The year the Australian Dream died

[Jon Bon]

https://www.bbc.com/news/world-australia-67723760

Calling all Aussies! Is it really that bad there?

I guess I really don't understand how things can get so expensive. If I am a builder and I see "used" houses going for crazy money you bet your butt I am going to start building and selling new houses! The article talks about a lot of things, but it barely mentions building more housing. Which is btw the only thing that actually can bring down prices!

Here in the states we do have a big NIMBY problem, but generally those folks like SFH, and are split on multifamily or "stumpies" the 5 over 1 midrise buildings. So lots of building is happening, my neighborhood is about surrounded with mixed use 6 story apartment buildings. We don't really have any problem with land, we have plenty of that. There are always new neighborhoods being built up in the suburbs. I would imagine Australia is the same.

Is it just a mismatch of supply and demand? I completely understand that a family of 5 wants a yard, a safe quite space, and good schools. Asking them to live in a high rise right by the subway might not be for them?

Here in the states,  have way to many people living in SFH on 1/3 acre lots. Those house and expensive to build, take a ton of infrastructure to maintain, and frankly there are just not enough of them for everyone to live close to the city thus the increase in prices.

TLDR I am >10 years past being a first time home buyer, are things really that rough? Or did they just find a few cases of folks who are too spendy pants to buy their first home?

[Log]

One component is that Australia's NIMBYism problem is comparable to that of the US, but their population is growing faster. Higher birth rates, more immigration, and lower death rates due to an overall slightly younger population.

The other aspect is that Australian policy offers even more incentives and tax breaks for people to dump their wealth into real estate, pumping up speculative/investment demand even higher than it is here in the US, which then of course makes the NIMBY constituency even stronger.

While real estate is a huge portion of household wealth for the less wealthy in the United States, as you go up the wealth scale, stocks and private business ownership make up larger and larger proportions of wealth. I don't actually know the data for sure, but my suspicion is that wealthy Australians have a larger proportion of their wealth in real estate than wealthy Americans do. And since they're the most vocal and powerful political constituency, it's much harder to change policy that is propping up their speculative bubble.

It's actually very similar in some ways to the problem that created the Chinese real estate bubble, but without the abundance of residential highrises connected to modern metro systems and national high speed rail. Bummer.

ETA: Here's a piece about some of the specific policy blunders of Australia that make housing into more of an investment asset.

ETA further: I think some of his policy proposals would have a smaller impact than one might hope, but implementing them doesn't hurt, and it at least demonstrates that further and more aggressive policy action to expand the housing supply is needed.

I'd also add that some of these tax policies have similar warped incentives as what Prop 13 does in California, which further goes to show why subsidizing home ownership for wealthy retirees is stupid policy.

[ChpBstrd]

The article talks about a lot of things, but it barely mentions building more housing. Which is btw the only thing that actually can bring down prices!

Oh, IDK. Un-subsidized 9% mortgage rates with 5-year maximum terms, no more tax depreciation for landlords holding appreciating assets, deregulated zoning, changes to building codes, no more PMI-enabled 3% down payments, and a cultural shift toward living with other people instead of all alone in a 3BR SFH could change things a lot. There are probably lots of other things which could bring down prices other than building even more houses.

The other aspect is that Australian policy offers even more incentives and tax breaks for people to dump their wealth into real estate, pumping up speculative/investment demand even higher than it is here in the US, which then of course makes the NIMBY constituency even stronger.

And this gets to the core of it. Policy is set by homeowners, who have an interest in making housing more scarce because it raises their property values and allows them to hoard more infrastructure like streets and parking. Just like stock investors lobby for lower taxes on their gains, home owners lobby for policies that will make their investments go up. This is democracy hijacked by speculators.

The system incentivizes other people to join the homeowners bandwagon, because the homeowners have a plausible plan to make tons of money with their leveraged investment. Plus, buyers can reason that other buyers will be similarly attracted to home ownership in the future for the same reason. The end result looks a lot like the meme stock craze of 2021, except on a decades-long scale. FOMO and the rationale that more buyers are coming for a reason (short squeeze or housing policy) increases interest in the investment. As more investors pile in, the case for even more investors piling in becomes stronger.

It's safe to say there is no political possibility of the type of reforms which could reduce home prices, and that's a very good reason to buy a home.

[Jon Bon]

Ok that makes the classist tone of the article make a lot more sense. If houses were essentially just speculative assets and "taken out of circulation" if I was again a first time home buyer I would be pretty pissed off about it too!

 If I stored all my wealth in houses, I would have more then I currently had!

Yeah Prop 13 is pretty dumb.

So back to the Aussie problem, if they do in fact build more houses, rich people might buy them just to store their wealth?

I mean that happens everywhere, but generally houses that should be rentals (multifamily) makes a lot more money then houses they are not meant to be rentals (SFH) so the market tends to balance it out.

[Jon Bon]

The article talks about a lot of things, but it barely mentions building more housing. Which is btw the only thing that actually can bring down prices!

Oh, IDK. Un-subsidized 9% mortgage rates with 5-year maximum terms, no more tax depreciation for landlords holding appreciating assets, deregulated zoning, changes to building codes, no more PMI-enabled 3% down payments, and a cultural shift toward living with other people instead of all alone in a 3BR SFH could change things a lot. There are probably lots of other things which could bring down prices other than building even more houses.

AKA increasing the supply. I think we are saying the same thing.

[Fresh Bread]

I'll tag some Aussies in case they want to weigh in. One of them owns multiple properties. @deborah @happy @Ozlady

The article makes some very good points. I only arrived in Au twenty years ago so I didn't know that the rules changed around that time. It certainly explains the different perceptions between the generations. The older ones see no issue in the average house price being nine times the average household income because interest rates were higher when they bought. But they bought in the last century before the system got rigged. They likely weren't bidding against multiple investors. And high interest rates kept prices low when there weren't investors around. Interest rates were around 8%+ in 2008 when I bought which isn't exactly low but the market was still going crazy because investors. Luckily (for some) the financial crisis brought rates crashing down and house prices dipped slightly or plateaued.

The housing stock is incredibly poor quality too which is a further insult! I built somewhere to live in the back garden of my SFH to solve that problem and also take advantage of a planning law that helps create affordable rentals.

That law plus social housing is the answer to the rental crisis which I see as the bigger problem right now than ownership. No working person should be living in their car or a tent. Also I'd like to see higher density, some sort of incentive to encourage empty nesters to downsize, and disincentives for owners that leave properties vacant. We have so much vacant housing stock because a proportion of owners are so eyewateringly wealthy that renting out their property is more hassle than its worth!

[happy]

Hmm, not sure if I can capture all my thoughts succinctly enough.
1. there is a lot of hysteria (media driven IMO) about housing prices and young folk not being able to afford a house. Many of my friends young adult kids ( in their 20s) have been able to buy a house with ordinary lower rung incomes by essentially following the rules of good old mustachianism. But it's usually a house/apartment that needs work and/or is not in the suburb one might necessarily want to live in forever. From my point of view thats how my generation got into property ownership with interest rates of 17-18%.Its not easy, but it can be done.Some of my friends bought their first home shared with their siblings in order to be able to afford it. The youngsters of today unfortunately have been indoctrinated with much higher expectations...I hear all about how they don't want a fixer-upper, don't want to start small and trade up, want to live in a nice suburb etc etc, therefore wah-wah can't afford a house.
2. we definitely do have a housing shortage which is a combination of high building costs, governmental red tape with regard to development, some NIMBYism, immigration, and poor social policy around affordable housing etc.
3. Aussies like to own their own house. But there has always been a proportion of society who have not been able to do so. Now all of a sudden the world is coming to an end because everyone can't afford to buy a house. Again change in expectations. I would home ownership to be possible for anyone who desires it, but it never was that way and I'm not sure why the narrative has changed.
4. Australians in general have tended to invest in property rather than the share market, and I suspect our smaller stock market compared to say US might be the reason.

I'll tag some Aussies in case they want to weigh in. One of them owns multiple properties. @deborah @happy @Ozlady

The article makes some very good points. I only arrived in Au twenty years ago so I didn't know that the rules changed around that time. It certainly explains the different perceptions between the generations. The older ones see no issue in the average house price being nine times the average household income because interest rates were higher when they bought. But they bought in the last century before the system got rigged. They likely weren't bidding against multiple investors. And high interest rates kept prices low when there weren't investors around. Interest rates were around 8%+ in 2008 when I bought which isn't exactly low but the market was still going crazy because investors. Luckily (for some) the financial crisis brought rates crashing down and house prices dipped slightly or plateaued.

I'm not sure I know what rule change you are talking about - there has been negative gearing in one for or another for around 100years although starting in the 1980s there have been ongoing changes  and reforms by both the left and right wing governments. Unfortunately changes seem to have made things worse, or at least not provided the relief expected. How is the system rigged? Do you have data about an increase in investors? As far as I am aware there have always been investors competing for housing stock...that has been both my and my parents experience before me.

[Fresh Bread]

Hmm, not sure if I can capture all my thoughts succinctly enough.
1. there is a lot of hysteria (media driven IMO) about housing prices and young folk not being able to afford a house. Many of my friends young adult kids ( in their 20s) have been able to buy a house with ordinary lower rung incomes by essentially following the rules of good old mustachianism. But it's usually a house/apartment that needs work and/or is not in the suburb one might necessarily want to live in forever. From my point of view thats how my generation got into property ownership with interest rates of 17-18%.Its not easy, but it can be done.Some of my friends bought their first home shared with their siblings in order to be able to afford it. The youngsters of today unfortunately have been indoctrinated with much higher expectations...I hear all about how they don't want a fixer-upper, don't want to start small and trade up, want to live in a nice suburb etc etc, therefore wah-wah can't afford a house.
2. we definitely do have a housing shortage which is a combination of high building costs, governmental red tape with regard to development, some NIMBYism, immigration, and poor social policy around affordable housing etc.
3. Aussies like to own their own house. But there has always been a proportion of society who have not been able to do so. Now all of a sudden the world is coming to an end because everyone can't afford to buy a house. Again change in expectations. I would home ownership to be possible for anyone who desires it, but it never was that way and I'm not sure why the narrative has changed.
4. Australians in general have tended to invest in property rather than the share market, and I suspect our smaller stock market compared to say US might be the reason.

I'll tag some Aussies in case they want to weigh in. One of them owns multiple properties. @deborah @happy @Ozlady

The article makes some very good points. I only arrived in Au twenty years ago so I didn't know that the rules changed around that time. It certainly explains the different perceptions between the generations. The older ones see no issue in the average house price being nine times the average household income because interest rates were higher when they bought. But they bought in the last century before the system got rigged. They likely weren't bidding against multiple investors. And high interest rates kept prices low when there weren't investors around. Interest rates were around 8%+ in 2008 when I bought which isn't exactly low but the market was still going crazy because investors. Luckily (for some) the financial crisis brought rates crashing down and house prices dipped slightly or plateaued.

I'm not sure I know what rule change you are talking about - there has been negative gearing in one for or another for around 100years although starting in the 1980s there have been ongoing changes  and reforms by both the left and right wing governments. Unfortunately changes seem to have made things worse, or at least not provided the relief expected. How is the system rigged? Do you have data about an increase in investors? As far as I am aware there have always been investors competing for housing stock...that has been both my and my parents experience before me.

I was using the info and wording from the article.

Sorry I'm on my cracked screen phone & can't drag and edit this huge text above.

[deborah]

The article just says that there were changes at the beginning of the millennium, and not what they were. I suspect they were the changes John Howard brought in just as he was about to lose government, which were very poor fiscal policies, but that successive governments have failed to reverse, because it would be political suicide.

To a large extent, I agree with happy. I bought my first house with a 17.5% mortgage, and it was very run down, and needed everything fixed. Most young people bought houses nowhere near their parents, and in new, outer suburbs. Today’s young people appear to expect to buy near their parents in middle suburbs. But whereas we had a reasonable commute, the outer suburbs are a lot further out now, so the commute is brutal.

Australia is one of the most urbanised countries in the world - about 90% live in cities as against 82% in USA, and something similar in Canada. We don’t have many cities either. We have almost 27 million people, with almost 5 million living in each of Melbourne and Sydney. Brisbane and Perth have over 2 million each, and Darwin is the 17th largest with a bit over 100 thousand, so the housing problems really boil down to housing problems in Melbourne and Sydney, and, to a lesser extent Brisbane and Perth. One of the reasons Melbourne has recently overtaken Sydney in population is that the problem is worse in Sydney, as Melbourne currently has more lower priced housing stock. The federal government has recently released new policies and money to address the issues and has targeted more new housing for Sydney than Melbourne.

Both cities have struggled to decentralise, so there’s a lot of commuting.

To add to the problems, since about 2009, there have been many homes destroyed in floods and fires on the outskirts of all these cities.

We also have one of the higher rates of migrants. 30% of people came from somewhere else, compared to 15% in the US and 21% in Canada. They’ve all got to be housed somewhere. We also have a very high number of international students.

However, it should also be noted that both Sydney and Melbourne have appeared in the top ten in various lists of “the most liveable city in the world” for much of this century, so they’re both very good places to live.

Note: Australia is a similar size to the contiguous USA, which is roughly two thirds the size of Canada, which is why I compared the three countries.

[Fresh Bread]

I agree, Sydney is a great place to live!

There were only 22 million people here when I did my citizenship test, IDK when, maybe 10-12 years ago. I honestly don't know where we've put them all, we certainly have not built much in Sydney in that time and half of them are being torn down for building defects. I exaggerate but there are plenty of dodgy new apartments. First apartment I bought here had two rounds of building defect repairs.

First place I bought was a 2 bed house in the UK in the late nineties, on a single graduate income. I don't tell Gen Z that.

[Ozlady]

Hi

What is essentially the Australian Dream? Is it the quarter acre plot of land with a house within 20 minutes of Sydney CBD?

If it is, i do agree...for a young couple with no Bank of Mum and Dad , it is difficult...but if it is an apartment and a roof over your head, then of course it is still possible...

Then upgrade further down the track...

Or alternatively, move a bit further from the CBD ... OR move to another state ..

So much possibilities...i would put my head down and  be realistic instead of wasting time whinging...

Or you can always follow the China "Lying Flat" movement...google that..

[happy]

So much possibilities...i would put my head down and  be realistic instead of wasting time whinging...

Amen.

[Zhiantara]

(Okay, so I wrote the below, and then realised I got way more rant-y than I’d intended, but I don’t actually want to delete any of it so… enjoy?)

Who’s whinging? And who are today’s young people?

The people I know who whinge the most about the housing market are my Boomer parents and their siblings.

The younger millennials I know are moving out to the very edges of the metro area to suburbs that were market gardens and horse paddocks 5 years ago. The Gen Z’s I know are living in share houses or with their parents and are cool with it.

I don’t blame people for wanting to live near their parents. We keep hearing about the breakdown of family ties and the epidemic of loneliness - I think it’s pretty reasonable for people to make that choice, especially if they have kids. My brother spent $850k on a 3 bedroom 1950’s fixer upper, complete with asbestos and lead paint and roof leaks, in the outer suburbs, so his kids can grow up near his wife’s parents. Because he grew up without any extended family nearby and he wants different for his kids.

Also, the infrastructure in Melbourne’s outer suburbs is lagging so far behind that getting somewhere that should take 20 minutes takes 40 by car or 1.5 hrs by public transport. Ask me how I know.

But genuinely, I don’t hear a whole lot of whining. They’re out there, and come from all different generations, but they’re getting more attention than their numbers deserve.

What I have seen as someone who’s worked in community services, is that the people who are experiencing the most housing stress are the people who will never own and know they will never own. Those escaping family violence (or trying, plenty of people can’t unless they’re willing to live in their car with their kids in winter - no, services can’t or won’t take them in, I’ve tried. Fun fact, the wait for social housing in this area, if you have young kids which gets you on the fast track, is 14 years), people with physical and psychosocial disabilities, the newly arrived and humanitarian migrants. I’ve been inside these houses and they are in such a poor state that I would never live there, but they’re paying more in rent than I do for my mortgage. And they’re often overcrowded as well. And then there’s the problem of these most vulnerable people being moved out to regional areas (by affordability, or placed in social housing) where they are away from family and friends and there are no services - this happened a lot with Gippsland and they currently have the highest rates of family violence in the country, and only 40% of their child protection roles are filled at any one time. Of course people want to move back to Melbourne.

From a social work perspective, we’ve taken something that should be a human right - to have a safe place to live - and turned it into a way to make money. I don’t have answers. Disappointingly, when we covered this at uni last year they didn’t have any answers either. But the problems with the system are way more complex than negative gearing and whining young people.

As for whether the Australian dream is dead? The people I know who even care about it are usually making it happen, and the rest are focusing on other things.