BY MILLIE MUROI, Economics Writer
The thing about moving up the food chain from renter to home buyer is that it comes with a monumental mindset shift.
After years of renting, hearing the words “high rent” makes me freeze and sends shivers of dread down my spine. Yet, there I was at an inspection last weekend, listening to a real estate agent happily declaring how high the average rent in the area was.
It took me a moment to recalibrate my alarmed expression, trying to blend in with the investors nodding along in satisfaction. There’s also a certain air of indifference radiating from buyers who aren’t desperately looking for an escape from the rental rat race – which I failed (quite miserably) to imitate.
Don’t get me wrong. Investors can play a positive role in our housing crisis. But only when the rules of the real estate game are set correctly.
Right now, there are plenty of ladders for investors and home owners, and no shortage of snakes setting renters and first-home-buying hopefuls back.
The more inspections I attend, though, the more I understand how we got where we are – and how we’ve ended up so stuck.
When we stand to gain from the rules and outcomes of a system, it becomes easier to play down the problems. That’s because humans hate the discomfort (known as “cognitive dissonance”) of holding conflicting beliefs or acting in a way that clashes with their beliefs.
While I’ve met and heard from generous landlords who could – but choose not to – charge the maximum rent, they’re an exceedingly rare species. It’s much easier for most of us to justify an unfair system we benefit from, than to give up our personal gain or live in a constant state of contradiction.
It’s also easier to think things are totally fine when the people we’re surrounded by aren’t outraged by it. The more time I spend at inspections, the more desensitised I’ve become to the way we see housing: as a wealth-building machine.
Low home ownership is not always a bad thing. But it’s terrible when the only other option – renting – leaves many in financial stress and struggling to save for a deposit: the very thing they need to buy their way out.
In Australia, about one-third of the population rents and one in three of these renters are spending more than 30 per cent of their income on housing, meaning they are considered to be in financial stress.
The problem with keeping people renting for life by necessity is that it keeps many of them trapped in a tough position for the rest of their lives.
Retirees who rent in the private market are much more likely to live in poverty than retirees who own their own house. Two-thirds of retired renters live in poverty, compared with one-quarter of those with a mortgage and one in 10 who own their home outright.
And the rate of home ownership has continued to drop over the decades. More than half of Australians born between 1947 and 1951 owned a home between the ages of 25 and 29, compared with one in three people born between 1992 and 1996.
The big focus on lifting our supply of houses is fantastic: both the government’s ambition to build 1.2 million new homes by the end of the decade and the push to reduce the red tape – from zoning laws to slow approvals processes – standing in the way of private businesses and developers.
But as ANZ chief economist Richard Yetsenga points out, the evidence suggests changing things on the supply side alone won’t be enough.
As of March this year, the government had completed only about 350 homes through its $10 billion Housing Australia Future Fund, with 5465 under construction. Building houses has never been something we can do overnight. But the process has become slower over time.
Yetsenga also points out Australia has 11 million dwellings and a population of 26 million. With these numbers, there should be far fewer people facing homelessness or being priced out of the property market.
“The challenge seems to be more about misallocation than a genuine shortage,” he says. “Some choices, while individually reasonable, might be turning housing into a luxury for others.”
One thing we need to examine is the capital gains tax discount, which halves the rate at which investors are taxed when they sell a property and make a profit as long as they have held the property for at least 12 months.
That’s a generous discount that gives investors more reason to snap up properties. That’s not necessarily a bad thing, except when considering the fact investors are often competing against first home buyers, and we’re facing a supply shortage.
We may not need to abolish the tax discount completely. In fact, it’s probably a good idea to keep it for investors who are building new homes rather than buying up existing ones. And the additional discount for people using their investment properties to provide affordable housing is a good thing.
But reducing the capital gains tax discount for existing properties being rented out at standard (and often seemingly excessive) rates might give first home buyers a better chance at getting their feet in the market.
Because here’s the thing: as long as most of the population are home owners, and the majority of their wealth is tied up in the value of their house, the overwhelming interest will always be to see property prices continue to rise, even if incomes fail to keep up.
In the 1990s, the average home in Australia was worth about 9.5 times the average household income per person. By 2023, they were fetching 16.4 times the average household income per person.
With supply only softly creeping up, it’s simply unrealistic to assume house price growth will slow significantly.
I’ve been fortunate to have lived rent-free, until the age of 21, and to have received a little bit of help from my grandparents to boost my deposit.
But it shouldn’t take luck – having the right parents (and grandparents) – to buy a house.
If we’re going to treat homes as investments, it needs to be just as possible for a kid growing up in a broken household with no family help to escape the rental market and start building their wealth as it is for anyone else.
There’s also a strong case for abolishing stamp duty – a levy collected by state and territory governments on the purchase of homes – and moving to a land tax paid annually on the value of the land a property sits on. Why? Because stamp duty discourages people from moving, including empty-nesters who could downsize, to homes that better fit their needs.
While we should welcome investment into new homes, we don’t need to give more reason for investors (who are not providing affordable housing) to compete with first home buyers.
I’m still on the hunt for a home after one property I inspected with a price guide of $460,000 sold to an investor for $530,000.
I’m in a much better position than many, but it’s clear, as long as I’m competing with investors, to see how the cards remain stacked against first home buyers. Hating the player might not be very productive, but I certainly hate the game.
