The media has been headlining the affordability of housing and trumpeting vested interest solutions. Solutions offering increased access to money through superannuation, stamp duty and first home owner grants have historically increased the cost of housing. Excited first home owners will throw what ever money they can access to get into the market.
We have seen most government’s stream line planning permissions to try and drive increased supply. This approach seeks to flood the market. However, the Council planning charges are the same, the land price is the same, and building costs can’t decrease based on materials or labour. On top of this lenders don’t like risk, they won’t lend on too many developments in a small area.
Then there is a subtle influence from the unconscious vested interests of current home owners. The policy making politicians and public servants, want their own properties to increase in value over time creating their future wealth. They want housing to grow a little more slowly and first home owners to catch up with the market, rather than see their net worth change significantly.
The banks have a very strong vested interest. Their business is lending for housing. If the value of the property were worth less than the loan, this would cause a world of pain for Australia. They have stringent controls in place to prevent this occurring.
Trying to increase access to money for first home buyers or increase supply hasn’t worked. So the policy makers have turned to the other side of equation: demand. Can they identify who is driving demand and slow them down? The media has identified foreign buyers, who are mainly from China, and investors.
Foreign investors now face increased stamp duties in most states and territories. This has had little impact so far. However, the economic benefits of doing business with China are huge and form a vested interest.
Both NSW and Victoria are embarking on huge infrastructure spending based, in part, on reaping huge stamp duty profits from domestic and foreign buyers. The Federal Government is increasing visa access for the Chinese to support our international education sector. It was worth about $7B to NSW and $5B to Victoria in 2015. Influencing Chinese demand for property while benefitting from their spending is a sensitive issue.
Foreign government policy can also influence this group. Beijing has announced it will enforce its ban on money for foreign property investment from 1st July 2017. Many Chinese banks fell into line from the 1st January 2017. If they impose this restriction and it is effective, what will that mean for the Australian property market? We don’t want to even think about it.
Secondly, investors have been targeted. Home owners with equity are buying investment properties in large numbers. In a bid to calm this APRA have just introduced their second set of restrictions on lending to investors in two years.
Property investors benefit from positive gearing with the current low interest rates. If too many investors leave the market and there are fewer rental properties, then rents will rise. Rising rents will reduce first home owner’s ability to save, and investors will be back into the market based on increasing returns. This is a sensitive balance to maintain.
The Government is also making a significant change to the skilled immigration programme. This is the group of temporary residents brought to Australia to supply skills in the work force. About half of these people seek permanent residency each year or about 56,000 in 2014 and 46,000 in 2015. This group drives demand for property as well.
Government policies are driving a three pronged approach to reducing demand for property: through visa changes with fewer approved skill sets, through increased costs for foreign buyers, and through a reduction in access to investor lending. We also have the Chinese Government enforcing its policy to reduce demand for Australian property. We need our Government to manage these situations with enough sensitivity to calm rather than crash the market. This is a huge challenge.
Wouldn’t it be easier to increase accessibility to employment centres from areas with lower cost land? In Melbourne that is to the north, the west and past Geelong. In Sydney over the escarpment to the Central Coast, Newcastle and Wollongong.
Author Rosemary Johnston, Client Experience, Forrester Cohen. www.forrestercohen.com.au If you would like more information or to continue the social commentary, please email rosemary@forrestercohen.com.au