Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the welth editor at the Australian. Welcome aboard everybody. Interesting week for property investors, home buyers too.
You might have seen the budget.
You say, well, I didn't say much in the budget for home buyers and we will be talking about that in a moment. You might have seen the budget reply from Peter Dutton. Budget replies don't normally carry much news, I find, but this year, of course, he's reiterated and expanded to some extent on the Coalition's plan, which would be to allow people to use their super du buy their first home up to fifty thousand dollars. That is a controversial policy. I wonder what you think of that.
I have to tell you that I think it would be very successful for the simple reason that the tax system is utterly loaded in favor of homeowners and I think people if they don't know that, they will gradually get to know that if they are potential home buyers. Another theme which is really starting to get going this year is that units and townhouses are looking better by the day against standard on properties, and that is a
reversal of what we've seen for recent years. And I'm going to talk about that with my guest, Terry, writer of hot Spotting. He's been on before. How are you, Terry?
Very well, James, and like you're very interested in what's in the budget and also what's not in the budget.
Is there something in the budget I failed to notice? Terry?
No.
I think I've been reading what you've been writing about, James, and I think you've picked up on most of the major issues that are included in the budget. From your perspective, it's what's not there that's probably most significant, particularly dealing with the rental shortage short term There.
Is there something?
Was there something outstanding you thought that they are in a position to do that they didn't do well?
Yeah, I mean, the reality is that over ninety percent of the homes that people rent in this country are provided by private investors, often referred to as mom and dad investors, not big corporations, not government, who have been underfunding social housing for many years, and private investors have been increasingly little by little dropping out of the market in recent years. They're not present in the numbers that
we need to provide a balanced market. You know vacancies around three percent, for example, and there are reasons for that. They've been demonized, disincentivized little by little steadily over the last five or six years, and that needs to be reversed otherwise we're going to continue to have this slow drift of people out of property investment, and that begs the question.
Fair to them.
They did put in homoss money six billion and the leastest cut into social housing, Does that in its way reduce pressure on Beaconcy reads ultimately?
Well, my reading of it, and I think I was reading what various people have analyzed in terms of what's in the budges six billion dollars towards dealing with the housing shortage, some of which going into social housing, some of which is going into infrastructure, a lot of which is going into a handout to people to subsidize their rents. Big numbers nationally, but for the individual quite small. Will make a small difference, but not a great difference. It
doesn't deal with the core resh. The coresh is really the shortage of landlords in this country. That's what we have a chronic undersupply of, and that's not addressed politicians at certain politicians anyway, have been rather demonizing landlords and private investors as the villains of the piece. They're actually not the problem. They're the solution, and that's not addressed in this base.
Ok.
I hear you, Luden here, tell me about you the idea of people being allowed to use super for buying their first film. Do you think it would work? If it worked, what difference would it mean to the property market?
Look, I mean it will work to the extent that will help people get into the market, you know, to provide perhaps deposit that they're struggling as rental is paying higher and higher rental in the current circumstances to accumulate a sufficient deposit to get into the market. So in
the short term it can have a positive impact. I don't agree with There's always a chorus of people who spring up in the media when there's suggestion of giving some help to first time buys, whether it's grants or this measure allowing them to use this, But that will just inflate prices. I don't think there's any evidence that that's true, and I don't think that'll be the case.
It will give people a helping hand, get people the assistance they need perhaps to get that deposit together and get into the market.
I suppose economists would probably argue with you that they do lift prices, that if you stimulate, if you give in any way, if you give them an access even to their super which is their own money. But even so in doing so, they have more to bid, right, they have more money when they stand at the auction on a Saturday morning, So they can they push up prices.
But I don't think I think I think that factor is overstated. I don't think, OK, people can just bid up prices. I's often said that investors go to auction and bid up prices. An actual fact, I think there's a competition between an investor and a first home buyer, and they have the same age, and they have the same incomes. The first ome by actually has a considerable advantage over the investor in terms of it's all about borrowing capacity and just how much you can afford to pay.
You can't just keep bidding up prices. You're limited by your borrowing capacity and how much you can afford to pay. And because investors play higher interest rights, and because they don't have government grass and they pay higher rates of stamp duty, higher everything really, counsel rights, insurances a lot, they are actually at a competitive disadvantage to first time buyers if they are standing side by side at an option.
Yes, that's very interesting. I mean, yes, I see where you're coming from. And if there are a self managed, super funded investor, there are a significant disadvantage in terms of their costs, not to mention the lending rates that are forced upon them in the market.
Okay, that's a very interesting point.
I just want to move on to a larger notion, which I know you've really been picking up of lace, which is and you call it a new paradigm. So I'd love you to explain to our audience who are active investors what you're saying about the changing nature of the post COVID market and in relation to units versus houses or apartments versus houses.
Yeah. Well, for as long as I've been doing what I'm doing, researching and writing about real estate over forty years now, it's always been considered the rule of some in real estate that houses on land provide better capital growth and apartments. And if you look at the historical data that's supported by the numbers, what we're saying is that's starting to change, and in some locations, many locations
around straight has changed. So we're coming across more and more instances now where we're looking at the numbers for apartments and the numbers for houses in the same suburb or the same town, and we're seeing that in the past twelve months or the ten year growth averages, apartments increasingly are actually outperforming. And we're really interested in this trend. We've been charting it for the last say twelve months
or so. It became quite strongly evident in the second half of twenty twenty three, and it's continued in the twenty four increasingly. So it's not just about affordability, although that's part of it, because obviously apartments in the same suburb considerably cheaper than houses in most instances. It's also about lifestyle. They're actually had quite a number of buying cohorts that are increasingly opting for what you might call
attached dwellings versus detached dwellings. And so we've got people downsizing, older people downsizing young people trying to get into the market affordably. We've got buyers you just simply like that low maintenance, lock up and leave lifestyle. We've got lots of migrants coming from countries where attached dwellings are the norm.
They're comfortable with that style. And there's another fact that I think it's increasingly evident, and we're hearing more and more about this from developers of apartments, that is the safety issue. Safety is becoming increasingly an issue, particularly for older people. There's so much media about crime on the streets, you know, knife attacks, all sorts of stories about violence, and people are perhaps feeling increasingly not safe on the
ground floor, you know, in a suburban home. They feel a lot safer on the tenth or fifteenth floor of a secure, modern apartment building. And that's becoming a big factor driving demand increasingly towards you.
Well, that's interesting. I wasn't aware of that. What I'm hearing when you tell me about these suburbs where the apartments are doing better in recent times per square meter, I you like over the standard on Holmes. It's not the majority of suburbs just yet, is it?
Is it just now? I couldn't say that's the majority of something. What we would say is that increasingly we're coming across instances where in various ways apartments are outperforming in some cases on all the metrics. It might be that in the past twelve months the meeting price for apartments has grown more than for houses on the ten year growth average, apartments are more obviously rental yields would tend to be higher, although there are additional costs of
course with apartment owners. But also days on market are very often considerably shorter. We're seeing examples of that popping up, particularly in the more expensive market. So affordability is a factor obviously, So we're seeing instances in Sydney, we're seeing instances in Melbourne, a lot of suburb examples in Brisbane and some of the more expensive and popular and large regional cities, particularly the Gold Coast and the sun Huhine
Coast I mean, for example, and NUSA Heads. Apartments are expensive there as well as houses. The ten year growth average for houses is very good nine point five percent per year according to the core Logic figures, but apartments are close to fifteen percent per year.
Is that so?
Isn't it interesting now that the Tolistine Mey says, is this like a reversion to the mean. Is this just that the houses run too hot and the apartments are now.
It's more that there are more and more by cohorts who are choosing apartments, and it's the weight of demand from growing numbers of people opting for attached dwellings that is causing price performance to improve. It has always been felt that the land content is the big factor in driving price growth. I've never been totally sure that that's true, and increasingly we're seeing examples where that's been contradicted.
But that means if that means it's a hell of a lot more than don to some sort of temporary reversion to the mean, then isn't it. It's like a structural change in the nature of the mind.
That's why we're calling it a paradigm ship because the dominant paradigm has always been that houses have outperformed. But we're seeing more of my instances where it is being contradicted, and so we're saying a new paradigm is in play, because it's not just the last twelve months we're seeing superior performance in more and more suburays, but it's the
ten year growth averages. No surface paradise. The iconic Gold Coast market, where meeting price for houses is close to two million dollars, whereas the meetium price for apartments is
a take over six hundred thousand. The ten year growth averages for both a good eight percent for houses but ten point eight percent for apartments, and of course the yields are infinitely better, only two point eight percent meetium yield for houses and surface paradise but five point three percent for apartments, and days on markets are much shorter for apartments in that market now. Historically, surface paradise apartments have been terrible performers up until say, three years ago.
I was beat me to it.
Yeah, yeah, you would because they can keep building them, right.
But that's one of the things that's changed. Many of the big high rise apartment developments and Surface Paradise and else on the Gold Coast that otherwise have been built have not been built because they just don't stack up
financially with the cost structures as they now exist. And I'm having conversations with major developers are saying things to me like, look, because the cost of building these bills have grown so much, and because we have shortages of trades, people and materials, it's not feasible for us to build a highest apartment unless we can sell all the apartments
for at least a million dollars. So if it's not a market where we can sell apartments for one to one point five million dollars, it's not viable to build it. So a lot of the big high raise projects on the Gold Coast have been deferred or scrapped. So we have the opposite problem to that traditional boom bust thing that we used to see on the Gold Coast because they've built too much high rise. Now we've got a shortage and it's not something that can be turned around quickly.
So we're starting to see rising demand for and improving price performance for apartments. And one of the things, of course, that apartments in these markets can offer that houses on land generally can't not a waste, but as a rule of thumb, apartments have view and that's a big factor of perhaps in deriving demand and therefore capital.
That's really interesting. I mean, it's akaing like you're laying out a scenario which is like a looming golden age for the apartment's investor. Am I getting carried away there?
No? No, I think that's a fair assessment because you know, it answers so many of the things that people looking for it, answers, affordability, relative affordability, superior rental yields in times of higher interest rates, and we're increasingly seeing really good capital growth performance. So it's sort of ticking all
the boxes for more investors. And of course, low maintenance provided provided that you bought in the building that has a track record of low maintenance, because you know, one of the issues with apartments, of course, is that so many defects are coming to light. And it seems to me that the ideal apartment investment is not a new one, not an off the plan apartment purchase, but something that's established in a good location, perhaps a little bit more boutique,
rather than a thirty or forty story high rise. That kind of apartment, say an inner suburb of off the inner west of Sydney or some of the inner suburbs of Melbourne and also Brisbane could be the way to go.
See that's really interesting.
And as you see, the thing is that the factors you outline behind this aren't going to change anytime soon. They're quite they're quite they're quite established. Yeah, that's right.
Well, we've got this problem of shortage. The recent federal budget has made some commitments and repeated Amelia published ones to generate construction. They hope of a certain number of dwellings over the next five years. But that's a longer term solution and one which the building industry industry continually argues they can't deliver on because of all the structural problems within the dwelling construction industry at the moment, shortages
of everything, builders going broke. It seems like it's a target that cannot realistically be achieved. So in the short term we're going to continue to have shortages of dwellings generally, but in particular shortages of dwellings for rental, and that's the big problem.
See that's fascinating, So folks, I mean say that is something that is really fresh piece of insights from Terry there. We've always been that thing, you know that the apartment market would take Docklands in Melbourne or South Bank in Melbourne. I think of Alexandria area in Sydney, many other parts of Sydney, along the River in Brisbane. Every time and start to come right. The developers come in, they build
many more apartments. They are able to do that. But as Terry's outlining economically that is not stacking up for them now, and that means it's a different it's a different investment climate and scenario for apartments. It's a very interesting rationale for apartment investing that we haven't had for quite some time, and I think this could really be
significant if you are an active investor. All Right, we will leave it there for the moment with that very interesting observation from Terry, but take a break and we will be back with some very interesting property questions. Hello, welcome back to The Australian's Money Puzzle podcast. James Kirby Well, the editor at The Australian, talking to Terry Ryder of
hot Spotting. Hot Spotting, of course a very established organization that Terry has been running for some years and he is an expert on locales, if you like, across the property market and what's happening in different spots, which is exactly what we've been talking about. Okay, question from Stephen in the existence of property restricted to older people, is it time that we have a certain location or properties
that are restricted to those age twenty to thirty five. Instead, the idea would be that subsidized living is provided for younger folk, or they try to build up their own deposits to purchase when they are thirty five plus. I only smile, Stephen, because it's such a novel, radical idea. Whatever the opposite of an old folks village would would be a young folks village. I won't say it's utopian, but it's ambitious.
What do you think, Terry?
Yeah, yeah, ambitious definitely. I mean, I mean there are specific reasons why we have developments specifically for older people, and those arguments don't necessarily apply to younger people. That they can plump themselves anywhere that they like the lifestyle or can afford the rent or the buying prices. I'm not quite sure how that would work. As he's suggesting that perhaps there's there's some kind of subsidy he.
Is, yes, indeed, yes, subsidized living is provided for the younger folk. I I it's such a novel idea, Stephen, that that well, well, we'll just leave it out there for the for the listeners to ponder, and thank you very much. I love these creative ideas that often come through from the listeners. Okay, Russell, Russell, this is, by the way, is slightly off Beam here but Russell wants
to make a point. The standard Australian passport, at three hundred and forty six dollars, is one of the most expensive in the world, the second most expensive in the world, trailing only Stein. And he complains in various ways about that. And here's an interesting thing in the budget last week. Among the measure as many many measures, as I say, there's always interesting things if you borrow through the budget,
they introduced a new facility for passports. Did not reduce the passport price, I'm afraid, Russell, but they introduced don't you know, an extra fee. You could pay an extra hundred dollars and they'd give it to you faster. So it's that old trick of raising your prices and then saying and basically the service gets slower and not as impressive. But what you do is you say, we can get service back to where it was if you pay more.
And that's what the Australian Passport Office has just done in the budget the other day.
So thanks for that observation, Russell.
Andrew, this is an interesting question, he says, this is a very interesting question. Is there any other business in Australia which has something comparable to lenders mortgage insurance. It's easy to see this is nothing more than a cash grab and a kickback, especially when the long default rate is negible. Now, Andrew, you really are onto something there. It's true. The default rates are absolutely microscopic, and so lenders mortgage insurance, you would think, is a great game
for everybody involved. And you do wonder why it's so institutionalized. What do you think, Terry like, I.
Think we could eliminate it and not much would change. I think I agree with your question. Yeah, yeah, Look, I think it's a rip off. I think it's unnecessary. Look the hoops you have to jump through to get a home loan or a loan to buy an investment property in this country. I mean, I've just been through the process again. I've got you great income, great track record, great credit rating, et cetera, et cetera. Yet the process to go through to satisfy the bank that you're an
acceptable risk to lend to. Yes, I don't think any kind of insurance is necessary. I mean, I think the bank, they're in the business of lending, there's an element of risk for any lane that they put out there. But to not only have this insurance policy system, but to force the borrow to pay for it. It's just another massive cost that is imposed on people who don't have a twenty percent deposit. Now, for young people, it's increasingly
hard to get together a twenty percent deposit. You don't need twenty percent to get a loan, but of course if you have less than twenty percent, you've got to pay this damn hideously expensive insurance policy which is often capitalized into the loan, just adding to this length of time they have to pay the damn thing off. I just I'd like to see politics and step up and say what is this for? It doesn't serve any purpose. As Andrew points out, Morga's delinquency rates in Australia are
really small. They hover around one to one and a half percent usually, and that's minor. There's not a great deal of risk for the big lensers there. I think they're having a lend of us no pun intended, and they're making a lot of money by imposing this massive extra cost on particularly young borrowers who just don't need it and doesn't serve a purpose.
Get rid of it for something it's demonstrably low risk. Okay from we know that from the figures. Hey, terrific. Thank you very much for that, Andrew, And as always focused, none of this is advice, it is simply information.
All Right, we'll take a.
Final break and we will be back with a question from Angus about the Downsizer program, which is of course so so popular. All right, back in the moment, Hello one, Welcome back to the Australians Money Puzzle. James Kirkby with Terry Ryder from hot Spotting. Well, we've had quite a few questions regularly all the time on the Downsizer program.
I'm sure you're familiar with it, folks. If you're not.
Once you're over fifty five, you can ignore the Super rules or Super caps and thresholds, et cetera. And if you sell your family home as you've lived in for ten years or more as your primary residence, you can contribute to Super three hundred thousand per capita and you can basically ignore the caps, which is very useful for people who are on the older side for the simple reason that you're If you're on the older I do not allowed contribute to Super once you reach a certain age,
can't get that money in. Angus was asking basically, how does it work and what is it? What are the issues around it? I would just say to anyone interested in the downside of the program that remarkably, one of the things that's sort of unfinished about it is it was all designed to get people out of those ambling around, send the empty suburban houses into free uphousing stock. It doesn't actually demand that you buy a smaller house. Bizarrely,
you can buy a bigger house if you wish. But it's a way of getting the market freedom.
Terry.
I mean, one of the things I see here and there is efforts you mentioned how the governments could do a lot more. Some stack governments, some stick governments are making an effort. You might say, the Victorian government are doing the opposite and just keep coming up.
In new taxes.
West Australia has tried some interesting things. They literally rewarded people who who turn their property from airbnb onto the rental market and that sort of thing. Have you seen anything that you think they could do more of in the states.
Look, I think Western Australia currently is the model that all states and territories should be followed out.
That's interesting, Okay, Yeah.
Look, basically governments particularly state governments, because a residential real estate is pretty much their territory. They've got two ways to try and engender the sort of behavior they want to happen out there, particularly around supply. One is the stick approach and one is the carrot approach. Victoria is very much going with the stick approach. If you don't do what we want, we're going to punish you with
new or high taxes. Yes, and it's quite brutal, and the response of most people will be well, I'll just stick up my rent to cover the extra costs, or I'll sell up and get the hell out of Victoria. I don't think it's really going to achieve the ends they want. In Western Australia they have the character approach and they've introduced a number of measures which are real incentives for people who might have an Airbnb approach with their property. They get a cash and center that they
put in the permanent rental market. There's measures to allow people to build a granny flat at the back of their property provide the property meet certain criteria without having to get counsel approval that there are other measures that introduced recently to encourage people to add to supply, particularly in the rental market, and I think that's the intelligent approach, that's the way to go, because people are more likely to respond positively to an incentive than to a punishment.
Victoria's called some of their measures incentive, So not the punishments. If you don't do what we want, even though what you're doing is perfectly reasonable and legal, we will punish you with punitive taxes. Not an incentive at all, But what they're doing in Western Australia is and I think other states should follow that measure. Of course, the advantage they have over there if they have a strong budget and Victoria has a very weak one but got a real problem with their budget.
Really good point.
And for what it's worth, Folk, here today's Melbourne prices, that is Victorian prices negative here today Perth.
Of eight percent.
Now there are other issues around that, but there you are.
There are the numbers just as we stand.
As Terry is saying, there was a disincentive basically baked into Victoria and incentive is packed into Wa which has probably accelerated existing trends from both those states. Very interesting, Terry, thank you very much for being on the show.
Again.
Interesting, I think it's time to reassess the apartment market. If there's one thing you picked up on the show today on the arguments put forward and articulated very well by Terry writer of hot Spotting.
Thanks Terry, You're welcome to James has greatly come on and talk to you, particularly be at real estate, my favorite subject, as often side of people. The hard part is getting me to shut up.
Thank you very much.
Okay, folks, well we will all now wrap up and remember keep those questions rolling. Great to see some questions and all sorts of things.
Coming in this week.
Keep them coming. The money puzzle at the Australian dot com don't hit you, Talk you soon,