ultra-low interest rates, booming populations in capital cities, an ageing population of asset-rich baby boomers downsizing and overly generous negative gearing benefits), Four Corners focussed on uninformed anecdotes on the difficulty of entering the property market – presented without criticism.
It is undoubtedly difficult for first home owners to get a foothold in the property market. But it is not impossible. If you have employment (winning!) and the ability to scrape a deposit together (the serious difficulty of which is one of the core reasons first home buyers can’t get a loan), you will be able to purchase something. Four Corners presented the story of a buyer – Jules McKendry – a 25 year old who has managed to save an incredible $150,000 deposit. That is substantially more than most first home buyers – or second home buyers – have to their name. Jules has bid at over 20 auctions without success. She and her partner are looking in Kilsyth, Melbourne – which is about 40 kms from the city. Interviewer Ben Knight asks Jules if she subscribes to the ‘great Australian dream’. She responds ‘Yeah. That’s exactly right. You know, it is a three-bedroom, one-bathroom…’. And why is it that Jules posits she can’t buy a property? The investor.
BEN KNIGHT: Right. So you’re thinking that this is who you’re up against. You’re up against the investor…
JULES McKENDRY: A hundred per cent.
BEN KNIGHT: …who just wants to subdivide.
JULES McKENDRY: Yeah, exactly right.
BEN KNIGHT: And so ha- have you lost out on auctions to investors before?
JULES McKENDRY: Oh, 100 per cent. Yes.
This is complete supposition. Four Corners did not question Jules’ ‘100%’ certainty of having being beaten to property by investors. How does she know who has she been beaten by? Have they disclosed the motivation for their purchase? Does Jules think they are investors because they look like people from another country, or because they are older? The bottom line is, Jules doesn’t know who her competition is. And they’re not the reason she hasn’t acquired a property.
When it comes to buying a property, Jules is her own worst enemy. The reason she hasn’t purchased a home are her own ideas about what she can afford, and what she needs. A 25-year-old may want a three-bedroom home on a quarter-acre block, but the reality is that it’s unlikely she needs one as her first home. After losing at auction 20 times, most buyers who are committed to purchasing a home would have learned something from their experience. They would have adjusted their expectations to match their budget, instead of competing for property that they cannot afford whilst the market around them continues to rise. Jules is indulging in a form of financial self-harm which I observed multiple times during my years as an estate agent. A particular client I recall waited year on year for the market to crash in order to buy her dream apartment. The market still hasn’t crashed – in any meaningful sense – and 15 years later, she still hasn’t purchased a property – just like Jules.
It isn’t the investors that’s stopping Jules from getting on with property ownership. It’s Jules. Jules is obviously hardworking and fortunate – she has done the hard yards in saving an amazing deposit. She has opportunity at her fingertips, but stubbornly rejects it because it doesn’t match her ideal of the great Australian dream. Both Jules and (second first home owner test-case family) the Robsons hope for a property market crash. But what do they think this crash might look like? And are they betting on catastrophe at the risk of being locked out of home ownership altogether?
Amy Reynolds from APT Capital Management posits a crash is on its way, saying: “According to pretty much any housing market indicator you want to look at, house prices in Australia are significantly overvalued. And we see it as having deviated from normal values and long-term averages by about 40 per cent. So we’re expecting this kind of fall to take place in the housing market.” But when, Amy? And why?
I am sorely disappointed that Four Corners didn’t look to major factors that differentiate our property markets from those of Europe and America. Four Corners also didn’t clarify that massive growth in the value of property is far from universal – it’s only growing in leaps and bounds in premium areas close to the city. As our population swells – Melbourne growing by an average of 1760 people per week – housing will remain in hot demand. As we enter a new stage in our national growth and development, areas close to cities which offer employment will become increasingly blue-chip and tightly held. They won’t be crashing any time soon, because there will always be a limited amount of property available in these premium locations. Investors and buyers are far more at risk of having their asset’s value ‘crash’ when purchasing new-builds in outer-suburban locations where there is low capital growth, and a surplus of land. There is limited resale value in these new communities, because of their isolation and a premium being placed on the build rather than the land value. The value of properties in outer-suburban areas could be improved by a government commitment to enhancing the amenities of those communities – think public transport, schools and hospitals and incentivising small and medium businesses to set up shop in these areas. Families could be assisted to stay living closer to the city with better planning regulations, which define a healthy mix of one, two and three bedroom apartments in any development. Importantly, we need to think creatively about re-engineering negative gearing.
These were the issues I had my popcorn at the ready for when I heard about the Home Truths special. I was looking for a meaty discussion on amending negative gearing in an inventive, fair way. At incentives we might offer first home owners to help them overcome the tyranny of that 10% deposit. And an even-handed unpacking of uninformed suppositions by buyers like Jules – who aren’t buying for a lack of means – but because of unrealistic expectations about their first property.
The only thing I’m expecting to crash in the near future are my expectations about Four Corner’s property reportage. (PS I’m a pinko-lefty from way back. You’ll always have a special place in my heart, Four Corners.)