There is no one key factor as to why property is costing what it costs. Recently, people have been complaining that it's interest rates, it's international investment, and one of a million other reasons as to why housing is so unaffordable in Australia. However, the truth is, that it is a combination of factors pushing prices up. Here are the key reasons prices are rising.
1. Interest rates: One of the reasons prices have gone up is because of interest rates. Money is cheaper than previous times and that is pushing prices up as they see an opportunity in locking in interest rates. A 1 or 2 percent rise will put pressure and maybe increase the stock on the market, however at the moment, a lot of properties can be neutrally geared making their financial burden manageable.
Fact: Variable mortgages were 17% in 1989. That is one way to starve off investors buying up all of the property.
2: International investment: An astonishing amount of money has been invested in to Australian property. You hear these fanatics saying "Ban Asian investment!" however that isn't the solution. Surprisingly when the research was presented, international investment came from everywhere. And where did the second largest amount of investment come from after China's 6 Billion dollars in 2013? ..... That's right.... Canada, a country with a population of 35 million and very similar to Australia in some ways. Canadians invested just under 5 Billion dollars last year and you haven't heard ONCE for people to ban Canadian investment. The trick here is not to ban international investment, but to make it less attractive. Charging a higher exit fee on profit made off the property is one way, as well as increasing the taxes on international rentals received off an investment property.
3. Lack of supply: The hard cold fact about why property is expensive is because of basic economics. More people want to live in CERTAIN areas compared to others. Housing is not unaffordable in Australia, it just depends on where you want to live. The reason we read about property prices being pushed up is because more people want to live in some areas more than others. You can buy a home further out of CBD locations, but you have to sacrifice your ideal location in order to do it. If the government incentivised people to sell homes, we would have more supply and balance the demand issue. At the moment, people buy homes either in their super account or as an investment and land bank them. They pass these on through their family and never 'realise' their investment. Solution is to start encouraging people to sell.
4. Super is way to attractive: Before negative gearing is abolished, there needs to be an investigation in how we allow so many people to buy homes in their super funds. Super access has been a key investment approach for so many Australian's, what this does mean that if the investors decides to sell the property from the time they have started drawing down a pension, no capital gains tax will be payable. This is incredibly attractive as it's tax free profit. If you decide to hold your property in super, any rental income is only taxed at 15 per cent or not taxed at all during the pension phase. Solution: Tax people at a higher level when they claim revenue off their asset after claiming their pension.
So what is the solution. Well, as evidence there are multiple reasons that prices are what they are. We need to collectively tackle everyone of these and stop complaining that one is the reason for our economic condition. That's just naive and unrealistic. If we make amendments to some of these, work on building out more avenues like the first home buyers grant, but on a larger scale, and decreased the attractiveness for investors, then we may actually get somewhere. Whatever the case is, it won't happen over night, and it will take work.
About the Authors:
Todd Schulberg handles all things marketing for Homely.com.au - Living and breathing property, Todd has a keen interest in the movements in the market and how agents can utilise new tools and technology in order to be more connected. Using all things social, Todd suggests different ways that agents can engage and think outside the square with their marketing approach.
Rocky Bartolotto is the National Sales Director for Homely.com.au - Rocky's extensive experience in introducing new product offerings to the market and client management abilities makes him one of the most knowledgeable property specialists in the country.
In addition to his time working in the online space, Bartolotto is also one of Sydney’s top auctioneers, with over 4000 auctions performed through his business Auction Services.