(Peter Martin’s article from the ABC NEWS AUSTRALIA on April 14, 2021.)
But that can't explain the sudden take-off from
about the year 2000, the sudden take-off from about 2013, and again now —
against expectations — the stratospheric take-off in the wake of the COVID
recession.
Broadly, we've enough homes. The 2016 census found
we had 12 per cent more dwellings than households, up from 10 per cent in 2001.
That's 12 per cent of our houses and apartments empty — used as holiday homes
and second homes, or waiting for tenants.
If there really weren’t enough homes for people who wanted them, it would be more than property prices soaring; it would be rents. Instead, overall rents have been barely moving – growing even more slowly than wages – for half a decade.
For the
half-decade from 2016, a half-decade in which Australia's population grew by
more than one million, Australian rents barely moved. The supply of places to
live in has kept pace with the demand for places to live in, but the supply of
places to own has not.
More landlords, more tenants
If that sounds
odd, remember people want to own houses for reasons other than living in. Since
about the year 2000, large numbers of Australians (and foreigners) have wanted
to buy them to rent them out. They've wanted to become landlords. Twenty years
ago only one in 15 of us were landlords. It's now one in 10 — more than two million
of us.
To get those
properties (other than where they've built them) they've had to outbid at
auction the people who would have bought them to live in. They've been helping
create their own tenants, while pushing up prices.
We're chipping away at Menzies's legacy
From when Robert
Menzies stepped down as prime minister in 1966 until the end of the 20th
century, about 71 per cent of Australian households owned the home they lived
in — one of the highest rates in the world.
Since about
2000, owner-occupation has been sliding. The latest figures (themselves some years
old) put it at 66 per cent. Among those aged 35 to 44, it has fallen to 63 per
cent. Over that time the cost of buying a home has shot up from two to three
years' household after-tax income to three to four years' income.
What appeared to set things off was a decision by
prime minister John Howard in 1999 to halve the headline rate of capital gains
tax. Not that the committee he asked to investigate the idea recognised the
possibility at the time.
The Ralph Review
recommended that half, rather than all, of each capital gain be taxed, rather
than the portion above inflation as had been the case since capital gains were
taxed. The rationale was that this
would "encourage a greater level of investment, particularly in
innovative, high-growth companies".
A rush into property rather than high-tech companies
The review was
right about the change encouraging investment, but wrong about the sort of
investment. Rather than buy shares in innovative companies, Australians bought
rental properties like they never had before.
If they bid
enough, they could borrow enough to negatively gear; to make sure their
interest charges exceeded their income from rent, giving them annual losses
they could offset against wages that would otherwise be taxed at high rates.
There was
nothing new about negative gearing. It had been permitted from the beginning.
What was new was the opportunity to later sell the property at a profit,
knowing only half of the profit would be taxed. Investors could offset all of
their losses and be taxed only half their eventual gain.
Pretty soon, more than a third of the money lent for housing each month went to landlords. For several dizzying months during 2015 it was 45 per cent. First home buyers struggled to compete. In 2016, then treasurer Scott Morrison raised the prospect of winding things back, saying negative gearing had led to "excesses".
APRA cleared up what our leaders could not
Labor went to
two elections promising to do just that and the Coalition came out in support
of the practice in public. Behind the scenes, the Australian Prudential
Regulation Authority was using its power over lenders to force lending to
landlords down, getting it down ahead of COVID to 27 per cent of new housing
loans.
APRA succeeded
in taking the pressure off prices where politicians couldn't. But that's far
from the whole story. There are other more deep-seated reasons why house prices
are climbing, and they too have little to do with demand for accommodation.
Prices took off
again from about 2014, shifting up from three to four years' household income
to between four and five years. That time it was Australians getting richer after
years of mining booms and being able to borrow more cheaply. Houses in general
mightn't be a good investment (there being a regularly increasing supply) but
houses in prime positions were in fixed supply, there being only so many good
locations.
And then it fed
on itself. The father of modern economics John Maynard Keynes described
investing as a game in which the best strategy is not to put money into what
you think is worthwhile, but to put money into what you think other people will
think is worthwhile.
It's happening again
He spoke of a third degree, where "we devote our intelligences to anticipating what average opinion expects the average opinion to be", and added there might be fourth, fifth and higher degrees.
It's happening
again. With mortgage rates at new extreme lows and wealthier Australians having
come out of the crisis with their wealth intact, it makes sense to do what
others are doing and push up prices to buy before others push them up further.
It's nothing to do with a shortage of housing, but for many it will push home prices further out of reach. That's because in Australia housing is two things: accommodation and a form of speculation.
(Blogger Notes: In addition to the Australian addiction of Negative Gearing, the rigorous injection of massive amount of cash by RBA into the nation’s financial system daily is another reason the Australian banks’ rapid increase of house valuations and thus the massive rise of house prices in Australia.
RBA’s daily cash
injection through their so-called Open Market Operations - the exact copy of US’s
FOMC operations - now stands at A$ 212 billion on 13 April 2021. The daily cash
injection on 13 April 2016 – just five years ago - was A$ 24 billion, and on 13
April 2011 – just ten years ago – was A$ 1.2 billion only.
Interest rates are so low the poor banks have to raise the house-valuations so that they can lend more on the same houses over the years again and again, and make more money. And to keep the
interest rates as low as possible RBA has no other choice but keep on
injecting massive amount of cash daily into the nation’s financial system – mainly
the banks. And the large portion of that cash injection goes straight into the
houses.)
Related posts at following links:
RBA's Printing Cash Daily Inflating Australian House Prices.