This week I wanted to start off by paying a special tribute to a much revered member of the real estate market place, the investor…farewell old friend. That’s right folks, in one fell swoop Jim Chalmers has deleted a buyer group from our screens, or has he?
Before I rant…which you know I will, I’m going on record to say that I agree with the concept that solving the housing crisis in Australia is a noble cause but I’m not convinced this budget achieves that or that the so-called crisis is actually solvable.
On the surface the idea of removing negative gearing and increasing capital gains tax may level the playing field but let’s play this out.
Firstly, the most affected by this budget are investors and they rarely pay the highest prices for properties because it’s a mathematical decision (owner-occupiers often buy using the other side of their brain). In most sales we see 2-3 serious buyers, if the investor moves on and is out of the picture it doesn’t adversely affect the price. Prices will stay high, why? The real issue is the lack of supply.
Secondly, as a property investor I feel uncomfortable admitting this but the grandfathering of existing assets means the ‘haves’ are protected. Mark Bouris made the point this week that if the objective of the budget was to tip the scales away from the older wealthier Australians towards the young hopefuls then grandfathering means it simply doesn’t do that.
But wait, the tax benefits apply on new housing which will stimulate building and supply right?…Hmmm but who can actually afford to buy these newly constructed dwellings? Just an FYI, they are generally not cheap and are subject to GST! On top of this riddle most developers are building premium products aimed squarely at wealthy downsizers, any ‘affordable housing’ will now sell to established investors who want the tax breaks and you guessed it, will then rent the properties out at a premium.
A cynical viewpoint here is that this budget was an attempt to try and win the hearts and minds of young voters that are drifting away from the major parties towards the Greens and One Nation. The narrative being “we are helping you young people out so vote for us at the next election”…I’m not sure $250 will do that.
I’m no economist but do you want my theory? Of course you do!
In Australia we have an enormous supply problem, globally more people want to live here and we have limited good land that is girt by sea. The combined factors of people living longer, record-high building costs, globalisation/immigration, poor infrastructure and of course rising interest rates means this is no easy fix. Low supply + high replacement costs + expensive capital = I’m glad I’m not in politics.
But… if I was a policy maker I would have considered moves like raising the GST (increased revenue), cutting government spending, maybe trying to convince the states to give first (and second) home buyers real stamp duty concessions to free up the market and finally incentivising existing property owners to sell their assets (offering tax breaks, deals on their super contributions etc).
I’m not saying I have the answers, last Mother’s Day I accidentally gave my wife a card that said ‘to the best Nanna I could ask for’ so I’m no thought leader but I’m not convinced this budget was real reform that will achieve its supposed aims.
So how’s the market? It’s a grind, it will be for a while I think, it’s just how it is, until it isn’t.
Until next week,
David Murphy