This could be a scenario we face unless we address some fundamental problems with the way our market works and the people who profit from rises in the market.

If middle Australia cannot afford to buy a home in the area they work, the real estate industry will collapse, this means your future will be in another industry.

For us to really see where the problem is we have to understand how much it actually costs for the average Australian worker to live in a capital city. We also have to assume that Joe and Jill are a dual income family, because since the mid 90′s it is now nearly impossible for a middle to high income single person to purchase a house in any capital city in Australia without serous financial help.

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Joe & Jill

Note: Joe and Jill are both on Australia’s Average Wage of $62,000 per annum before taxes, they living in Brisbane with a $421,000 purchase price (Median House Price Brisbane 2009) with a 5% deposit. As you can see Joe and Jill are short by about $23,000.

You can pick apart these figures and that Joe and Jill can make some adjustments, just as equally you can add some expenses. But what are we here for – to work out 65 years of our lives scraping to get by? Every single economist that wheels out statistical data that points to a property shortage and tells us this is the reason why we will have a boom, does not understand that collapses occur when the majority are out of their depths financially..

Dangerous ideas

So here are some ‘dangerous ideas’ for you to mull over and if these ideas at least get into the conversation I will be pleased.

Good signs?

Anytime I hear some expert telling us there are some ‘good signs’ in the property market, I cringe. It is as if this is the correct statement, it is not, it is actually the opposite of what it means. Good signs for who?

• First home buyers? These people already need assistance to purchase a home, so any increase in prices is going to hurt them.
• Single home owners? Certainly not if they want to own just one home, most poeple buy in the market the sell in. So it makes no difference.
• Realtors? Certainly not, the higher the prices, the lower the volume, the only good boom came in the 90′s, which basically got prices up to a reasonable level and gave a good return for a good sales person. If the volume was there you could say yes, but the volume isn’t.
• Dual Property owners? Perhaps yes, as property prices rise, the size of their investment swells. However taxes come into play.
• Governments? Yes, if all taxes are directly tied to property prices by percentage then they reap the benefits of any rise.
• Banks? Yes, the volume might be down but property price rises usually mean interest rates rises also, so they get a double benefit.

Why do we think it is a good thing when we hear that property prices are going to rise or that the next boom is coming. Why real estate institutes are always so eager to make these statements and why agents do not revolt against this kind of language is beyond me.

If I were a real estate agent, I would be welcoming a slow and steady decline in property prices and a slow and steady increase in real income. Can you imagine the turnover of property sales if we were in a market where middle Australia could actually afford to buy a home in any capital city?

We kid ourselves when we turn to the government to prop up the market. We need to get home prices to a level where more of middle Australia can play than the current climate where fewer and fewer can.

Taxes

Let’s get one thing clear, duties, excises are always to be referred to as taxes, period! Anytime a state or federal government takes money from the people they are to be referred to as taxes, never let them fool you that any of these taxes are for the greater good.

Let’s make another thing clear, in my mind, the only way middle Australia can succeed in owning a property is for state and federal governments to get their filthy, dirty, stinking, corrupt, incompetent hands out of the way of any consumer real estate transaction.

Removing stamp duties and land taxes gets the government out of the way of the transaction and allows them to look at housing problems without having to work out how much it is going to cost them. Any organisation that has an interest in property prices increasing is never going to look at things objectively.

Remove incentives

How many people could afford a home if property prices were actually just a life purchase and not an investment property. Property prices would probably be at least half the price they are today. If I were an agent I would be happy to see any incentives removed from the purchase of properties. They may give some short term impetus, but they are a waste and

Phase out negative gearing, it only aids the wealthy few percent these days. Before you howl down about rentals shortages, take your own interest out of the thinking. Negative gearing does not help the real estate industry and their is no evidence that it will help people wishing to rent by allowing for more stock on the market.

Self Sustainable Kit Homes

We always hear about how expensive it is to create a new subdivision, provide services such as power, water, waste etc. Then how about the government providing incentives for some of these amazing kits homes that are 100% self sustainable (power, water, waste, telecoms) and can be set up in days.

Set up an independent body that evaluates each home on its merits and make have councils pre-approve certain homes styles and types for their area. So within weeks a person can buy land, build a house and start living in it saving time and money.

if you are not convinced then have a look at the links here from a 2007 article.

A recent survey by Wendell Cox Consultancy has pointed to the fact that it now takes more than 8 years of salary to buy a home in Sydney, up from 3.5 years in 1980. To me this would mean less first home buyers in the market. Now even if this is exaggerated, it is still bad for the industry. Yes agencies claim more commissions the higher the prices go, so do banks, so do governments, but who actually wins? Rising home prices only benefits the few, whilst for the majority of Australians it has become harder to buy into the market.

For mine, existence here on planet earth is about a lifestyle for all of us, our friends and family, as each year passes, lifestyles are being effected because most of our resources are being poured into having a roof over our heads, rising fuel costs, grocery bills.

I mean are we better off after all of these years of economic growth?

It seems that most people in the industry are only concerned about when a market booms – however having affordable homes means more buyers, more commissions, more turnover. If negative gearing was scrapped – yes there would be a few years of downturn, but we go through these cycles anyway. The good to great agencies would survive and yes some would flounder, but on the whole I think it would be a positive thing. If it ever were introduced it would be a slow introduction, but it would have an immediate effect. Negative gearing costs Australia around $3 billion a year, this money could be used to help first home buyers and be put to better use on infrastructure for land etc. Rising home prices puts upward pressure on wages and many other things. So maybe it is time for some brave decisions. If nothing is done all you will see are 50 year loans and even generational loans like in Japan. Surely this is not good for tomorrows kids entering property markets.

I am sure I will be picked to death on this one, banks, agents, governments and investors have a bit a stake here, but so do the millions of middle and lower income Australians. Many places today are still relatively affordable, but that will soon change unless something critical is done and done soon. Ditching negative gearing would have an immediate impact, many people would exit the market and yes there would be a flood of properties, but I bet there would be a flood of buyers as well.

So there it is, I feel I would be providing a disservice if I only wrote articles that would be popular, and I am sure this will draw some criticisms and possibly silence from some quarters.

But this forum is for discussion across a variety of subjects. So I would be interested in all of your views.

Further Reading

Wikipedia – Pro’s and Con’s of Negative Gearing

Real Estate Institute of Australia

Australian Democrats [PDF File 47 kilobytes]