Short note 2023

Gottliebson rightly notes below that in Australia from here-on, it is going to be impossible from many young people to leave home. I and my contemporaries back in the '60s left home at age 16. Why? Because we could. Affordable rental accommodation was available -- even if only in a boarding house. That liberty is gone. The ever-growing power of ham-fisted governments has destroyed housing availability

For young people who do not have accommodating parents or available parents of any sort the only alternative is going to be shared accommodation, and that can be a difficult experience. So the aristocracy of the future is going to be those who have wise parents. If your parents worked and saved during their lifetime and were then able to buy and pay off a comfortable home, you too will be able to live in comfort and may inherit that home when they die.

But there will be many outside that aristocracy. There are always many people who become parents while poor who remain poor. They will have no advantage to offer their children. And even if you are lucky enough to get into social housing, your problems may not be over. Both the the quality of the housing and the quality of your neigbours will often be a problem. Welfare housing can be hell: Drugs, crime, violence, noise etc

So privilege in society will be more and more a function of your housing. If you have inherited comfortable and secure housing, you will be sitting pretty. If not you will face perennial difficulties. You may in some cases be capable enough to earn a high income and thus be able to break out of your inherited trap by buying a house of your own but that will be rare

The national concentration on issues like interest rates, inflation and the referendum is obscuring the fact that the Australian community of 2024 will be different to anything we have seen in the post WWII era.

Bankers tell me that in most cases couples on average incomes cannot obtain the finance to buy a capital city dwelling unless it is rundown or very small.

Renters aged in their late 40s find the finance door has been shut and they can no longer buy the most valuable asset they can have for retirement – a dwelling.

Accordingly, they must live with their family, rent and later get themselves into an aged care facility. The social ramifications of these fundamental changes are only just emerging.

Another fundamental change is also taking place. The affluent people in the community have cut back their spending partly because they fear a significant downturn and partly as almost a social contribution to help the Reserve Bank. Perhaps they know their children/grandchildren will need help.

In part the politicians of both major parties plus the regulator APRA have been key contributors to this state of affairs and so altering the environment will require them to change their policies.

In the case of home loans the “risk buffer” APRA requires banks to calculate over and above the interest rate being charged means that the interest rate calculations for loan eligibility are now around 10 per cent.

Meanwhile, partly as a result, we are set to experience a build for rent boom in our major cities, although in Sydney the bureaucracy mess which delays approvals and contributes to higher building costs will need to be first dismantled.

In recent weeks I have been writing about the components of this social change on an individual event basis, but it is now time to stand back and look at what is happening overall.

We went through a period of unlimited bank credit to buy dwellings and a great many people purchased dwellings on loans that they now are having difficulty servicing.

After the banking royal commission and when rates were low, APRA set interest rate rules for home lending that are now making it impossible for ordinary Australians with good jobs to buy dwellings.

In normal times that would cause the dwellings to fall in price to bring those people back into the market. But a series of events including the crashes of building companies and difficulties in getting approvals has cut back supply and at the same time there has been a huge rise in migration.

Accordingly, dwelling prices have not fallen and indeed in recent times the prices have risen slightly. The banks want to lend more for housing but are not able to do so.

Unless the rules are changed bank profits are going to be tightened because their past great driver of profitability – home loans – particularly in Sydney – will be a low growth earner. Non bank lenders with higher funding costs will fill some of the gap.

Accordingly, first overseas institutions and later our local institutions will build large complexes on a ‘build for rent’ basis so creating a very different Australian society to anything we have seen post war.

The process of course may be delayed if politicians make more mistakes by trying to artificially push down rents rather than foster greater supply. .

One of the great drivers of the Australian nation has been the belief that if a couple had reasonable jobs, they would be able to buy a house or an apartment. In turn that has been a major force in the aspirations of Australians. I fear that if it is removed then Australia will be a far less aspirational nation and that will reduce the productivity in smaller enterprises, large companies and of course the public service. That’s an assumption that will be legitimately debated.

Leaving that aside, clearly, we need more rental stock, and we will also need to make a decision as to whether we want to reserve home ownership to the affluent. And if that happens then don’t be surprised by further rises in the sort of community upheavals we are now starting to see particularly among males. (of course, the reason for those upheavals extends beyond housing issues).

But the group of people that I really feel sorry for are individuals and they can be couples but are often single females who suddenly discover that banks are not allowed to lend to them because they are too old to take out a 30-year loan.

And that leads us to a pillar that may be required to change if we want to restore a situation where people with reasonable jobs can buy a house. We established our superannuation movement in an era where people could buy dwellings. In my view the superannuation movement must now be adjusted to help members buy dwellings because superannuation has always been a secondary aid in retirement. The first essential is a dwelling. In future commentaries I will look at ways that this might be done.

Last month the retail network explained to me that their affluent customers had money but were holding back spending. That has now been confirmed in the banking figures --- the affluent are increasing their savings rate. They maybe be back in the market either late this year or in 2024.

https://www.theaustralian.com.au/business/community-upheaval-as-great-australian-home-ownership-dream-dies/news-story/6d431f7dc763ddaf56a433855fab24d5