It eats up the biggest chunk of most household budgets; housing is a hot button topic for all Australians, owners and renters alike.
In this week’s episode of the Fairfax Media podcast “It All Adds Up”, the team, Jessica Irvine, Matt Wade and Ross Gittins, respond to listener questions and bust these five myths about Australia’s housing market.
1. Rents will skyrocket if negative gearing is abolished
When negative gearing was abolished in the 1980s, there was a steep rise in rental prices in Sydney and Melbourne. But “correlation is not causation”, Irvine cautions.
Gittins says there is little evidence curbing negative gearing would automatically lead to rental price increases.”Let me tell you, that is just not factually accurate – it’s an urban myth…spread by real estate agents and developers and it’s just not true.”
Landlords don’t charge rents on a “cost-plus” basis, says Gittins, but always at the maximum they think the market can bear before their property is left vacant.
2. There will be a massive housing crash in 2020
The team agree we are unlikely to see a massive fall in property prices outside a recession or sharp spike in joblessness.
The more likely outcome is a period of price weakness, which Wade warns would have knock-on effects on consumer spending and confidence: “It may not be a crash, but even a period of stagnation can hamper the economy.”
Gittins expects the Reserve Bank will begin lifting interest rates at some point, but “I think that’s a fair way off”. Because mortgage debt is higher, the Reserve will be more cautious than in the past in lifting rates.
3. House price will always go up because land supply is fixed
Homes may provide shelter, but they are also an important asset class. The team debate the investment aspects of housing.
“We think we’re buying a house,” says Gittins, “actually most of the cost of the house is the land that it rests on.”
While the supply of land is relatively fixed, with some variation on the urban fringe, the potential supply of dwellings is not.
High rise developments unlock new supply which can affect prices and improve affordability. The latest Census confirms the demise of single dwellings on quarter acre blocks; they’re “basically gone, they’re disappearing” says Wade.
4. First home buyer grants help first home buyers
In their first episode on housing, the team demolished the idea that first home buyers help to ease affordability for new buyers.
“That just ends up inflating the price of all housing because…the price goes up,” recaps Wade. Restricting such concessions to new housing developments is less bad if it encourages new supply. But that still doesn’t make housing cheaper, warns Wade. “If it adds to demand and supply in equal measure, it probably won’t have much effect on the overall price – it won’t actually mean that the prices are lower.”
5. Renting is just a stepping stone on the path to home ownership
Irvine calls for a revolution in renters’ rights, including an end to “no reason” termination of leases and a crackdown on bad tenants registers.
Gittins agrees, calling for a review of the existing balance of power between owners and renters: “Our system is we assume that people are renters. That used to be a lot truer than it is now.”
“When we decide that we’re never going to get the rate of home ownership back to 70 per cent…then the consequence of that is that we have to get a lot more tough on the law that really divides rights and responsibility between the owner of the house and the people who rent it.”
Make sure to stay tuned to the end of this episode as the team confess to their worst examples of creating “-onomics” suffixes.
Gittins learns for the first time of “Tinderonomics”: “It’s got something to do with lighting fires?”
The team call for an end to the “onomics” craze. Wade: “Enough’s enough.” Irvine: “We’re calling for a moratorium. No more.” Gittins: “I will not do it again. Until the next time I think of a good one.”
Got a question? Email the team at firstname.lastname@example.org, tweet using the hashtag #italladdsup or leave a message on the podcast hotline 02 9282 1632.
Listen to previous episodes here or subscribe now wherever you get your podcasts.