Housing in the new millenium


Palm St farmhouse (2)My old mate Kev the Carpenter was apt to say, “If a house was meant to be moved, it would have wheels.” That witticism from decades gone by came back with a rush when I found a note in the letter box from house movers informing us that the original farm house in our street would be moved off the land at midnight. I walked down to the end of our street and sure enough, half the house was perched on the back of a semi-trailer, ready to roll, with the other half on a trailer, still on the land where it had sat for many years, but also ready to go. The owner of the land, who has donated the house to a worthy cause, is developing a small, sustainable estate. We did not get up at midnight to see the house off, but our fond wishes to whoever lives there in the future (once they put the two halves together again).

At least this house will be re-used and continue to give people shelter and succour for years to come. In our larger capital cities, developers think nothing of blithely knocking down a perfectly sound two-bedroom cottage on a large block to replace it with two or more, two-level concrete boxes, each of which will sell for more than the developer paid for the original property. This is called “infill” in the trade, and it is happening anywhere local Councils will allow subdivision of standard residential housing allotments. Not that we live in the past, here at the desk of Friday on My Mind, but we fondly remember when the great Australasian home owner’s dream meant an older, timber house on a quarter acre lot (or section, as they say in Aotearoa). There would usually be an ancient orchard, a half-falling-down garage, a laundry with a copper, two concrete tubs with a mangle and a long drop toilet out the back, covered in passionfruit and morning glory.
In 2014, your typical master-planned estate on the outskirts of capital cities now crams four properties into a quarter acre (1011 square metres) block. In the 20 or so years this trend has been evolving, some property owners have made a motza subdividing large suburban blocks and then parlaying their profits into a bigger, better home or one or more investment properties.
As we enter the second year of record low interest rates and rising prices, property investors are piling back into the market. A Roy Morgan Research survey found that the number of Australians with an investment property loan increased 37% to 1.31 million between March 2010 and 2014. The number of Australians with an owner-occupied home loan increased just 4% to 4.83 million over the same period.
A lot is said in the mainstream media about housing affordability and whether it is worse now than it ever was. It isn’t, according to the Housing Industry Association. But it will always be an issue for people who borrow 100% of the value of their new home, only to see interest rates start to rise.
This is a hot topic. Michael Janda’s ABC article “Home buyer beware: the illusion of affordability” generated 42 pages of online comments. Janda says the “bipolar commentary” about affordability is particularly confusing for first home buyers. He astutely notes that while aspiring home owners earned 2.5% to 4% in interest while saving for a deposit, the average home price rose 10% in just 12 months.
The Housing Industry Association (its members build houses), said yesterday that affordability was at its best in 12 years – cold comfort for those living under the 30/40 rule. If your mortgage (or rent), is costing you more than a third of your income, you will start to suffer housing stress. The situation is more dire for those on low incomes. The Australian Housing and Research Institute (AHURI) calls it the 30/40 rule, in which housing affordability stress is most acute for those earning in the bottom 40% of the income range and paying over 30% (sometimes up to 50%) of their income on rent or home re-payments. University academics Ernest Healy and Bob Birrell writing for The Conversation  say the 2011 Census revealed that a third of younger households were paying more than 30% of their household income on mortgage repayments.
In case you had been living in a cave on Great Barrier Island for the last few decades, negative gearing (introduced in 1985), allows property investors to run their rental home/s at a loss (two thirds of them do just that), claiming tax deductions for all manner of inputs. So little wonder the number of rental properties is growing. AHURI estimates that some 4.5 million people live in private rental accommodation (23% of households). These numbers are expected to grow as more young people abandon the notion of owning property.
AHURI researcher Judy Yates says affordability problems began 30 to 40 years ago when inflation switched the focus on housing from providing shelter security to providing wealth security. This structural change was exacerbated by changes in to capital gains tax in1986 which favoured owner-occupiers and CGT tax changes in 1999 favouring investors.
Healy and Birrell say the ranks of property investors have surged since changes to Self Managed Superannuation Fund (SMSF) rules in 2007. Regulators changed the rules to allow investors to borrow through their SMSFs to finance a property investment using negative gearing.
Whatever else happens, don’t expect the Federal Government to do anything meaningful about housing affordability. Too many potential votes would be lost.
On the other side of the Abbot-proof fence that separates the haves from the have-nots, embattled tycoon Nathan Tinkler is reportedly selling his sprawling ranch at Pullenvale in Brisbane’s western suburbs.
News.com.au reported that agents have fielded offers of $3 million for the mansion; well below what is wanted (the spread was bought for $5.2 million in 2007). Photos of this property on realestate.com.au suggest that prospective buyers will probably need to hire a couple of gardeners to maintain the 4ha of land, or at the very least, buy a reliable mower.
Down in the Village, someone has tacked a “mower wanted” sign on a noticeboard (“Will pay Bunyas”). Thinks: perhaps I can upgrade to the $99 electric mower I saw in a hardware store?

Next week: More about mowers, bunyas and things that don’t last.

One Comment

  1. When I was living in England my owner occupier mortgage interest was tax deductible. For my first house I didn’t earn enough to be able to claim all the possible deduction so I was able to get a mortgage at a lower rate equal to having received the tax relief. It was all aimed at helping owner occupation of course. I presume it had some effect but like all times the gov tries to affect behavior I expect it created market distortions.

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