What is the true cost of housing – and is it too high a price?

https://www.erepublik.com_housing-program-needed-

If there is one thing that seems to make people angry in my line of work, it is the suggestion of changes to planning rules around housing. Either we are flooded with complaints that not enough is done to protect an area, or we are bombarded with (often) aggressive reactions that we are proposing too much regulation, and this is strangling their opportunities. Sometimes both are apparently happening at the same time (which is very odd).

Occasionally, when I am not feeling under siege, I try to work out what is really going on. All this pent up rage can’t be solely because of the proposal to require a little more garden space in new developments, can it? People’s lives can’t really be ruined because the neighbouring house is a metre closer to the street than the one it replaced, surely?

I don’t think so. I think the complaints about these issues mask more significant matters. I think it is because there are a lot of people out there who rely on their homes for their security. You know the saying – ‘as safe as houses’? This view – or this right to have ‘secure housing’ seems to be engrained into the psyche of so many Australians. I agree – housing and shelter generally is very important. However the expectations around what housing is their ‘right’ seems to have shifted.  And any changes in circumstances, or changes to their assumptions, are often viewed as a threat to their rights. Why is that?

Housing matters

Where we live matters deeply to most of us. Possibly not, if you are so incredibly wealthy that a change around you wouldn’t have any real impact – because, if you hate the development next door, maybe you could offload that Toorak mansion, and instead spend your time flitting between your French chateau, your sprawling estate in the Caribbean, or one of your other suite of investments. And possible not if you are someone who is so secure or carefree enough in their future that you don’t worry about where you might be living next (just imagine being content living out of a suitcase? Just – imagine. I … no, I can’t). If you fall into either category, you live in a different world to the rest of us (and good on you – but you probably won’t relate to the rest of this),

For the rest of us, housing matters deeply. This is true whether you are a home owner (outright or with the bank), a renter, or someone who is struggling to find somewhere to live. Even investors, unless they have a significantly large number of properties, tend not to see housing as ‘purely’ financial matters.

And this makes sense. I was reading a good description in an edition of the New Philosopher magazine titled ‘The Property Wars’. One of the articles, ‘Putting a price on the home’, Flora Michaels writes how ‘ownership is deeply emotional’:

  • at its best, it provides ‘the dream of security, the promise of refuge, room to breathe, a place of stability and continuity’,
  • ideally (for those who like order) ‘somewhere where there is a place for everything and everything in its place’,
  • significantly, it can be, ideally, somewhere you belong, ‘not least to your own life’.

At the same time, we are called to ‘not to get sentimental about your real estate purchase’, always think about what a future buyer might want when renovating or rebuilding, and see property ownership as ‘a step onto a rung of the ladder that leads to a good life’ – a ‘chance to build equity’.

To add even more pressure, thanks to home renovation shows and the like, the family home is seen as a means of expressing your personality and the way you want to be perceived. It isn’t always enough to like the bathroom design – you also have to think about what that shower / bath arrangement, and that choice of tiles says about you (and whether it is what a future owner might also want). And it’s where your relationships play out – the functional indoor / outdoor living contributes to a functional family dynamic, and a thriving friendship circle. Yes, this last one might seem over the top, but if you read the way possessions and renovations are marketed, they are very emotive in their language, and many people get sucked in as a result.

Property ownership – the means to emotional, relational AND financial security. That’s a fair bit of pressure resting on any land you might own, isn’t it?  I read somewhere about the dangers of letting the things you own end up owning you. Can this be a danger with the house (or more) that you buy?  Is it reasonable to think of housing as, really, a guarantee for the future?

What if:

  • You are someone who has taken out an interest only mortgage – and have no other equity?According to a recent report, around ’40 per cent of all new mortgages originated have been interest-only mortgages and in these cases, home buyers only make money if their houses keep rising in value’. (source). Buying property does not guarantee you will make money – especially if you can only manage to hold on to it for a short term because you cannot keep up with the repayments.
  • You are reliant on others’ help – either in terms of loans, or acting as guarantors, if you choose NOT to take an interest only loan), you may wish for some help. Not everyone can borrow from family members who are able to spare the money – sometimes family members are stretched to do so, and sometimes, they do not seem to be aware of the risks they are putting themselves in (for example, the Uber driver who said he had his own house, had bought five investment properties in Queensland with no cash deposits, and went guarantor for his daughter who bought a $2.2 million home – source).
  • You have invested in a home for your retirement – and then find out that your pension might be reduced, or removed all together, based on the value of your home, as the Productivity Commissioner is currently proposing?(source)

For these people, housing is not secure. And for some, this is because the rules have changed over the many years since they first bought. For those people, that is very sad, and scary, and I think there needs to be some measures to address it. For others, they did not recognise that, in buying a property, they were making an investment. And potentially, they were not able to manage the costs (not only the financial ones, but the costs of their dreams – the scale, for instance, of their ‘dream home’ – potentially being changed).

 

Investment = risk

Buying property is an investment – and all investments involve risk. In the case of property, it’s not just regulations that might change, but the demand for your product – its location, the type of building, the required sales price relative to the costs you have incurred, and of course, other policy changes at a state or federal level. Risk is inherent in the certainty and scale of return. Of course, that risk could be worth it − but, alternatively, you might not be the one to come out a winner, depending how much risk you take, and how much risk you can weather.

This  might seem obvious (economics 101) – but, based on so many discussions I have had recently, to many people it appears that it isn’t obvious.  If you have no ability to weather the risk, then no wonder you get a bit antsy, to say the least, at the thought of any changes that you think might, potentially, have an impact  on your profitability.

And no wonder that political parties can seize on this fear, to try and point score against one another. For instance, at the suggestion of changes to the negative gearing, raised by the Federal Labor Party, seemed like a winning idea to strike down by the Federal Government. Change to negative gearing – bad. Change – of any sort – is bad.

But of course, bad for whom? The Government wasn’t sure. This left the Greens a bit of room to be opportunistic as well, and make a bit of a deal about the confusion within the Government about negative gearing implications (and if the Greens hadn’t done it, probably Labor would.) All very funny – but is it really helping to meet the overall needs for housing Australians?

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An alternative approach

It isn’t just home owners who are affected by federal and state policies, and planning decisions, and land releases, and the rest. It is those who would like to buy. It is those who choose, or need, to rent. And it is those for whom even these choices are not available. Sometimes renters, those in subsidised housing, and the homeless, seem to be forgotten in the rhetoric of ‘not letting housing prices fall’.

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Wouldn’t it be great if, maybe, we could be a little more relaxed about housing – at least, those of us who own a property (or two or more). If we could look at things in a different light, perhaps?

Just imagine … *

For one thing, you could be homeless, for real. Oh, wait. Some people are. Melbourne, for instance, is experiencing a notable increase in homelessness, which cannot currently be met.  Current figures show over ‘Almost 256,000 people, more than a quarter of a million Australians required support from homelessness services last year. 70% of the unmet requests included the need for accommodation. For a single person with children, this rose to 93% of cases. And although the number of people needing accommodation was similar to the previous year, there were less people able to be housed.’ ( homelessness needs ).

Or you could be in a situation, as is happening to an increasing number of elderly people, and middle aged or older, single households (often women),  where your only options are lower cost housing, located away from family and friends – and work. (source).

Or you could be a younger person, with limited financial support behind you, who is overwhelmed by the prospect of breaking into the housing market. For the average Sydney homebuyer, the average home cost 12 times the annual income (compared with four years in 1975) source (and this is similar for other capital cities). So many people are unable to overcome this huge barrier.

 

Imagine – if those of us who have more than we need but often want more – bigger – quicker – and then on to the next thing changed our focus? Or if we recognised that, collectively, we do have a lot of accommodation options that are underused, and the opportunity to address shortages, within the current system. But, the opportunities for the right sort of housing (that is affordable, accessible to services and also accessible for those with mobility needs), and the like, exists, but is not currently evenly distributed.

Imagine if, rather than worrying about whether minor changes will significantly impact on us, we look focused more on helping those with less, or nothing, to have more secure living. Could that, actually, help us all to be more secure?

It’s a thought worth pondering – and making more than just a (Great Australian) dream.

Where do you find your security? Is it partly in your home? And are you paying too high a price for it?

 

 * For instance, an alternative approach was posed by Professor Jago Dobson of RMIT University this week in The Conversation. He notes that “Australian tax debate has placed negative gearing under scrutiny. Most of the debate lurches between retentionists, who back negative gearing as a necessary subsidy to support affordable housing, versus abolitionists, who see it as a market-distorting extravagance that delivers an unfair advantage to the wealthy. But what if there was a middle option between retention and abolition that made it work better?”In this article, Professor Dobson floats some ideas which might lead both to retention of some advantages for investors and better outcomes for those who are not in a position to invest. It is not the first of this sort of discussion, and it isn’t the complete picture.

 

 

 

 

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