I've been wondering who owns all the houses in Australia? It is evident that the Government uses the housing industry to drive the Australian ecconomy; when the building industry slackens the ecconomy slows. This is one reason that the Government of the day (of all persuasions) bolsters the building industry. The other reason is that if the Australian Dream becomes an unreachable goal there would be a serious back-lash in the polls.
But if we are meant to be building and buying more and more houses, who owns them? How do we pay for them?
As I mentioned in this post, some American research indicated that higher house prices can be directly linked to the advent of two income homes and the greater bidding power that affords.
The Bureau of Statistics (in 4102.0 - Australian Social Trends, 1997) says that "Over the period 1983 to 1996 the average housing loan for a newly erected dwelling has increased from about twice average male full-time annual earnings to about three times." In 2005 this can only have increased as the average cost of building a new dwelling increased 100% whilst Average weekly earnings increased 31%! And the Reserve Bank of Australia noted: "since 1996 the average new owner-occupier housing loan has more than doubled in size from $99,000 to $215,000"!
I've always wondered what the impact of multi-house owning homes could be? Research by the Reserve Bank of Australia referenced at http://www.abelrealty.com.au/news/householdwealth.htm said:
Around 17% of all households that participated in the survey owned a residential property that wasn’t their primary place of residence, with a median value of $200,000.
It's interesting to note that:
Of these households, only 10.3% received a rental income from their second property.
If this 10% figure was true, it did make me wonder where all the rental properties came from?
I'm not sure what previous figures indicated, but I'm assuming that the percentages are increasing. This only makes sense: as you pay off your primary place of residence why not invest in another? Especially as a Holiday Cottage still holds quite a lot of kudos.
So, why do you need another house to rent out? To make money of course. And that's alright for the two (or more) house owner, and it's OK for the renter, but for the other would-be house buyers it gives an unfair advantage to the multi-house owner. As the AustLii Australian Journal of Taxation summarised in their reseach [http://www.austlii.edu.au/au/journals/JATax/2005/4.html]:
Our analysis suggests that negative gearing offers substantial tax advantages to wealthy property investors and that the first home buyers’ grant/benefits are no match for it. Although negative gearing is not the only cause of the housing affordability crisis, it is a substantial factor in pushing first home buyers out of market. Monetary measures, such as raising interest rates, are more detrimental to owner-occupiers than investors due to investors’ ability to pass on up to 48.5% of any additional costs to taxpayers through their tax deductions.
Low interest rates and the relaxation of lending practices over recent years have added value to the tax advantages associated with negative gearing. Moreover, steadily increasing housing prices and concomitant uncertainties in the capital markets have augmented strong investment growth in the housing sector. It could also be argued that the ascendancy of “get-rich-quick” gurus has stimulated speculation in the housing market. It is hard to understand policy directives that encourage negative gearing in a climate where there are enough other inducements already present within the market to promote housing investment. It may well be time for a reappraisal of investment policy within Australia in order to reduce the current inequities in relation to home ownership. A policy of social justice and fairness would suggest the need of reducing the tax benefits associated with negative gearing, thus reducing the markets’ attractiveness to investors and enabling more first home buyers to fulfill the Australian dream of owning their own home.
The statistics are saying that more of our homes have mortages than they did previously (about a 18% increase from 1996 to 2003). There are manmy "normal" reasons for this: house prices go up so it takes longer to pay off, etc. The Reserve Bank [http://www.rba.gov.au/PublicationsAndResearch/FinancialStabilityReview/Sep2005/Html/rates_iho.html] also notes though:
The upward trend in the share of owner-occupier households with housing debt reflects a number of factors. One is that households now have larger debts relative to their income than was the case previously, and therefore the average time taken to pay off the debt is likely to have increased. This is particularly the case where households draw down home-equity loans, or refinance and take on a larger loan when the value of their property rises. A second reason is that there has been an increase in the share of households owning investment properties, with investors – who are typically (but not universally) owner-occupiers – often having some debt secured on their primary residence.
What does this mean? More and more people, as the equity of their home allows, purchase an investment property using their current home as surity. This is pretty much a win-win situation: As more investors enter the market the price of houses are pushed up due to competition which pushes the first home buyers out of the market who therefore have to rent from the people who have bought the investment properties. Everybody wins! Please excuse the sarcasim.
We obviously need people to invest in housing, as there will always be people who can't afford to buy a house and will choose renting. But how do you control or otherwise direct the greed evidenced by these statistics?