When a couple with full-time work, and savings in the bank, can access a loan amounting to only one third of the cost of the cheapest housing in a city, whilst at the same time paying $400 to $500 a week in rent, there is some sad malfunction of the market.
The average wage is now insufficient to purchase a ‘first’ home. Even two average wages fall short.
There was a time in the 1970s when a strange transition took place; whereas the Commonwealth Bank was refusing finance to buyers with 90% of the cost of a house, in savings with that bank, other institutions offered loans which could be financed by the rent from a cheap ‘investment’, opening the floodgates for those seeing a portfolio of properties as a means to a life of wealth, work-free.
This situation was, and is, encouraged by the invidious application of negative gearing, whereby the birthright of home-ownership by a citizen is traded as a commodity by the wealthy.
In 1975 anyone, on the average wage, even a low permanent wage, could buy a cheap house, then a few years later, use the equity to buy another, as long as the wage plus the rent on number 2 house kept coming in. Thus started the spiraling inequalities we see today. Those who started off small ended up with many houses, a self-financing operation of zero risk, the tenants shouldering all the load, paying off their individual houses for the owner.
Thirty years later, in the new century, these early investors have accumulated 40, 50, houses, and counting: there is no limit, As the first are paid off by the tenants, there are two fabulous gains for the owner: both rents and values increase. Once the house is paid off and unencumbered by interest and repayments, the income from it actually increases, creating a pool of ready cash. As more and more houses become loan-free over the years, the cash pool increases incrementally.
So what is the problem? Get a job, get a loan, get the first of your many houses: your ‘property portfolio’.
It can’t be done. Well, not as it once could. A good job and hard work will no longer simply get you into the market, apart from the fact that the majority of jobs are no longer as well paid, relatively, as those of 40 years ago, compared with house prices, and jobs today are less permanent.
A nurse’s wage in 1970 would finance a cheap house in the city. Not now. Three wages would need to be combined to buy the same house in 2015. And there’s the rub.
Inner-city house prices have not always been high compared with the suburbs. Some city enclaves were very unpopular, run-down, and cheap: no longer; the massive population increase and suburb expansion has made commuting the least-desirable aspect of home-ownership.
Even the main-road position, with traffic noise and air-pollution, which reduced house prices drastically years ago, now has a high value relative to its proximity to the city: the closer, the higher, despite the fact that main arterial roads are now nightmares of 24-hour armageddon.
Because of the lucrative and secure attraction of citizens’ homes as investments, and the tax incentives associated with this form of bondage, housing is no longer a right of the people, but a rent-farm for a lucky minority.
Sure, you can ‘break in to the market’, but it takes huge initial savings or very high income, wealthy and/or crazy guarantors, or undetected crime.
So, why are house prices so high?
Normally, house prices will be higher the closer to centres of employment, disregarding the differences due to, say, posh or poor neighbourhoods, river-or-beachfronts, et cetera; population growth simply expands this situation. But the accelerant, raising the cost of all housing, is ‘investment’. I use quotes whenever I consider the word in question to be common but invalid.
Under the heading ‘investment’ are the thousands of Australian houses not owned by those who live in them. Using the necessity of shelter as a means to make money is a form of usury of the worst kind. Basic rental housing should be provided at cost by the state, as a stepping stone to ownership.
When foreign nationals are able legally to farm rents from Australian citizens, the housing situation is truly out of control. New housing estates in the outer suburbs, at great distance from work and amenities, were once the toe-hold of the first-house buyer, the folk who wanted a new home of their own. The land was cheap, the house basic, the neighbours all battlers. Gardens were planted, friends were made and neighbourhoods grew character.
Today, housing in new estates on suburban boundaries, and in unit-blocks in the inner city, are landlord-owned. The percentage of resident-owners falls each year. Rents increase, values increase, home-ownership becomes an impossible dream for the actual citizens.
Solution: Housing should never have become a rent-farming business. Strong dis-incentives to multiple ownership should be the aim. Negative-gearing should be dropped, and each additional property taxed at a higher rate until it no longer becomes viable to own many. Foreign nationals should be banned from owning dwellings in Australia. Housing remaining vacant, boarded-up or inaccessible should be suspect and under the threat of confiscation.
This action, gradually introduced, would slow price inflation and increase owner-occupier numbers. Threats to the building industry would be non-existent: there can only ever be housing for the current population; as it grows, housing grows. The difference will be owners rather than tenants occupying.
But wait, there’s more………
Australia has a hidden asset. There are bush towns desperate for residents. Housing is dirt-cheap. The mortgage load carried on the shoulders of the city-dweller could be cast off……..but……of course it’s a big ‘but’; no work or amenities, initially, but the re-pioneer has pleasure of helping to vitalise old townships and encouraging others to settle. We are blinkered by the stress of the modern city, to keep going, keep working, starting the day earlier and earlier, switching the pc on as soon as we get home at night. There is another way of living, and bringing up children. Australia is a big place.
Australia is a very big place.
There’s no need to cram yourself into a tight corner.
All the best, everyone.