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Well two studies have now confirmed that housing in Australia's major cities have become quote impossibly unaffordable unquote impossibly unaffordable. Sydney has been judged the least affordable city in the world. The median house price requires almost fourteen times the median wage to actually get into it and buy it, and that's been increasing over the years. Now this is fueling a lot of things in Australia. In particular, a generational
war is beginning. Boomers are the target. Baby boomers already, Federal Treasurer Jim Chalmers has talked about intergenerational justice. To my mind, that means screw the boomers, look after the next generation. There is a social media trend to attack anybody over fifty to fifty five who's got a few dollars. There is class and age warfare resentment building in Australia over time. On this podcast, I want to look at the various frontline issues in generational wars, and this is
the first one. Housing. One commentator described the cost of housing as a national emergency. It's freezing younger buyers out of the market. What I want to do here is explore real estate, explore housing affordability. What can we do for supply, What can we do for demand? What can we do for availability? There are other issues too, downsizing investment, taxes on property, land tax, stamp judy. You can't walk in the front door of your house without being taxed.
Millennials and gen ygen X tend to say older homeowners are the problem, milking the system with tax benefits, forcing up prices. Boomers gen Z even say, come on, toughen up. We did it, You've got to do it as well. With me. Two people expert in the area, the Housing Expert Panel, Doctor Nicola Powell is head of research for Domain. She has fifteen years experience as an academic and private analyst and economist. One of the country's leading experts and
with me as well Scott O'Neill. He's a property investment expert, founder of the company Rethink Investing, who has done very well with his own investing. He's a licensed real estate agent who has veered into professional property investment. I'm going to break this down into several areas. In particular, first home buyers. Generational wars are starting. I reckon, there's this real resentment towards people, older people with houses from those
who haven't. Houses in Australia are amongst the most expensive in the world, impossibly unaffordable. Recent reports have said impossibly unaffordable. So who's cleaning up, who's making the money? Who's making the money, Scott O'Neil, you're an agent, an investor, you're making a fortune out of this.
Well, as you said, I'm an investor.
We're finding more people are defaulting to investing rather than purchasing a family home because of the reasons you mentioned it. If you're living in a capital city in Australia, it's just out of reach for most families, and even in the regional areas it's really getting up there. So people are just renvesting and they just rent where they live and then invest somewhere else.
That's what's happening more and more.
And what they're buying properties they wouldn't necessarily live in. They're not buying flats or units or something like that.
Also, just more affordable houses.
There's obviously people investing in units, but those that can, they'll go to the cheaper capital cities potentially or regional markets and instead of spending two or three mil on a house in Sydney. You'll see them buying a seven hundred and fifty grand smaller property somewhere else around the country.
Quite location agnostic is what they're doing.
It's more budget dependent and yeah, that's what's happening more and more in the search.
Of a bit more yield.
You've done a subturb job avoiding the question. Who's making money?
Well, the baby boomers are, obviously because they held the properties. But look, anyone that's sort of in the market is doing very well at the moment. There's been incredibly strong capital growth for you know, especially in the last fifteen twenty years. It's been a remarkable growth phase and there's been very little blips on that rado as well.
But Nicola, I'll ask you a mum too, But I don't take that seriously. I've owned a house for a long time. I see the value of the house go up. I want to sell it in a good market. I've got to buy in a good market. Where's my gain I mean on my downsize and therefore take a bit of equity out of it. Where's the game, Nicola, who do you think is making money?
I think those that have been established in the housing market for many years are the ones that are benefiting from price growth. I think that we have to consider that the property market is really at the heart of the Australian economy. About seventy percent of Australia's household wealth is tied to the value of our homes. And you know, when you look at the valuation of property across Australia, it's over eleven trillion dollars. This is a significant amount
of money. I think what you've got, and this is probably what you're alluding to, is you've got this growing gap between the haves and the haves nots, and if you are a young person in today trying to get a foot onto the property ladder, it is extremely challenging. And I think it's particularly a growing gap between those that don't have family members to be able to lean on for financial support.
Bank of mummy, durn yeah.
Bank of mom or nanam pop. I think that what we've got to be real here is that generational wealth could likely skip a generation. I think boomers passing on their financial wealth might not necessarily be to their children, it might be to their grandchildren. I think Australia it is so embedded in our culture to buy a property. I think that that Australian dream still runs very strong
in Australia. But if he's seen as a measure of success and wealth creation, and that has been established in Australia for many, many, many years.
But is it gone? Is it over? Is it dead the Australian the house with the backyard? Is it unattainable?
So I'm going to answer that in a slightly different way, but I will answer your question. I don't think it's dead. I think that the dream to own your own home is still very much, deeply a bit embedded in our culture. I think what we have seen change, it's more the quarter acre block with a hills voice in the backyard. It is actually what we're purchasing is changing. We live in some of the least dens cities in the world.
We have global cities, we have beautiful cities. You know, Sydney is the best city I have probably ever been lucky enough to live in. But it is very unaffordable. And I think today's first time buyer, they are purchasing a unit that is what's realistic for a first time today. All their rent vesting has Scott alluded to I think the whole concept of re investing was born in Sydney because it is such an expensive market.
Okay, renvesting is one thing, but you talk about the dream exists, it's just been adapted a little. We're going to live in a townhouse, we live in a flat, we're going to live on the outer suburbs or anything. I don't know that that's actually got through yet that people might need to do that. Who wants to live in the outer suburbs where there's no services and that the traffic takes twice as long to get in and you're living in a mansion that you put holes in
the wall if you lean against them. Scott, what do you think is the dream dead or shaky?
Look?
It is definitely shaken and you can tell like I actually think there's going to be This trend's going to go a lot further as well.
You know, you look at parts of Europe in you know.
I'd call it a more mature market that's been around, more established than our sort of young country is. And lifelong renting is a big thing over that. It's going to happen here due to cost of construction, the fact that people are we're not keeping up with the demand, and with high immigration and just the way this country is just never catching up with a supply of the market.
It's just inevitable.
Things are going to get more expensive and it's just going to be kind of part of life. So unless you get helped from mum and dad or grandpa and grandma, it's going to be pretty difficult to buy a nice house in a sablage market when you're up against people that are a generation ahead of.
You with more savings life long rinting.
Yeah, and then the recussion of that long term is you could imagine more than half the population becomes lifelong renters. That I think will create a bit of a political risk because if more than fifty percent of people believe they'll never own a home, they're going to vote more towards tenant friendly policies. We're seeing this happen more and more.
You're obviously seen the likes of Victoria with the land tax increases that we're trying to bring in some laws into Queensland that would have had a similar impact, and you know, it's just going to be no grounds evictions.
Things like this are going.
To become more and more common, which could put the investing at a bit more of a risk.
I'd like to get into government involvement soon, do you do you agree with that assessment Nikola that the future is lifelong renting for the majority, or at least few percent.
So the rental market plays a really important role in providing a home to many Australians. About one third of US rent I think the concept of longer term leases is something that we should be really adopting. I think that we've always had a portion of our population that are going to be lifelong renters, whether that's through choice or whether that's through the fact that they just don't
have the financial means. I think ultimately, probably what Scott is alluding to is that more and more people are just going to face the inability to actually purchase their first time, which means more of them are actually going to be locked in the rental market. And I think, you know, we have seen huge amounts of rental reform in across different states and territory governments in recent years, and I think the rental market is a huge point
of our property market overall. I don't think that we'll ever get to the point where fifty percent of our population will be lifelong renters though that is a significant, large chunk of our nation, and I think, you know, we've got to think longer term, you know, when you think about baby boomers, and the biggest increase in demographics over the next five years is going to be those
in their golden years. And particularly when we get to when baby boomers are passing and they are passing on their generational wealth, what you're going to actually see is a wave of rejuvenation from about in a middle suburbs and you will see governments moving and they will increase density in some of these prime inner city locations. And one you mentioned, Neil that you wanted to talk about
government policy. We really need to see increased density. We need to make sure that we are utilizing not only our housing stock that we have already built effectively. We need to make sure that we're utilizing the land that we have on offer around infrastructure that is already there that can take that high level of density.
There's a lot of resentment building towards baby boomers in social media and the rest of it, and the resentment goes along the lines of you've done it, You've occupying all the houses you've got all these tax breaks to get there. What and I get to Scott point about fifty percent rental. Eventually, as you say, Nicola, the baby boomers move on, die and the kids get the money. Don't they then go and buy houses or inherit the houses?
I mean, in the end, these generations that are complaining very loudly at the moment are going to end up with the boomers' money unless they drink it all on a golf course.
Sounds great, that, doesn't it that?
But isn't that the reality? It's got the money that the generational well held by baby boomers will filter down.
Yeah, look it's and it's already starting to happen. People are obviously either personally guaranteed or doing early early handovers that gifts for deposits. So, like Nikola mentioned, there's a massive transfer of wealth. I don't know the exact statistic, but like I've heard, fifty percent of the total world wealth is going to get transitioned over the next twenty odd years. So it might be able to correct me on that exact figure, but it's a significant number, and a lot.
Of it's held in property stops as well, and it might.
Skip poor old genets and go straight to Gen y or millennials potentially depending on the age.
But yeah, it's already started.
It's basically from now onwards, and yeah, there's going to be huge transitions.
Ask you both, is that social media surge? Correct? Have the boomers done too well? Have they been closeted by government policies? Have they have they had too much of an advantage in establishing this housing wealth.
I think we need to go back to what the core is here, and that is that we have not been building enough homes over the past two decades and that's what has created one of the drivers to continuous price growth over the last two decades. We have spent most of that time in a period of undersupply. When you look at what population growth has been sitting at versus the homes that we have built that are new,
we haven't been meeting that. So not only do we have an undersupply of housing, there is a whole portion of Australians that are actually under housed, which means that they are not actually living in a home that suits their current needs. So I kind of flip it back to what we were talking about slightly earlier, which was
around policy. You know, it goes back to the argument is should population growth actually be tied to the number of homes that we can actually supply, because if we had built enough homes, we would not be in the scenario today where you know, Sydney's house price is sitting at one point seven mill.
Two points that why haven't we built more homes scott policy.
Like you mentioned those sort of inner ring suburbs, they have not had the density increases needed. There's a lot of protectionism in many suburbs, and rightly so in some areas, but the infrastructure hasn't caught up.
In many areas.
There's a default for people to move into certain capital cities instead of going into other markets, and that's due to jobs, that's due to just lifestyle choices. You've seen some markets become more affordable, like the lights of Melbourne, but then you've got others that have gone.
The other way.
So it's, yeah, it's a bit of a mixed bag. But look, we are under supplied massively, and that's there's a bit of a people still prefer going for the house and there's going to be a lot more units built in the near future, so that will solve some of it, but then some people don't want to buy and live in a unit forever as well, So maybe the culture needs to do well.
Yeah, we get back to undermining that dream and changing the culture, and the culture is still no. I want a house. I want a house, and it might be entrendy, little inner city suburb with a tiny backyard. I don't particularly want to live out of town. I want a house. You got to change that attitude. The other thing you talk about population, Australia's population in two thousand and was nineteen point two minion. It's now twenty seven and a
half minion. That is a forty percent increase, near enough for forty percent increase in twenty five years. Is that too much for the housing market, Nicola.
We haven't been able to construct enough homes to meet that population growth. You know, when you look at a really simple line chart and you do the change in both of those are homes built versus the number of new residents to Australia. We haven't been able to match that.
And that's due to various reasons, due to red tape, due to the high costs, due to even you know, rise in cost of construction, project feasibility, even productivity has been diminished in the construction in the construction industry is extremely strained. And what you've got is this dynamic currently in our housing market where you've got a really wide price gap between the price it costs to buy a new home versus the price it costs to purchase an
established home. And so what you have is Australians quite rightly are going to establish homes because they're technically cheaper to build, but we're never going to actually stimulate the new supply of housing until we see a leveling out between that difference. We need to really focus on policy that drives demand to new homes if we want to. Ultimately, for me, the core policy is how do we deliver more homes to Australia because we don't have enough field.
But you seem to be suggesting we should be linking our population growth, which essentially means immigration. That's the only thing we can control. We're not going to control the birth rate, and that's not all staggering anyway. But are you suggesting we should link immigration or population growth to housing supply and there's no houses available, therefore no immigration this year?
I think it should be something that is highly considered.
Get it, It'll never happen because immigration covers up recession.
Exactly, so it would never happen. So then it goes to how we actually can stimulate the supply of new homes, and that's where you need those policies. So it might be, for example, we've got a wave of new first home buyer policies coming into place. It should be things like stimulating first home buyers and steering them towards new to help stimulate the construction of new home.
Well, I'm still looking for the emerging generations. Get somebody to blame that can blame the boomers? Can they blame immigration as well? And immigration is a very positive thing for the country in many, many, many ways. But can they blame immigration for the fact that housing is what's the term term possibly unaffordable?
Yeah, I think that can because there's a million extra people in the last twelve months as well in Australia, so that's a very strong increase, you know, roughly three and a half percent. So we haven't we haven't introduced the same level of supplier nic Clobe mentioned, and there's no chance that we're going to be keeping up with the next wave as well, so you know, you keep falling forward further and further behind. If there's one hundred people trying to buy fifty houses, prices are going to
go up. And that's that's what we're up against.
Government seems to ignore this. Does anybody seriously put to government, look, yes, houses are IMPOSSI kept coming up the phrase impossibly unaffordable. One of the reasons is your immigration poblicy. So anybody ever raised that with government and got a reaction.
I think it has been discussed. Fore, I'm not sure what the outcome of that, probably very negative given that there has been no change. I think one of the other kind of elephants in the room, though, is also stamp duty. Stamp duty is a massive disincentive to move and one of the key issues across our current housing stock is that we are not right sizing our homes. So what that means is we have a large portion of Australians living in homes that far exceed seed them needs.
And I'm not saying that, you know, an Australian can't have a spare bedroom. You know, it's functional. We all love that additional room. If we're able to afford it. But when you look at census data, sixty five percent of owner occupiers who own their home outright have two or more spare bedrooms. And we have a disincentive to move, We have a disincentive to relocate for work opportunities because of that high cost barrier. And also what you see is people don't buy a home that they think they're
going to live in for the next three years. They buy a home that they think they're going to live in for the next ten years. And that is because they want to reduce the amount of stamp duty that they pay on their life of buying and selling property, so they leap a property type to factor in the growing family over that ten year period. Whereas if we didn't have stamp duty, what that would mean is that we would be more inclined to actually right size their
heart at our homes. And we don't have this right sizing issue in the rental market, which we know is much more free form, is much more easier to jump between different rentals.
Yeah, just a personal story about stamp duty, and you're quite right, living in a large house, comfortable house, probably bigger than needed, good suburb worth a fair bit of money, and when my kids were small, I thought I should, really, because I was earning good money, I should go and get a bigger mortgage and buy a bigger house, buy a bigger, better house and a bigger bit of suburb as an investment. Capital gains tax free and the rest
of it. It made financial success, except I worked in radio and you're never sure you'd have a job next week, so I wasn't willing to risk that mortgage. Then when I came to sell the house and downsize, I thought, if i'd done that, i'd have a property worth probably twice what that one was worth. And the reason I didn't do it is we use the money that would have gone on stamp duty to renovate the other one. And I guess that's typical.
Scott is yeah, And I do a lot of work in the commercial field and we're seeing a lot of new policies come through on that front to help with the transactions. So for example, South Australia has no commercial stamp duty fifty percent discount in Victoria Regional Act up to about one point nine million do stamp duty. So these are good policies and it helps with transacting, so they help in the business community, so I'd like the idea that that could be passed on into the residential market.
Once again, this goes on the list of Herd of Blind Boom's immigration and stamp duty. But the average stamp duty median price is around on a medium press house, around about thirty thousand dollars around the country. Thirty grand for nothing. There's just tax I'm one and you get this stamp.
You get stamp duty bracket creep as well. So stamp duty thresholds are not moved in line with say the property market movements. So what that means is more of us. So more homes in Sydney, for example, are falling into the higher stamp duty brackets than otherwise would and that has been something that's been going on for years. And look, Neil, I did some little figures because I knew that you were interested in looking at what the wage versus the house price.
Oh yes, yes, how many how many years salary buys a house?
Yeah, yeah, absolutely so back in thirty years ago, back in nineteen ninety five, when you do that comparison of the median house price, which was just over one hundred and fifty thousand, dollars at the time versus what the average wage was four and a half times the wage. Guess what that.
Figure is today, fourteen times eleven.
It's the same figure as I come up with fourteen. It's huge, huge, it's huge whatever it is. Yeah, okay, so but stamp duty Victoria takes eight and a half a billion a year in stamp duty. New South Wales is more nine to nine billion. Once again, it's like immigration, that's they're never going to stop that. They're never going to say, oh, yeah, we're ripping you off. Sorry, all a big mistake. They're not going to give up nine ten billion dollars revenue in a year, any of them,
are they. So we're stuck with it.
So look, I think that sort of answers your question. Who's to blame.
It's it's probably a lot of the government, Like they could help them the supply, they could help with tax solutions. Those two things alone, if they were implemented correctly, that solves a lot of the problems. Like it's not the baby bitiness fault. They're just a product of the market they were born into. Anyone would have been in the same position. There's no deliberate acts there, so you know they've done well statistically as a group, but you know, that's it's.
A different world we live in.
It's a different country, and you know a lot of that tax goes into services and bigger governments and the out roads and all that kind of stuff.
So you know, if it.
Was spent really efficiently, it could technically benefit others that way.
So we do need that as well, but well as better ways.
What about land tax? I mean, if they remove the exemption on the principal place of residence and so we're going to tax that and it's going to be an annual fee and we'll dump stamp duty, is that going to help because I mean, that's that sort of idea has been floated. An annual annual land tax fee in Victoria. At least it's at the moment you're exempt on your principal place of residence, an annual land tax free and no stamp duty.
What I think that'll do is especially remember more so in commercial but if you increase the cost of holding a property, that will keep the price down as a ratio of the cap rate of that market. So you know, if you let's say you've got a property and it's costing you five grand extra a year. That will either push rents up or keep prices down until you know the associated yield is corrected in time. So that could
have a negative impact on tenants potentially long term. As that flows through, it'll soften prices but increase yields that way. But look, it's it is something to consider as well.
Like you know, if there's not that many people with huge amounts of property in one state, like one thing I advocate as an investor is to spread the risk around, so you've got a bit in Wa and Queensland and New South Wales, because if you've got it all in one state, you're going to get punished very hard, and probably more so as time goes on.
What do you think, Nikoler about the land tax option to stamp I look, it is one.
Of the options and it was so the Act was one of the jurisdictions that over I think it was like two decades, a long period of time they were phasing out stamp duty and increasing the rates that you pay on your home and you saw New South Wales dip into it and pull back the policy for first time buyers quite quickly. But I don't know, like I think it's a hard one because you've got these scenarios where you've got people who are perhaps asset rich but
cash poor. So actually then wouldn't have you know, the cash to be able to pay for a larger bill, but you probably helped to drive right sizing you know that conversation we were having earlier. But on the thread of kind of taxes, I think the other one, removing stamp duty, I just don't think is going to be ever something that we see occur because it is such cash cow for governments, and you know, if we're frank, I don't think any government is going to be willing
to stop that revenue flow. I think all economists really do agree that it is an inefficient tax. But the other argument to it would be that if you do remove stamp duty, and many people factor into their mortgage the cost of stamp duty also to cover their cost base, it might actually just add to the cost of homes. So it actually might just drive homes even higher because all of the sudden borrowing capacity is going to be increased because you haven't got a covering stamp duty in there.
But the other kind of tax point that I also wanted to touch on is the cost of new homes. And this looks back to something that we were saying earlier about forty up to forty percent of the cost
of a new home is taxes. And if the government really wanted to do something about affordability, wouldn't you do something about the tax that is associated with the building of new homes, you know, restructuring GST, making new homes exempt from the gsd T component, anything that could help bring down the cost of a new home would help improve affordability.
Government's emerging this is the real devil here. What about subsidies in in your view, it's got the subsidies that governments both and the opposition offered going into the federal election. I've always had the impression trivic there's a subsidy for first time buyer puts up the price of the property. Is that fair or is that actually constructive?
Exactly right.
I've never been a fan of these kind of subsidies or discount or waiving something type fee because it's exactly what we've just mentioned before.
It goes straight onto the mortgage.
You know.
I remember I bought my first property in twenty ten. There was a stamp duty waiver, and you know, you could go in with smaller deposit back then, and all that did was allow you to spend more, and that pushes the price in those circum segments of the market straight up, because if everyone's got the first you know, they're all going at the same discounted rate. You just you can outbit each other just a little bit more.
So the economics of it is it gets more expensive and then their mortgage ends up being a little bit bigger as well. So it's not great for those who are already on the knife edge of affordability with repayments do then have a slightly bigger mortgage just because you can do it because of the government's discount.
Here or that.
But yeah, it's a solution. It's anything to reduce the costs permanently.
You know, supply needs to loosen up, and giving a discount here or there, that's not really helping anyone.
Nikola, you were talking about annual sealery as a multiplier for the value of a house. But we talk about average journeys, don't we, rather than media earnings. Every journey is about one hundred grand media and earnings are about seventy, so it's in fact harder than we indicate. In fact, I read the household income, you know, the household income one hundred and seventy thousand to buy a house, which
not many people would have in the single income. So does this discriminate against the single person buying a house?
It absolutely does. And I think that one of the biggest increases in demographics and household configurations is single person households, so that actually reshapes what we need in terms of the demand and floor plans of homes. We're also seeing increases in multi generational living because of this core issue, the inability for adult children to be able to purchase the home. I mean, I think we have to consider that if you're comparing now to thirty years ago, life
stages have also changed. We're living longer, we're going to university, we're having children later, we're settling down later in life. So it actually means that we're purchasing our first home, you know, I think they average ages like mid thirties now. But I do think that those core changes that we're seeing in demographics is rewriting floor plans and our needs for housings.
Moving forward, talking about I think I bought my house in about mid seventies, I was in my mid twenties, and they wouldn't Commonwealth Bank, it was, wouldn't allow my fiance who was buying the house with me now wife on the to be part of the loan calculation because she was obviously going to get married and get pregnant. There was a very deliberate policy against women in that sense. In the end, I think we bought it before we got married, so we got away with it because you
couldn't get pregnant if you weren't married. Of course, tooking to doctor Nicola Powell from Domain and Scott O'Neill, a property investment expert from Rethink Investing. We've analyzed some of the problems. We've got a few more to go. What's the future, what's the hope? What can actually be done to fix these problems? Negative gearing? Does that play an evil role in all? This is negative gearing and negative gearing I should explain and correct me if I'm wrong.
Is where you can claim the loss on an investment property and rental property. For example, you rent it for one hundred dollars a week in your cost for one hundred and twenty so you can claim it as a tax deduction that is seen by some I know was subsidizing greedy people trying to build wealth.
And this is one of the stats that I think is really misunderstood. Many people who negatively gear are your average Australian and there are more investors who negatively gear that have one property and are under the age of forty nine. So what that tells me is I think that we've got a whole cohor of people here trying to build up Welsh property wealth, perhaps being that re investor, and perhaps it means that they do need to negatively gear.
And there are many studies around if we remove negative gearing, what would that actually do to the housing market?
And the study what did they say? Because Paul Keating did it and then unlike Paul Keating, he changed his mind and reversed it. That was in the nineties. Paul Keatings hasn't changed his mind since. But an I've raisis with a number of labor people who are around at the time, and there's some disagreement about whether that they abandoned or aband a negative gearing then put it back again, whether that was done because the rental market was affected,
or whether it was done for other reasons. Now, if negative gearing is that crucial to the rental market, we can't afford to touch it, can we.
The studies show that it does increase rents, but importantly it also helps to increase home ownership. But I think what it does is it also increases reduces pricing, so overall pricing property too. But the coursing is that it does increase rents and that's going to obviously have a detrimental impact for anybody that's left within the rental market.
And let's be realistic, if you are an investor in Sydney, a large chunk of them are going to be negatively geared because it is such a high priced market and it's not.
A yielding So is it worth the public money? Though? Is it worth foregoing the amount of tax that we lose through negative gearing for the sake of what it does to the rental market and the housing market? Well, not the housing market so much.
I think that if you did remove negative gearing, it would have a detrimental impact obviously on investment numbers, and I reckon I'd be interested in Scott's view in commercial space, because what would probably happen is you would get investors then looking chasing yields, and that that's when they go to the commercial market.
Yeah, well, this was huge couple of elections ago, when the talk of negative gearing was on. My business went from i'd say fifty percent residential to commercial. We went up to almost eighty five percent commercial. People did not want to touch residential because the yield play was gone. Remember yields in residential they vary from three to five percent gross generally. So then you've got to take all your outgoings you mature, and to your property management, your maintenance.
Once you take all that out, you're sitting between one and three percent net. So commercial you're looking at five to eight percent net depending on the parts of the country you go. So no one's going to get by on one to three percent net because that's like look at the current mortgage rates. At the moment, you're going
to be significantly negatively geared. And remember most people are negatively geared only for a certain period of time as well, because as rents go up and you pay your mortgage down, you eventually turn positively geared. You have to otherwise, what are you holding these assets for you can't just negatively gear forever, even if the property is growing, because at some point you.
Need to live off an income, and that's what happens.
So I think it'd be terrible for the cohort that believe negative gearing would be better off it wasn't around, because there would be less rentals, the less supply again, and it would hurt the higher priced markets, the most negatively geared markets. And as an investor, I actually wouldn't really lose out too much in that space because people would chase the products or we're.
Most active in as well.
So it could actually cause more capital growth for warehouses, shoppings, medical centers, that type of stuff, because it gives you more reason to not go residential.
I'd ask you both. Allen Cohler on the OBC recently described housing affordability as a genuine emergence when they couldn't go on a genuine emergency. Given that Sydney has the most expensive houses in the world on that formula we're talking about, do you see it as a genuine emergency.
Nikola, I think we genuinely have a chronic undersupply of housing, so I would describe that as an emergency. I think also it goes back to partly what we were discussing earlier about changing how we talk about a first home. I think that we are seeing a transition of what that first home looks like. And you know, I'm from the UK originally, and Australian homes are large. They are large in comparison to UK standards, and I think that we don't have density to the extent that we do
in other capital cities across the world. So, you know, I think in part it means that we do need to increase density. I think there's lots of arguments and lots of not in my backyard against that, but I think ultimately we need to be planning Australia for the tomorrow and not for yesterday. I think we do need to see a greater diversity of how across Australia, not just you know, single residential blocks. It is about townhouses, terrorist times units, apartments.
It is a mix scott to people want to live in townhouses or apartments and are they a good investment, a good commercial investment. I'll build a half a dozen townhouses.
Look, I'll use my story as an example. So I my first property. I was either going to go to a two better unit in South Sydney or by the worst house I could afford in Sydney, which I didn't want to live in, and I ended up going the housing route, and.
The difference was significant.
Over the last fifteen years, that unit would be worth two thirds of the cost essentially, plus.
There was strata I would have had to pay and all that kind of stuff. So the house was the good option.
But I then invested heavily all over the country commercial residential, and I was renting. I was living in the Eastern Suburbs, one of the most expensive markets, and we rented as the family group. We started in two better units, then went the townhouse, and then ended up renting a four atom house in a suburb called Bronzi, and it was one quarter of the costs to rent versus the mortgage
and the outgoings on it. So I thought I was getting a great deal in this property because someone else was funding my lifestyle in a very nice house and they didn't mind copying that incredibly low yield for a premium property. Eventually, you know, when it all made sense, we bored. But even though we're even buying the property.
I was.
I had mixed emotions because I know the mathematics behind it. It makes no sense from a financial sense outside of you know, they see red money is dead money. It's only dead if you haven't invested somewhere else. Because, like you mentioned, Neil, you bought your house and did well, you probably would have done well if you spread that same amount of money somewhere else, because the capital growth rates are remarkably similar.
They just feel larger if the house is larger with the percentages.
I would be paying, I'll be paying if you.
Sell, or you can refinance and keep going, and if the yield was high enough, you would probably offset and positively did income.
Yeah, okay, Nicola, what's your view on that? Do people want to live in townhouses despite this cultural change we're talking about? Do they want to live in the townhouses? I don't know many you do?
Yeah. Look, I think that we are seeing it change. I think that Australians do you want to have something that they own themselves. I think as well, we have to consider that a lot of new people arriving in Australia are also really you know, relocating from other countries where living in a high rise apartment or a unit is standard. You know, that is pretty typical.
We've got a lo space, we've got all this land, and why can't we spread and have larger houses, but just service them properly.
Absolutely, that would be wonderful, Neil. But we all seem to want the crowd into the three biggest cities, which are Sydney, Brisbane and Melbourne. And if one of the core things that could change the affordable AYR landscape is decentralization. Now, the pandemic in essence did create deta centralization from bottom up. It meant that people could work from home. It meant that you saw them flood into the regional areas to
those more affordable locations. But ultimately, now that we are hybrid steel that many of us you know, are unable to do that hybrid natured work. We need better connectivity. That means improved rail, it means faster row, it means connecting some of those bigger regional towns better with our bigger capital cities. That is the unlock in my mind for a Ford.
Billits well, it's not only the regional towns and it's the fringes of the cities. I mean, there are many suburbs popping up around the fringes of Melbourne that I know well, and they take it now and I have to get here to get to the city. They so you don't work in the city. What about little hubs around the suburbs or working from home? Is that changing it? What do you wat to your view, Scott.
Oliguy I always liked the idea, you know, whenever they mentioned a high speed rail or something like that like that, that's music's my ears is, you know, a solution. But obviously that never happened. They was talking about stuff like
that happened. But if you build a high speed rail up to Newcastle and all the way down to Woollongong, it opens up those markets very quickly and they'll become expensive, but they'll they'll just it's going to create big population centers that you know, you could bring them back to the areas because you're not going to see you know, many parts of Sydney you just turning to high rise units.
There'll be so much fight against the inefficient government, local government, all of the above pushback on this.
Type of stuff.
But they are decentralizing Sydney at least to a degree. Thats the you know, the central part of Sydney keeps moving more west from a population average centric center and that's you know, that's making people move out there and work and live in the same areas.
And we build do we build good enough houses and townhouses? I mean, I know there's a shortage and there's a few, but but are they built properly generally?
There's been a lot of that type of stuff on the news, cracking in column and stuff like that Home Bush and Alexandria stuff like that. But yeah, look they're not built the same way. There's obviously huge cost pressures that need to be taken into accounts, so more lightweight material and you know, taking the engineer into the nth degree is important.
But yeah, look there's.
And making it more attractive. And then people said, I don't want to live in the dog box, and we've got suburbs full of dog boxes in Melbourne.
I know.
I went to a friend's house a while ago that lived out in Western Sydney and their garage so their backyard was about six square meters and you think, is this a house or is it really a townhouts? But like you know, they've packed them in which is exactly what we kind of need to for this conversation, I guess, but it wasn't super attractive for the price proposition.
I must admit I had.
A similar experience. It was a new suburb, went to a friend's place and these are single residential homes and the neighbor's roofline was hanging over their fence line and I was like, how did you house? And whoever had built it had cut their fence to enable this roofline to hang over into their garden, and I just it's on my LinkedIn if anyone wants to see that photo. I was so shocked.
We saw this government interference and we needed the regulation.
Yeah, and you can understand why Australian confidence, particularly in high rises Scott alluded to. You know, there's been lots of defects, there's been lots of challenges, particularly in high rise apartments. That doesn't build confidence, right, So that goes back to making sure that we have the codes and the contacts and the right standards in place to ensure that we are building homes of quality downsizing.
Do we don't do enough to encourage downsizing? I know when I sold that house, I'm referring to and downsize to a townhouse. I should say because the kids had left, I was able to put some of the equity from the house into superannuation as a one off. Mind you, superinnuations now getting in the images of the evil of the older generation. But do we do enough to encourage
downsizing the people to get out of that house. And we're talking about the stamp duty earlier and how it discourages you from moving and buying the townhouse or downsizing. Do we need to look at something else to encourage downsizing, which at least would open up some of the property that.
Would be the stamp duty solution.
Like you know, I know there's a lot of parts of the country where you might have an old four bedroom house that you don't longer need. You're not going to go straight into a one or two bedroom unit. You'd probably want the townhouse. And the price differential is not that great in some areas, especially if that townhouse is brand new or ten years new. And by the time you pay stamp duty again, you know, you're not walking away with a big wad of cash.
You're telling that you just ended up. It's a similar kind of you know, equation everywhere.
You know, it's if you've got a big, great house and you're on the water.
You know, that's it's a different problem.
But yeah, the differential art to taxes is not as good as it should be, so people to sit on the end.
What do you think, Nikola?
So I agree with Scott there's the tax side, But I think there's this emotional side to our housing market that we probably haven't touched on. And I think this comes caught really into play, particularly when it comes to downsizing. I have quote unquote heard you know, older friends say to me, I am not selling this house. You're going to take me out dead in a box. You know.
They it's their family home, it's where their children were raised, and they have an emotional tie to that particular place. And I understand that, and I think it's hard for some downsizes where they've lived in a community for fifty years. They want to stay with their local doctor, where they know where the great coffee is, where they know that they go on the same walk every day, and often in those suburbs, there isn't a product so a different
type of home on offer that suits their needs. So it goes back to that conversation about increasing density and increasing diver diversity across our suburbs to allow down sizes to have those options.
Just a couple of things I sort of random things I want to go to to wrap up, Scott. If I came to you instead, I got lazy half a million to invest, would you tell me to get into the housing market.
Well, there's two options you'd go.
You'd either target a couple of smaller regional houses or cheaper capital cities.
Just try to push the yield up.
For regional community gross regionalism.
All Satinic Nicola will back us up. You look at the statistics, some of the regional markets have done incredibly well better than many of the capital cities in the last twenty years.
So it's a bit of a myth.
And that's because if a million dollar property goes up five percent every year, it feels a lot bigger than half a million dollar property going up five percent every year. So just because the quantum's larger, it doesn't mean the percentage isn't similar. So you know, if you're buying in a strong regional city you can do quite well. Supplying those markets are still pretty tough, and you know that they have the same problems like due to the serve
lack of services. But look, depending on where you're at in life, you might need more yields and half a million will serve you pretty well in the likes of commercial, but you've got to target the right ones. You wouldn't go buy a high rise office space right now because maybe they're part of the solution. Turn them into residential apartments, but the economics of those buildings sometimes don't allow for that. But as the use of office drops off, maybe residential
become more of a play. But industrial medical, you might put your money into a fund just for some safe returns. Like, there are plenty of options out there to get exposure.
As long as I can remember, there's been a comparison of growth in the stock market over over ten twenty thirty years compared to the real estate market, Nikola, do you know which performs better over so twenty years.
Look, I don't know those stats at the top of my head, but I scoot to stop.
Yeah, although I can tell you they're similar as a percentage as a whole, but the difference is the return on equity. So remember commercial residential, there's loans applied, so if you're controlling one hundred grand of the step share market. Sure, there's some people with margin loans up to you know, fifty percent, but most people are going into their first home with eighty ninety percent debt in the residential market, So that hundred grand will give you five hundred grand
of exposure. So as that five hundred grand grows six seven percent per animal on average, that's.
A really good return on equity.
As long as you can meet the cash flow requirements, you're going to make more money in property in Australia, which is why seventy percent of our wealth is tied up in it.
Look, I really appreciate the time both you've given a cent of the candor. I mean sometimes it's a bit hard to get what well I think public the people find it hard to believe information they get on the market because there's so many vested interest. I mean, domains owned by nine that owns this podcast, The Rear Group is owned by News Corp. We've got eight. I've never
met an agent who took a market down. I mean, there's so I really appreciate that you've given us that time and a couple of other things just randomly, war the threat of war around the world Middle East, Ukraine, China, perhaps even what is what are those bad times those uncertain times due to the real estate market, Scott, it.
Slows the volume of transactions down the worst. That gets people tend to sit on their hands. There's already less confidence inequities, so you tend to see a little bit more people default to the safest houses strategy.
It's not great for the market.
It's obviously going to cause economic uncertainty, and that means people just don't make decisions, whether it's businesses or property owners. Like you mentioned you the uncertainty of having a job in a year's time, that meant you didn't take a larger loan. So lending volumes will drop and yeah, the market will kind of go on pause for two or three years or whatever it takes to to sort out.
So well that helped the first time buy.
No, because they're the ones that get hurt the most.
It's like it's you know, there's it slows everything down and lending like when it's not.
Lending bad, everyone slows down at the same rate.
And if anything of those with the least means they're not going to just all of a sudden jump ten places in the market and be the others.
So you know everyone's in the same boat.
And that's why, like if the market's drop, everyone thinks it's their chance to get into the market.
It's dropped for a.
Reason banking lending is more restrictive, or the uncertainty is they're like, there's going to be you know, it's going.
To be engineered away from you sometimes.
So it doesn't mean you can just jump the queue because everyone's going to go down a level.
Do you agree Nicholer on the impact of international uncertainty?
I agree with Scott flying as safe as housing is, you do tend to find that people steer towards the property market during economic instability. I think for me, coming from a kind of property expert lens, I think my the biggest risk that I see is obviously inflation holding higher for longer, meaning that the rate cuts that the market is pricing in for the rest of this year, which is another two or three might not actually be delivered.
And what that means for the housing market is slower transactions, as Scott mentioned, slower rates of price growth, which actually might then transition okay for first time buyers if we're seeing actually more modest rates of price growth or even a dip. We only released our price forecasting last week and we've got forecast price growth across all capital cities and including record highs across the majority.
Of them, and that won't change. We didn't have moombs dropped last week, though, that.
Is very true. I think the risk for the forecast is if you inflict. So if we see petrol prices, supply chain issues impacting that level of inflation, and it means the RBA set where the cash rate is for longer, I think that's where we'll see probably a slower property market.
Just a random one. Is airbn B affecting supply?
I think so in certain pockets. I mean the has revolutionized the rental and short term space. I think that it definitely has an impact, particularly on kind of coastal locations, prime holiday tourism locations, and who comes at the detriment of that is longer term renters who are in that market in one or twelve months least. So it definitely does impact, but I think it's location specific.
Well, Scott, what do you advise me of the five hundred thousand we've spread around Regional Victoria or Regional Australia. Do I use those properties for Airbnb or long term rental?
Long term rental, I think it's too uncertain.
Like I have Airbnb properties, but the time you take all the costs out and it's sometimes a six month restrictions, you can't rend it out all year. There's also changing policies that you're seeing all over the world where they're banning certain sections. It's not a great long term safe model. I think I think you're better not just running out to the long term because it's stable.
The boomers get back to the generation wars or intergenerational justice, as the treasure of Federal Treasurer called it. Boehmer's liked to say, well, in my day, we went without food to save for the mortgage and to pay the pay for the mortgage, to pay the repayments, and we lived in a suburb we didn't want to live in, in a house we didn't want to live in tough en up you lot.
Is that unfair, Nicola, It's quite brutal.
I think it's brutal. I think every generation has had challenges. I think when you're getting to the point where the median income cannot purchase that median home. That is where you have a real problem, you know, And it goes back to that house price versus what the income is. And so the challenge for first time buyers has widened
over time. But it goes back to also with the point you made earlier that there are going to be families and younger generations who haven't owned a property are going to inherit the wealth from their grandparents or their parents, and that generation wealth is going to be cast on. So yeah, I think it's brutal.
But what's Scott, the way you told your story. You sort of didn't go and buy your first house in the top suburb and the best house. You sort of work your way up. Do you think there's some truth to that argument that you know you've got to go and live somewhere you don't want to live in a house that isn't the ideal because you're getting onto the property ladder that does. These generations have to view it that way.
I think if they live in one of those expensive, high demand markets, renting must be part of your strategy right now unless you've got an inheritance, because you're not going to get into those top markets. And also I'd never liked the idea of transitioning up three times into a property, as in, buy two bedroom unit and then go all right, now I need a three bedroom house because I've got that. Now i want the family home at four bedrooms. That's three sets of stamp duty to
pay sales agent on the way out. It's just not an efficient use of your money. And while you hold those large investment large properties, you've got effectively like a lending boat anchor on you. It's very hard to get an investment loan or playground with shares like.
Because you need to invest to get ahead.
Now that's you know, you can't buy a house on a policeman's wage anymore. Like that would have been done possibly in the nineteen seventies. You can't do that now. So but you can still invest and you can build your wealth through that method. And look, I rented for ten years and moved four times in that period and it wasn't bad. Like, you know, you can negotiate a longer lease if you want. There's some you know, there's some restrictions re lease. You don't have to pay for all your maintenance.
And you were doing as understanding you were doing that as a strategy to build a portfolio that you own.
Yeah, because if I took the home loan out, I wouldn't be able to get lending to you know, I'd be done. I'd be just strapped to that large mortgage because you would have had to go all in on the house. And yeah, I'd be in a very different position in life right now if.
I did that.
There's another culture. Well how many how many? How many? Well, I assume you own your property. Now you live in the house you own.
Yeah, and we've got we've got sixty five other tenants and that includes a big commercial la audi and chemists, warehouse, all those types of things. They pay for the mortgage on our house. So you know, we building income through this investment method. And you know, it took us four years to buy our first two properties, so it didn't happen really quickly. But you know, as the capital growth kicks in and you know, time passes, you start being
able to It's like a snowball effect. You know. If you've got a lot of houses, yeah, you know, and they're all growing at seven percent per anum, it's it's a significant number.
Well, just to give hope to gen xy is it or whatever? How old are you now, thirty eight? Thirty eight doing okay, yeah, thirty.
Eight and we've got about one hundred and thirty million in property as well.
Yeah, and there was no handouts.
It was just done through investing and doing everything we possibly could in.
That field hobnously. While you gave up engineer in because you qualified engineer, aren't you?
Yeah? Yeah, yeah. There was a moment where I was I was making more and property.
We're doing four hours a week work for sixty so it was a a bit.
Of a no brain.
Okay. One of the joys of this job is I can I can appoint both of you individually as Dictator of Australia. Nicola, what would you do now, no political considerations, no Parliament to get it through. You're in charge. What do you do to address this.
Problem, To address the undersupplyved housing.
To indress the well and the I keep coming back to intergenerational justice, the emergency that Alan Kohler described.
I would remove stamp duty, get rid of STAMPT.
I do that nationally, and I'd actually get the states and territories to align on policies where it comes to housing policies.
So put up the GS two to cover the stamp duty.
Yeah, perhaps, and remove moves part of the tax nation of new homes too. So yeah, I would tax consumption, I would remove stamp duty, and I would remove the GSD component new homes.
Scott, what would you do? Dictator Scott?
Look, without sounding boring, I don't want to do the exact same thing there, Like the stand duty is the one that keeps coming up all the time. It's you know, there's there's options in Victoria to sort of choose between that coming up, and I just think it's going to remove the barrier to entry and fit homes better for the supplier people. I do think the immigration blunt tool to help the economy is hurting a lot of Australian So if you keep letting a million people in, you
know you can like it's supply demand. So you just got to think how do we cut supply or sorry, increased supplying or cut demand. So you've got to do a bit of both, and that supplies removing tabs and demand does that then it's going.
To hurt the economy. We're in a.
Capita recession and doesn't look like a recession because of you know, all the money we're importing, so you've got to slow that down and increased densities. But I look at a lot of it go back onto the culture part two. I really think people have just got to
get out of their head. You need a four bedroom house, you know, as a young person out like you either stage it up like I mentioned, and that's going to cost you a lot of time or money, or be prepared to rent for twenty years and then just work on the side and invest your way into it.
Well, you've had extraordinary success in a period of under twenty years. Could you do it now? Starting now, same philosophy, same theories. Could you do it?
You could slightly slower rate, but like interest rates were similar when I was starting.
The house prices for achieved, but so were wages.
But look, the big ticket is like eleven times the average in converse, it's probably about seven or eight when I started. So it has got more unaffordable. It doesn't mean it can't be done. You've just got to be a little bit more location agnostic.
This intergenerational justice, are we going to solve it? Are we going to bring intergenerational justice without the sort of changes you talked about, because no government's going to do them, as we discussed earlier, they just won't do them. They'll convince us they're doing other things. They'll throw subsidies at your first home buyers. They won't do it.
And the other political challenge is that most Australians own the home, so if they are going to do any policy that is going to rattle home prices, they're just not going to get the votes polling day. So that's the challenge really.
By the way, Tom, in interest rates, my first house, I had no my second house, I'd an interest rate at thirteen and a half percent, and my friends were so jealous because the going rate was eighteen percent and I'd locked in at thirteen and a half. However, I must admit it cost me. The equivalent value of the house was two years salary, as my kids keep reminding me. So we've drawn up a list of who's to blame here. Government number one, stamp duty number two, immigration number three,
and greedy boomers number four. So the boomers make the list or not.
I think they do. I think they've just been a benefactor, Scott.
Look, I get why younger people might be envious of, you know, for a university, cheaper homes, et cetera.
But the reality is it's it's not.
Their fault that they're just a product of the system. So you know, I don't hate the player, hate the game.
I won't hate the boomers and one of them obviously. Thank you so much for your time. It's really good to talk to you. I hope that that's helped you. We get a bit glib in the reporting of this area, and you know, government does this, They're going to do that. Opposition says this, then they do the same thing. Interest right to coming down there for people will buy more houses. It's just oversimplified and I think we've I think you have dug into it beautifully. Thanks for your time, doctor
Nicola Powell Domain ahead of research at Domain. Scott O'Neill rethink investing now. Just before I leave you to your life, I want to first can congratulate you on the good sense to listen to my podcast. Neil Mitchell asks, why there's one rule to this podcast. It's got to be interesting and different. I always try to get inside the head of the person I'm talking to before I go.
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