From Matusik Missive, Mar 16, 2017

So, we seem to want Australia’s housing to be more affordable.  Really? Well, there is only one way that this can be achieved.  The price has to drop – and in some places, sharpish.

An accepted affordability benchmark sees dwelling prices as sustainable at 3 to 4 times household income.

Now, for the sake of agreement, how about we lighten up this range a little and agree that Sydney and Melbourne are a bit precious; and that 6 times earnings are appropriate there and the wannabes, being south east Queensland, Canberra and Perth, come in with a 5 times benchmark.  And for rest of the country, we accept a 4 times dwelling price to household income.

So, how far do house prices have to fall – using these markers – before we reach a housing affordability goal?

Have a lookeyloo at the table below:

Scary stuff, hey!  And again, one must question if this is what is really wanted.  Lots of hot air about the issue, but will we really see any action?

For mine, if we really wanted to do it, then it could be done and in a somewhat controlled manner.  It would take three things:

  1. Reducing demand
  2. Increasing supply
  3. Removing outside interferences

So, how exactly?

  • No Australian passport – No buy, regardless of property type or status
  • Direct overseas migration to where we want it i.e. towards regional Australia
  • Simplify and change taxation – away from the current leniency towards capital gains to favour investment income.
  • One set of measureable planning regulations, allowing for climatic variances, Australia wide.
  • No government-funded buyer incentives, period – including first home buyers.
  • Standardise (and reduce, dramatically) all property-related sales fees and commissions.

But that will be way too hard.

So, we will continue doing what we have done for the past 20-odd years – kicking the can down the road, so to speak – by easing credit and spruikingmore government incentives.

The property cycle has been more turbulent as a result; and of late, unhinged from reality.

I will leave you this week with a couple of thoughts.

Firstly, debt is consumption brought forward and growth is the expectation of future consumption.

Secondly, high debt is like flying a plane with one engine – you can bring it home, but you don’t want to run into any more trouble.  And I think that there is plenty of trouble ahead.

Thirdly, does what you are planning to build or buy factor into this new paradigm?

Or maybe I should just shut my mouth?

¹An open mouth often invites a closed fist

Keen to hear your thoughts.

Until next time,
Michael Matusik

Matusik Missive by independent property analyst, Michael Matusik.  Every week Michael shares his thoughts on the Australian housing market.  Visit www.matusik.com.au to find out more.