21 Mar Renters’ dreams shattered – Tim Reardon
While it surprising to see that 92% of renters aspire to actually own their own home, less than half of them think that they will never achieve that dream. Chief economist for the HIA Tim Reardon says that is a big concern for his organization and it should be changed – but how?
Kevin: Well it was surprising to see that 92% of renters aspire to actually own their own home but less than half of them think that they’re ever going to achieve that dream. Joining me to talk about this chief economist for the HIA Tim Reardon. Tim thanks for your time.
Tim: Good afternoon. Thank you.
Kevin: Yeah, it’s interesting and I guess in a way it’s a little bit discouraging too. What did the research show?
Tim: Yeah. So, we’ve taken a survey of 1500 everyday Australians across all jurisdictions and it was undertaken on behalf of HIA by an independent research organisation. And as you pointed out 92% of renters aspire to owning their own home one day. And to be honest with you I’m not quite sure why that isn’t 100% of renters aspire to own their own home one day. But it is very good to hear or to get data that reassures what you already know to be in place. The concern is just that just under half of those people expect that they will ever own their own home.
Tim: The reason we found out that people aspire to own their own home is because they see that home ownership is important for retirement. It provides a level of financial security and that comes from the belief that or the fact that homes are not taxed or the family home is not taxed and the prospect also of if changes to government policy in relation to superannuation undermine the integrity of that. But home ownership is seen as being a stable base upon which you can build for retirement. And another interesting statistic we found out was 81% of Australians, or everyday Australians believe that they should be able to own their home regardless of whether they’re renting or not. And as a consequence of those factors we see that housing affordability is a top three issue at the next election just ahead of immigration and the environment in terms of where it ranks for everyday Australians.
Kevin: In terms of priorities too I think a lot of people would think that housing affordability is a major concern ahead of things like healthcare and even ageing.
Tim: Yes, that’s correct. And also of concern is that the majority of people see that affordability has deteriorated over the past decade and the majority expect it will continue to degrade over the course of the next decade. And within that they do see that government is the cause of that underlying problem and because of that the majority of average Australians believe that government have a very significant role in assisting first time buyers into the housing market. So, that most significant barrier to home ownership is getting a deposit to purchase a home. And so, 61% of the population ask for government assistance for first time buyers to get on that first rung of home ownership.
Kevin: Well, just when we thought things may just get a little bit better then we see the decline and expenditure on residential housing became an even stronger head wind with the latest report out. Can you give us some comment on that Tim?
Tim: Yeah. So, we’ve been expecting a downturn in building activity for some time and you have to keep in mind that the last four years we’ve built five years worth of new homes. There’s been an enormous boom, an unprecedented boom and there’s still an enormous volume of work that’s currently in the pipeline. But in the second half of last year, particularly within the last quarter and even worse in December we started to get some very poor data. The reasons behind that are numerous so a range of factors that we’re aware of, APRA restrictions included simply house prices causing a deterioration in market confidence. So, all of those factors we anticipated. The one we didn’t anticipate was the credit squeeze and that’s the bank imposed credit squeeze.
Tim: And essentially, what occurred last year was the amount of money banks are prepared to lend to every individual is around about 15% less than what it was 12 months earlier and that’s just tightened up the market at that bit more that we hadn’t expected. Now, at this stage we haven’t revised our forecast and we don’t plan to until we have more data. One month of very poor data is not sufficient to draw too many conclusions from but we would hope to see some improvement in some of those leading indicators. I’m talking here about new homes sales and housing finance. We would hope to see some of those pick up in the first six months of this year. And given the constraints that banks have imposed we would expect that they would start to ease off some of those restrictions. They may recognise that those overcooked that credit squeeze and that we will see a few more investors and a few more first time buyers back into the market or borrowing more money to, able to borrow more money in order to purchase their first home.
Kevin: Well, what does it take for them to realise that Tim because I think right now it’s fairly obvious that they probably have gone too far with some of those macro prudential controls. I mean is it just up to government? Is government that powerful that it can actually pull those levers and make properties more affordable almost overnight?
Tim: Well, certainly the restrictions that have been imposed to the banks are government restrictions so the answer to that is yes. The government set out to take investors out of the market and they’ve been entirely successful in doing that.
Kevin: Very successful yeah.
Tim: Yeah. And so then, you begin that cycle that we’re in at the moment where house prices come off, market confidence comes off, and we’ve lost that fear of missing out. First time buyers take that pause and they go, “Well I’ll just wait another three months so I’ve saved more money and house prices will have come down. I’ll be able to buy an even more aspirational home.” What occurs after this is we know that house prices are going to go up again and the very moment that they do it’s actually a very sudden return of both first time buyers and investors. And we see a bit of a price spike for a short period of time. And that’s all of those first time buyers and investors who thought they could pick the bottom of the market perfectly and then discover that they missed it. And so, even myself as a housing industry economist I certainly wouldn’t prophet to say exactly when that will occur but inevitably at least half of the market will miss that.
Kevin: Yeah. Tim what do you think long term if Labor win the next election and they start to fiddle with negative gearing? Do you think that’s going to make this situation even worse?
Tim: It most certainly … Well, the short term effect is to further damage investor activity in the market. The long term effect is that it does reduce the supply of new homes and that’s the underlying cause of the rapid house price rises that we’ve seen over the past couple of decades. And the goal should be to have less government involvement in the housing market not more. The market needs to be able to respond to changes in demand. From a builder’s perspective they can deal with market risk, they can deal with product risk. What every business struggles to deal with is regulatory risk and so changes to taxation arrangements as they come in, as they come out, as they get adjusted that causes pain to businesses within that industry. So, certainly from our perspective we don’t see any gains out of that tax change quite whether the labour party embraces that early on if they were to be elected. Certainly the timing of that would be exceptionally inopportune at the moment given that the very rapid decline in building activity that we’re seeing at the moment. But in terms of principle as well regardless of the timing it’s not a good outcome.
Kevin: Tim, great talking to you. Tim Reardon is the chief economist with the HIA. Tim thanks for your time.
Tim: Awesome thank you.