James Kirby: Chris Richardson was wrong to tell young people not to buy a home right now

Chris Richardson addresses the National Press Club in Canberra. Pic: AAP

Chris Richardson, is one of Australia’s best economists and his thoughts get widely reported.

Unfortunately, this week he stepped into what is now a super-hot housing policy debate and suggested people should just give up on trying to buy a home.

In case there is any risk he may be “taken out of context”, here’s exactly what he told the National Press Club in Canberra: “The one bit of advice I give to young Australians amid our housing market right now is: don’t buy.”

It is so easy for someone in a privileged position — such as a top economist who spends their days giving advice to institutions in boardrooms to make this call. And it is so wrong.

Wrong for a variety of reasons — initially because Richardson won’t get to make headlines should he come back in future to the issue and say: “Things have changed, you might buy now.”

Wrong because it is a classic academic observation that pays little heed to reality. A Deloitte Access Economics economist who will never need to rent, telling an audience who are fortunate enough to live with good jobs in a reasonably-priced housing district — Canberra — that “other people” should rent not buy.

But mostly it is wrong from a long-term investor’s view. Everyone has the right to be an investor and everyone gets a major opportunity with the acquisition of a home.

Whether Richardson’s argument may have merit in relation to social policy is a whole other story.

Richardson makes the point that “rents today make a lot more sense than house prices”.

Sure, rental yields at 2 to 4 per cent across most cities appear to have changed little from long-term patterns, while house prices have moved onto a new level, leaping ahead by 15 per cent or more inside 12 months in Sydney and Melbourne.

But rent prices only tell a part of the story:

Home truths

Rent is dead money, you’ve lost your chance to invest it. Renting over long periods is laborious, intermittent and regularly wasteful. There are moving costs, there is the wasted time maintaining — or even improving — a property you do not own. Yet these factors will never be worked into the equation by economists.

In our economy the investment that matters for many people, especially early in their working lives, is a home. If it only means swapping a weekly rent bill for a weekly mortgage payment, it is A start. It is not easy, but it is a crucial shift which moves the person from being a tenant to becoming an investor.

It’s beyond doubt we are reaching some sort of crescendo of interest in housing affordability. Many investors may see the debate as a political bunfight but it is more than that.

How it ends will affect house prices for years to come so Australian investors are heavily invested in this debate.

Any change in policy will affect prices — a scheme to allow younger people to use their superannuation, a scheme to assist older people to downsize their homes, any adjustment of capital gains tax.

Nationals leader Barnaby Joyce gets guffaws every time he trots out his argument that people should move to Tamworth, but it’s true that if you can have a good job and live outside the metropolitan centres, on a financial basis you win. In fact, nobody would know that better than Richardson’s audience of Canberra-based policy analysts and gallery journalists.

My colleague on this newspaper — the demographer and KPMG partner Bernard Salt, got phenomenal attention for chiding 20-somethings for paying too much for “smashed avocado” breakfasts when they might be saving to buy a house. But no serious long-term investor could argue with his logic that people need to save if they wish to own assets.

Fund manager Roger Montgomery recalls an observation from the world’s greatest investor Warren Buffett, that people are always ready to tell you it is not a good time to make an investment. Buffett mentions how he was warned against buying shares during World War II when the US was “losing in the Pacific”.

Something very similar exists today in the housing market — if you are buying a home that you will live in, that you will invest in, that you will not pay rent in …. then don’t buy into a defeatist attitude.