This week we launched our Future Shapers projects to key stakeholders in our community. My team's project is called ‘Together We Build: a new era for housing in Ballarat’. Catchy right? The graphic we created was also pretty neat and explained how currently 54% of Ballarat’s population is a single person or a couple without children yet only 20% of Ballarat dwellings have less than 3 bedrooms.
The aim of our project is to explore how best to encourage diversity of housing in Ballarat. We need 1 and 2 bedroom dwellings big time and the demand is only going to increase as our population grows. We’re not quite sure how to do this yet but fundamentally we need to re-imagine the ‘Australian Dream’ of owning a ¼ acre block and actually start to build the types of housing that suits people's modern needs and ways of life. As part of this project I wanted to understand more about the 'Australian Dream’ and this is what I discovered, noting of course, that I’m not an expert in this field at all…
It’s ironic that I’d get the most transparent and educational explanation of the housing crisis from comedian Tom Ballards book, I, Millennial because it’s certainly not ‘ha ha’ funny... Tom uses his parents as an example when his Dad bought his first house, in 1976 Bendigo for $15,550 (about $102,400 today). He didn’t really give it much thought, other than buying a cheap house was better than paying rent. The national house prices in the 70’s were 3-4 times the median household income, today it’s almost 9-10 times.
As the Ballard family grew they sold houses to move into bigger ones managing to pay off their small mortgage quickly with each upgrade. Owning your own home was just ‘what everyone expected to be able to do one day’ Tom’s Mum recalls. Unfortunately the last 30-40 years have “cooked” Australia's $10 trillion dollar housing industry.
Ultimately the price of houses have been skyrocketing but wages simply haven't. Saving up for a 20% deposit in the 90’s took about 6 years, now it averages over 10 years. This has the median age of first home buyers jumping from the mid-20's in 1981 to mid-30’s today, with the number of people buying their first home in their 40’s and 50’s increasing by 50%.
Sadly, Australia is one of the world leaders in housing unaffordability with our outright home ownership being 13% lower than the OECD average. In March 2022 ABC’s money man Alan Kohlor reported that since 1980, real global house prices have risen by 68%, in Australia they have exploded by 568%. Isn’t that completely bonkers! Especially considering the majority of our houses are rated 2 stars or less!
The biggest scapegoat for the current housing crisis is supply… There simply aren't enough houses so we need to build, build, build! However the 2021 census tells us that there are approximately 10% more dwellings in Australia than households. Of the almost 11 million private dwellings across the country, 1 million were empty on census night. Most of these were holiday homes or investment properties.
To understand why this has hit crisis level we need to jump back in time to the birth of the ‘Australian Dream’, when the approach to Australian housing was primarily about people having somewhere to live. After WWII both the liberal and labour governments made housing security a major priority. From 1945 the Commonwealth oversaw programs that built thousands of new dwellings every year. During the Menzies era (1949-66) as many as 1 in 5 houses were built by the government. By the end of his reign public housing made up to 8% of all dwellings in Australia.
During this time young boomers were protected by one of the most tightly regulated financial systems in the OECD. It was extremely hard for foreign banks to take our money or buy our things. This was the era of mutually owned building ‘societies’ or organisations where community members pooled their savings together to buy land and build houses together. Sometimes these societies would end after the building was complete while some were set up permanently. There were no shareholders and all profits went back into the business to benefit members. In the mid 1950’s there were 600 such societies with over 60,000 members in NSW alone.
This approach and investment from the government worked. At the end of WWII barely half of Australians were homeowners. By 1966, homeownership increased to nearly 73%. The population also grew by 50% with post-war migration and people making babies but despite the massive growth, the housing market remained stable.
This stability lasted right up until the 70s and 80s until the Fraser (1975-83) government in 1981 led an inquiry into Australia's ‘antiquated’ financial system. The outcome was a 838 page report from business man Keith Campbell that suggested we float the Australian dollar, permitting the entry of foreign banks in the country and the deregulation of the banking sector in the name of better competition and free enterprise… Everyone was going to win!
Fast forward to 1987 and the number of banks operating in Australia had doubled. More banks meant more competition so there were fewer restrictions on who could borrow money and how much. This was the birth of the modern mortgage. Most of the building societies couldn’t compete with the banks offering so they collapsed and by 1996, Keating (1991-96) had finished privatising the once publicly owned Commonwealth Bank so all banks were now motivated by profit for shareholders rather than the social good of the people.
For-profit banks only care about your ability to make repayment, not how many houses you’re buying and they don’t mind if house prices keep going up because that just means bigger returns. Deregulating the banks was the beginning of the end of the Australian dream.
Privatisation of the banks created more opportunities for domestic and foreign investment capital and all of a sudden ‘homes’ turned into ‘assets’. You buy a house that people rent while its value increases then sell it for a profit. This is already an awesome deal but it was sweetened by negative gearing.
Negative gearing was introduced in 1922 as a pro-business measure designed to allow businesses to deduct their losses from their taxable income to help avoid potential early loss so they could become profitable down the road. It normally is used to write off losses against a similar income, so a rental property could be used to minimise a property tax.
It's quite unique that the Australian government lets you write of property loss from ANY income. In 1985 Keating declared it an ‘outrageous rort’ and told his cabinet that "the government cannot continue to tolerate a situation in which the general body of taxpayers effectively subsidises the property investments of a particular group of usually, high-income taxpayers.” So they ‘quarantined’ the losses so they could only be written off against income from the same investment - like how most negative gearing in other countries works…
Due to some aggressive lobbying this only lasted for 2 years and negative gearing was restored to its former glory. This of course flooded the market with investors who, with some cheeky adjustments to capital gains tax (CGT) were about to massively reduce their tax bills (again).
In 2003 the Reserve Bank of Australia started to worry and wrote a submission to the Productivity Commission noting ‘With negative-geared investments particularly attractive to individuals facing high marginal tax rates, a high share of Australian taxpayers are attracted to property investment to lighten their tax burden’.
The ‘downside’ if you're a renter, first home buyer or a normal human or ‘upside’ if you're an investor was that this flood of landlord demand caused the biggest and fastest jump in residential house and land prices in Australian history. In just three years house prices grew from 2-3 times household income to 4 times the typical income.
This toxic mix has caused our housing crisis: the deregulation of the banking sector and huge tax incentives for investors. A house was no longer a home but a ‘wealth generating asset’. No longer are they safe places to live but are piggy banks to park and grow capital. Boomers typically brought a house to live in, millennials are told to ‘get their foot in the door’. Just buy something, anything so you can sell it to hopefully buy something you actually want later on.
Tom sarcastically writes “Remember: houses are homes for money, not for people”. With 1 million homes empty on census night 2021 he’s hit the nail on the head. 10 years after the CGT discount was introduced the number of property investors has swelled by 30%. In the early 90’s 5% of all home loans were made to investors. By 2015 investors made up half of all new mortgages. You throw in some low interest and borrowing rates and demand for houses has never been higher which again drives up prices. This perfect shit storm is what will exclude entire generations from living the ‘Australian Dream’!
Amazingly a pandemic couldn’t even slow borrowing down with property investors taking advantage of the low cash rate and borrowing $10 billion making 2020 the highest on record for number of houses and apartments sold. Ever. In the middle of a pandemic!
Unfortunately these investors are only making the problem worse by taking from the stockpile not adding to it. Twenty years ago 1 in 6 loans investors made were for new builds, now it's one in every 16.
Today there are 2.4million Australians with rental properties investments and you can see why when you look at how we got here. Sadly the market has been designed around benefiting investors, not the 30% of Austrlians who are renters. What I can’t make peace with is the some 40,000 Aussies who own more than 5 properties in the middle of a housing crisis?
Shit. This really has become an essay but I think it's important to understand where the ‘Australian Dream’ came from if we’re going to make it relevant for Australians today. The Australian dream was a post WWII idea that was supported by the government in a closed financial market. There was no such thing as global warming, student loans or mental health. The world is a completely different place. We can romanticise all we want about how good it used to be (boomers are awesome at that) but that is going to do sweet fuck all for the majority of the population, who are below the age of 40 and have grown up during this downward spiral and are then being told they simply not working hard enough.
Redefining the Australian dream is our community project and we have 3 months to do it! Wish us luck or reach out if you want to help!
