The Federal Government blames the State Governments, the State Governments blame the Federal Government! What not one person has done over the past 12 months is, had a serious debate about the future of home affordability. Recently SBS aired a debate with contributors just skirting the issues. Today we see home affordability back on the agenda. Isn’t it strange how an election year will roll out all of the same rubbish from both sides of the Parliament. One thing is crystal clear, as it stands today, the kids of tomorrow will not be buying homes, this spells gloom and eventually doom for agents – something must be done in these next few years.
Listed here are some ideas.
1. Release more land: Seems like a no brainer, but more land available means lower prices for that land.
Problem: It is just so expensive to build a home today and with heavy taxes, taxes and taxes (you can call them taxes, levies, duties, fees paid to councils utilities etc. anything that goes to any level of government is a TAX) adding to costs ridiculously to build a decent home.
Solution: Kit Homes. I know we have seen these before but some of these kit homes coming out of the USA are extra-ordinary. When an order is placed, the house is built in a factory, trucked to the home site, and assembled in just one day! All levels of Government should approve certain designs so that buyers can confidently go in and purchase without all of the hassles usually associated with building a home.
2. Taxes: Stamp Duty? No, lets not call it that! It is Stamp Tax from now on and it simply has to go. Originally this was introduced to pay for the processing of forms. Today it is 100% automated in all states and electronic and has nothing to do with processing forms. State Governments sit around waiting for someone else to do something all of the time. It is time this right was taken away from them. The Federal Government did a deal and it is time for State Governments to honor that deal. Solution: 2 minutes of thinking in the naughty corner for State Treasurers around the country.
3. Interests Rates: 17 years ago Interest rates were 17% but the average home cost less than half of what it costs today. Michael Costa (NSW Treasurer) tells us yesterday that the reason people are not building or buying is that Interest rates are too high, that is just rubbish, it is the cost of servicing the loans -stupid! People do not worry too much about interest rates it is the amount and time it takes to pay off their home that they are concerned about.
Solution: Well I do know what banks do, they just increase the loan repayments to 40, 45, 50 years until we have what Japan has, and that is inter-generational loans. The solution is NOT sharing loans with strangers, this is just nonsence thinking and people will not do it, those who do will certainly run into problems in the future. Good governance and a lot of luck keeps Interest rates low.
4. Income: The Liberal Party do not like to hear it, but they will pay for Work Choices in the long term, keeping wages low when all other products/services and costs keep rising to market, is a recipe for disaster. Lower wages are great for inflation and great for business owners but bad news for employees. The government is lucky/smart we are in good times because when they turn the other way, employees will have to work for anything just to survive. The thinking is that if business costs are lower in good times then they employ more people (correct) and if wages are kept low then inflation/interest rates are kept low (correct to some degree). Currently there are more jobs available than people skilled for those jobs, but what happens when there are 10’s of thousands of people being laid off and all of these skilled people are competing for that one low paid job that they must take to survive? Ouch!
5. Negative Gearing It is the one thing that no one, not one commentator has brushed upon, but the main reason house prices are so high is because of negative gearing. To my thinking, agents need a future and they may think that dumping these tax benefits will hurt them, but it will not, the market will still grow slowly and maybe there will be no more booms, but there will also be no busts. What agents need are buyers and what buyers need are homes they can afford and scrapping negative gearing is what is needed, but I can tell you not one level of government has the courage to touch it. Paul Keating proposed this in the early 90’s and was howled down in days but, he was 100% right.
So here is what is needed in my opinion:
1. Scrap Negative Gearing over 5 years (no new benefits for first home buyers)
2. Scrap Stamp Duty.
3. Lower Land tax for first home buyers.
4. No new taxes.
5. First Home Buyers Federal Grant Lifted to $15,000 and matched by States.
If all of these things are done there will be a slight hold on the market but prices will remain steady for middle Australia and our kids into the future.