Today’s Markets & Money comes to you with a problem that doesn’t need fixing.
We’re referring to Australia’s ‘phantom’ housing affordability crisis.
We say phantom only because it’s not a crisis in the truest sense. Not when almost 70% of Australians own their homes.
Maths may not be our strong suit, but even we see that this represents an overwhelming majority. And the rule on this should be clear by now: If the majority doesn’t think there’s a problem, neither does the government.
So where’s all this housing affordability crisis talk coming from?
From the government-homeowner tag team, of course. Landowners are calling all the shots. And they have their government foot soldiers supporting them every step of the way. Together, they keep the affordability crisis in the spotlight for their mutual benefit.
Before you dismiss this as quackery, we direct your attention to a recent ANU poll. The survey looked at the changing attitudes Australians have towards housing. One question in particular piqued our interest.
‘Are you concerned or not concerned about being able to afford to buy housing during your lifetime [among non-homeowners only]?’
36% of respondents were very concerned. 31.8% were somewhat concerned. 14.3% were not very concerned. And 14% were not concerned at all. Which means, of the 30% of Aussie households renting, two in three are concerned about affordability.
All told, it tells us that 22% of Australians worry about housing affordability.
Does that suggest a crisis? We can’t say for sure. But we know it doesn’t justify the amount of airtime this issue gets in the mainstream. Not unless the real beneficiaries of the public spotlight are in fact homeowners.
How Aussie homeowners benefit from the affordability crisis
Take a look at this question from the same survey.
‘Would you support or oppose the following suggestions? Provide first homeowner grants, among all respondents.’
42.3% strongly supported the idea. 40.7% supported it. And less than 15% neither supported nor opposed it, or were against it.
Scrapping homeowner grants might make it harder for people to save for a deposit. But it would hurt demand for housing as well. And curbing demand is the only thing that would adequately address affordability concerns.
For whatever else it does, homeowner grants raise demand in the market. The quicker buyers can save up for a deposit, the faster they’ll enter the market. That in turn supports property prices.
Now, we won’t argue homeowners have no concerns about housing affordability. But they worry more about the value of their home, and rightly so. This explains why the government does all it can to fix the housing market in the majority’s favour.
It may harp on about housing affordability in public. But it’s doing little to suppress price growth. Something they can only do through policies that lower demand.
That’s why our advice to those looking to the government for a quick-fix is to stop barking up the wrong tree. In fact, stop expecting the government to fix anything.
It won’t touch housing affordability, because doing so would put pressure on home values. After all, there’s a reason why every government ‘solution’ starts and ends with opening up more land for development.
Don’t expect that to change.
The super-deposit scheme
What do we make of the government’s plan to assist buyers in saving up for a deposit? It’s true that it would allow buyers to save up to $30,000 extra for a deposit. But, again, it’s yet another policy that puts existing homeowners first.
The scheme may help buyers save up for a deposit quicker. But it’s designed to support demand in the market. And that largely benefits existing homeowners in the long run.
The government may think it’s killing two birds with one stone. Maybe so. But it’ll never be able to appease both sides in equal measure.
Because the ratio of property prices to household income is going up, not down. Those concerned about affordability want to see their wages catch up to prices. Yet with wages growing at record lows, that can only happen as a result of falling property prices. For this to happen, demand would have to taper off. And we’ve seen already that the government isn’t ever going to allow that. Not when the landowning majority is calling all the shots.
Never lose sight of the big picture. It’s in the interest of both homeowners and the government for Aussie housing to remain expensive and unaffordable.
For everyone else, living in the boondocks might be the best way to beat the affordability crisis.
What this man reveals about the Australian property market goes against ALL popular commentary. But that’s nothing new — he’s used to causing a stir in the mainstream media. He predicted the 2008 US housing market crash as far back as 2004.
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This week in Markets & Money
On Monday, Vern took aim at plans for a commission review into competition in the financial system. The banks are far from happy about it. Especially when they rely on bank-owned planners recommending bank-owned products.
Does that lend itself to a conflict of interest? Vern definitely thinks so. He wrote at length about this in The End of Australia. Yet while most readers agreed, his position struck a nerve with one financial planner. Vern reprinted their exchange for M&M readers on Monday. Click here to read it in full.
On Tuesday, Jason noted that Macron’s election win had lifted uncertainty plaguing global markets. But it wouldn’t last long. A few days later, Trump fired FBI Director James Comey. That decision upset the Democrats, who are calling for a formal investigation into matters. Any investigation could derail Trump’s proposed reforms.
Suddenly, uncertainty is back with a bang. Jason says the US economy isn’t as rosy as markets think. The markets believe the Fed will raise rates in June. But if more weak economic data emerges, that expectation could change quickly. That’s why Jason reckons gold looks like an attractive short-term trade. How high could gold go? Click here to find out.
On Wednesday, Jason explained that markets are due for a major correction. We haven’t experienced a 10–15% correction for 18 months, and pressures are building in the global economy. The US dollar hit a six-month low against major currencies this week. Confidence in the US economy is nosediving. On top of this, housing, retail sales and inflation have all suffered in recent weeks. If the Fed doesn’t raise rates, as Jason expects, it could cause the first stock market crash in almost two years. For Jason’s full analysis, go here.
Vern agrees that a market crash of a much larger scale is coming. But he doesn’t think it’s imminent. He believes the market still needs to go higher before the ‘Big One’ arrives. As Vern noted on Friday, the fall from grace needs to be so devastating that a generation of investors will be scarred for life. Click here to find out why.
Did you celebrate Tax Freedom Day last Saturday? It marks the day of the year when Australians stop working to pay taxes, and start working for themselves. This year, it arrived on 13 May. Which means that Aussies spent 133 days working to fill the government’s coffers this year.
As Bernd noted in Thursday’s M&M, Tax Freedom Day has steadily arrived later over the past 50 years. In 1960, Australians spent the first 80 days paying taxes. Since the mid-1980s, it’s averaged between 120 and 130 days.
Yet, even though the government is receiving more than it did in the past, it still can’t break even. The deficit for 2017/18 is projected at $29.4 billion.
That suggests we’ll be celebrating Tax Freedom Day a little later next year… For more on this story, click here.
Until next time,
For Markets & Money