Community upheaval as great Australian home ownership dream dies

In most cases couples on average incomes cannot obtain the finance to buy a capital city dwelling unless it is run down or very small

The national concentration on issues like interest rates, inflation and the referendum is obscuring the fact that the Australian community of 2024 will be different to anything we have seen in the post WWII era.

Bankers tell me that in most cases couples on average incomes cannot obtain the finance to buy a capital city dwelling unless it is rundown or very small.

Renters aged in their late 40s find the finance door has been shut and they can no longer buy the most valuable asset they can have for retirement – a dwelling.

Accordingly, they must live with their family, rent and later get themselves into an aged care facility. The social ramifications of these fundamental changes are only just emerging.

Another fundamental change is also taking place. The affluent people in the community have cut back their spending partly because they fear a significant downturn and partly as almost a social contribution to help the Reserve Bank. Perhaps they know their children/grandchildren will need help.

In part the politicians of both major parties plus the regulator APRA have been key contributors to this state of affairs and so altering the environment will require them to change their policies.

In the case of home loans the “risk buffer” APRA requires banks to calculate over and above the interest rate being charged means that the interest rate calculations for loan eligibility are now around 10 per cent.

That means few people on average incomes can pass the test.

Meanwhile, partly as a result, we are set to experience a build for rent boom in our major cities, although in Sydney the bureaucracy mess which delays approvals and contributes to higher building costs will need to be first dismantled.

And to all that we can add higher power prices because of the renewables cost miscalculations.

In most cases couples on average incomes cannot obtain the finance to buy a capital city dwelling unless it is run down or very small.

In recent weeks I have been writing about the components of this social change on an individual event basis, but it is now time to stand back and look at what is happening overall.

We went through a period of unlimited bank credit to buy dwellings and a great many people purchased dwellings on loans that they now are having difficulty servicing.

After the banking royal commission and when rates were low, APRA set interest rate rules for home lending that are now making it impossible for ordinary Australians with good jobs to buy dwellings.

In normal times that would cause the dwellings to fall in price to bring those people back into the market. But a series of events including the crashes of building companies and difficulties in getting approvals has cut back supply and at the same time there has been a huge rise in migration.

Accordingly, dwelling prices have not fallen and indeed in recent times the prices have risen slightly. The banks want to lend more for housing but are not able to do so.

Unless the rules are changed bank profits are going to be tightened because their past great driver of profitability – home loans – particularly in Sydney – will be a low growth earner. Non bank lenders with higher funding costs will fill some of the gap.

But we will become much more of rental a society.

Accordingly, first overseas institutions and later our local institutions will build large complexes on a ‘build for rent’ basis so creating a very different Australian society to anything we have seen post war.

The process of course may be delayed if politicians make more mistakes by trying to artificially push down rents rather than foster greater supply. .

One of the great drivers of the Australian nation has been the belief that if a couple had reasonable jobs, they would be able to buy a house or an apartment. In turn that has been a major force in the aspirations of Australians. I fear that if it is removed then Australia will be a far less aspirational nation and that will reduce the productivity in smaller enterprises, large companies and of course the public service. That’s an assumption that will be legitimately debated.

Leaving that aside, clearly, we need more rental stock, and we will also need to make a decision as to whether we want to reserve home ownership to the affluent. And if that happens then don’t be surprised by further rises in the sort of community upheavals we are now starting to see particularly among males. (of course, the reason for those upheavals extends beyond housing issues).

But the group of people that I really feel sorry for are individuals and they can be couples but are often single females who suddenly discover that banks are not allowed to lend to them because they are too old to take out a 30-year loan.

And that leads us to a pillar that may be required to change if we want to restore a situation where people with reasonable jobs can buy a house. We established our superannuation movement in an era where people could buy dwellings. In my view the superannuation movement must now be adjusted to help members buy dwellings because superannuation has always been a secondary aid in retirement. The first essential is a dwelling. In future commentaries I will look at ways that this might be done.

Last month the retail network explained to me that their affluent customers had money but were holding back spending. That has now been confirmed in the banking figures --- the affluent are increasing their savings rate. They maybe be back in the market either late this year or in 2024.

Footnote

I urge all large corporate boards and particularly CEOs to read the approximately 500 reader comments on the Don Argus warning that directors who supported the “Yes” case without checking the details in the Uluru statement could trigger a “challenge” to their fiduciary duties.

Among those comments was the revelation that leading up to the Uluru statement reparation of an extreme amount was canvassed, payable annually over almost two centuries. Reparations at anything like that level are most unlikely to take place but large amounts would destroy the financial environment that our large corporates prospered from. Accordingly, it is clear our modern boards and corporate leaders need to read every week the words of the late SEK Hulme that were quoted by Don Argus.