Housing & Negative Gearing.

This is a subject I know much about and am qualified to speak about and discuss. Having developed property and sold it overseas as well as in Australia and having been a mortgage manager, I have a unique and in-depth understanding of this issue.

With current mortgage rates being at historical low’s you would think anyone can afford to buy a home. It simply isn’t the case. Buying a home in Sydney can cost $1m in many suburbs. In that price range you will require a minimum $50000 deposit, Lenders mortgage insurance in the range of $40000 and fees and cost of $15000 odd. That’s if you can take on a mortgage of $950000. On a government assessed medium wage of $80000 and your partner earing $40000 and using 30% of gross income. You have $36000 to pay toward your mortgage not including any other debt you may have… it simply doesn’t work, even on current low mortgage rates. Lenders factor in an additional 2% for forward and future risk.  Using a standard 1-2 year IO loan reverting to P&I over 20 years, the example above might only afford a loan of $600000-650000. That is if they have the deposit and costs and fees. So pricing is the problem as is savings… not mortgages!

There has been much analysis on the cost of developing new land and also on the GST impact (on the way through) for new homes. I don’t believe this is still a direct issue as it has its impact on new property and not on older property. However rises in valuations does have some impact and should not be dismissed without some consideration.

Young Australians have been priced out of the Australian market by buyers from overseas. The reason is that overseas buyers come here cashed up and have no problem buying at our median prices… if they really want a property they will buy above value because they do not require finance to settle. I believe FIRB can be used here… many international buyers do so for student family or as investments for future plans or as a fall back scenario to exit their own country. However they often remain attached to their own country. International purchases of this nature can be both means and in the best interest of the nation tested. In many other countries such tests exit as well as the need to have an interest in that country such as a company that employs a local director and shareholder. In many of these cases the local owns at least 51% of the company.

Negative gearing is an issue but not one that has the impact that people think it has. Property portfolios actually take some pressure off government to supply services when people are secure in their ability to supply suitable income for themselves by investing in Property. The benefit of negative gearing is that it supplies many jobs to building companies and trades people associated with the building industry. However there is room in the market to supply relief to first home buyers by way of applying a moratorium on property under the median house price (say 10%) that is already had its first owner. For example the median house price in Brisbane in 2015 was approaching $500000 ($498000) for a normal house in and standard suburb. Applying the 10% makes the price range $450000-550000. Therefore the government could withdraw the provisions of negative gearing for houses in that range or lower. It doesn’t stop people from buying as an investment but makes them think about, how do I afford this property without the tax concessions?

There are so many ways of dealing with these issues that we as a country have not explored. I believe it is so because we (Australian Bureaucrats and Politicians) desire to be seen on an international stage and promote that we should be. Not many Politicians and Bureaucrats have a problem buying or affording their homes.  Adopting such programs would be questioned by other countries given we have never had them, even though those countries questioning may have them already.

I want to address the issue of public housing also. I believe that the government needs to undertake a program to advance the affordability rental scheme with another 60000-70000 homes (units, duplex’s and homes) nationwide. This can be done with state governments and public entities and corporations. There is an urgent need for this and a crisis looming as the above is the number waiting for housing. This needs to be addressed over the next few years and not in a few years from now.