Quoting the Canada Mortgage and Housing Corporation (CMHC): “having braked hard enough to stop your car from barreling down a hill, you don’t declare victory and release the brakes”. Quite sensible advice really, unless, of course, you are the Australian housing sector.
We had the Royal Commission put the spotlight on the loose lending practices of the banks, requiring lenders to focus on a more reasonable household expenditure measure and use a conservative interest rate of 7.25% to test the serviceability prospects of the borrower. RBA Interest rates have been held steady for a few years in the face of lower interest rates around the world. Household real incomes has been in the doldrums for a decade. We became the second highest indebted nation on the planet, with stagnant wages and higher home prices finally taking their toll with home prices falling.
Rising home prices are the problem – that’s the problem that needs to be solved. Lower home prices should be the policy of the Government. Quoting the CMHC again, borrowing money is bringing forward tomorrow’s income. Household Liabilities is nearly 200% of disposable income. Not a lot of tread left on the tyres really, but it looks like the brakes are being released so we can barrel down that hill.
Labor lost the election, so negative gearing is back, and the capital gains tax discount will not be reduced. APRA has reduced the loan serviceability benchmark from 7.25% to 6.25% allowing stretched households qualify for bigger loans. And the Government has added to the States’ First Home buyer grants by agreeing to guarantee the portion of the loan between 80% and 95% LVR. The RBA has two or three interest rate cuts on their way.
Australia’s housing industry and assorted hangers-on are apoplectic at the prospect of lower home prices and reduced turnover. The Victorian State Government has marked down stamp duty on home transfers by $5.1 Billion over 4 years, resulting in a raft of tax increases to cover the shortfall. Research4 reported that 27% of new-home buyers in Melbourne defaulted on their lot purchase in the March quarter, compared with 2% at the same time in 2018. The northern Melbourne suburb of Donnybrook is 50 kms from the city centre, where a 4-bedroom house on 440 sq. metres of land costs $640,000. We need an enquiry to find out why basic housing has got so expensive. There is no scarcity of land in Australia, but the country’s system of land banking allowing excess profits flow to private companies needs careful examination.
Rather than shake off the parasites that cling onto the housing complex, the Government encourages the infestation with more fuel to lift prices and turnover.
I leave the last word to CMHC: “Please look past the plain self-interest……..and see house price moderation as helpful: an intended consequence”. “I would ask you to see past those who insist that everything will unfold benignly, as we all nonetheless hope. As a former US Senator once said,” A billion here, a billion there; sooner or later it adds up to real money.” And then we have a problem — and one we could have avoided”.