Tax rules blamed for homebuying spree

A panel of experts has declared Australians ‘dangerously obsessed’ with housing | LISTEN

‘Seeing 60-year-olds paying off million-dollar mortgages is horrible’: Anna Caruso outside one of her investment properties. Picture: John Feder

A panel of experts has declared Australians “dangerously obsessed” with housing, pinning the blame on tax rules that have lured waves of baby boomers into investment properties and fuelled an unsustainable credit boom.

Author and journalist George Megalogenis and Nicki Hutley, an economist at Deloitte, have told On The Fence, a podcast that delves in to the national relationship with housing, that Australians should get used to sharply lower rates of home ownership.

“We’ve hooked up the majority of the Australian population on a single idea, that the only way to make money through investment is through bricks and mortar,” Megalogenis said. “That’s a pretty dangerous thing to do with a society, literally to put all your discretionary household savings in the one basket.’’

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Ms Hutley said the rental market remained a “good option”.

“There’s a certain irrationality in people believing that home ownership is the only sort of end that’s sensible for them. Maybe people would be less obsessed if they felt that they could be more secure in some sort of renting situation,’’ says Ms Hutley, who advocated reform to improve renters’ legal rights.

There are signs house prices in Sydney and Melbourne are set to take off again, adding to the national debt burden, following cuts in the official interest rate by the Reserve Bank.

Anna Caruso, 52, has two investment properties in Sydney, a significant part of her investment strategy as she eyes retirement.

She built up her portfolio over the past 13 years, returning to Sydney from overseas in her late 30s with no savings to her name.

“I can’t stress enough the importance of having a plan, good financial advice,” she said. “Seeing 60-year-olds paying off million-dollar mortgages is horrible.’’

With an inheritance of about $30,000 Mr Caruso secured a small Edgecliff apartment, then worth about $240,000, in 2006.

She was shocked how much Westpac was willing to lend her in 2006 — more than $1 million. “Back then I was earning about $40,000. Maybe if I lived on baked beans for the rest of my life I would have been able to pay it off,” she said.

Ms Hutley said Australians had accrued “massive amounts of debt”. For Megalogenis, debt had become “the single biggest drag on our potential as a country”.

Home ownership rates have fallen from a peak of 70 per cent in the late 1990s to about 65 per cent, according to the ABS.

“The difficulty we’ve got now is the expectation that the middle class can afford to buy and ultimately pay off their house. Politically it’s a reasonable expectation, but economically it’s not achievable,” Megalogenis said.

Megalogenis declared Paul Keating’s reinstatement of negative gearing concessions “terrible policy… the single biggest mistake he made outside of the overshoot on interest rates”, which created a huge class of property investors.

“Boomers, they’re using the second, third, fourth and fifth property as retirement funds, and they’re not investing to get a decent yield. They’re betting the house, literally, on the capital gain,” he said.