Insidious Aspect of Housing Crisis

The Coombah Roadhouse, the only one between Mildura and Broken Hill, is closed to the surprise of many travellers. The reason on the sign, COVID-19. That is understandable when the borders were closed so there would have been near zero traffic but it led to other realisations.

If a business such as the remote roadhouse could get staff (if that is or was part of the problem) where would they live? Not many locals out there. That discussion led to an old mate who is struggling to stay afloat in the snow fields commenting he cannot get staff now, partly because there is no accommodation for them. The housing once available for seasonal staff has been bought up by investors and airbnb type operators, so nowhere for them to stay except at tourist prices which is a bit rich. Not so much a worry in metro areas as in regions and tourist areas, but.

It is not just people not wiling to work, it can also be an environment, taken in broad context, that makes it impossible for them to do so in some regions. I’ll not take this observation further beyond not hearing about this problem in the last months, but thought it worthwhile to add as an addendum to problems in other topics from rental and estate agent experiences and other possibly related issues as a challenge for rebooting life and the economy. A staff shortage? Few commentators address all of the why’s. Maybe in the near future we will hear about some proposed solutions?

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I think that there is going to have to be a complete change in thinking on housing provision.
It will take a unified mindset from Federal and State governments, and local councils.

That is stop all the focus on handouts, tax concessions, first home buyers grants, etc to enable buyers to buy over-priced existing homes.

And put all the incentives into the provision of good affordable accomodation for long term affordable rental in areas where it is needed.

That would take some political courage. And some real longer term thinking from our politicians. Not going to get it from the current lot.

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All such handouts put more money into the market which will keep up the prices.

Efforts to take money out of the market by reducing tax concessions etc were not popular. You have to conclude that among all the complaints from those who can no longer buy in there are many who bought in long ago who are very pleased their nest egg is growing in leaps and bounds. They carefully say nothing in public but vote against restraint.

We have to decide if governments of all colours have been incompetent to deal with this problem for the last thirty years or if they have been duplicitous and have no intention of doing anything effective.

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I do not see housing as an investment. It should not be treated as an investment.
It is fundamentally shelter. A place where you can live.

If the capitalist private market cannot provide this fundamental need at affordable prices or rents, then the Gov needs to take over the role.

This is rapidly becoming the number 1 issue in Australia.

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The second statement does not follow from the first. Anything that has value and can be transferred from one person to another can become an investment. Often such things serve more than one purpose. A painting may bring joy to you every day you see it or it may be an investment, or both, or neither. A house may be a shelter or an investment or both.

The idea that housing could somehow be declared as not an investment makes no sense.

In my experience, you cannot live in a painting, or in a share portfolio.
Housing is fundamental, like provision of water, or electricity, or roads.

No argument. But the solution?

Our properties/homes have 2 cost components. Only one has real value. The other is an assumed value, more speculative than intrinsic.

The real value is the cost of the physical building (aka dwelling) on the land/lot. Looking to the typical Aussie family basic family home, possibly 3/4 bedroom 1/2 car garage on slab. On your land from around $200k up to $250k. One can always pay more but as a sample,
Hamptons Single Storey home from only $214,990

The variable is the value put on the land used. One square metre of dirt in central western NSW is exactly the same area as one square metre in the eastern suburbs of Sydney. No need to suggest that one contains a large supply of imaginary diamond dust and the other genuine bull dust.

To me the issue of housing affordability and the solutions are all with how land is valued. Governments do not need to build properties. They need to change how land is developed and supplied.

For anyone wondering what a block of land should cost. My first purchase was an approx 700m2 corner block on a cul-de-sac in a Capital City urban estate. Fully sealed to concrete curb/gutter, overhead power, phone line, water and sewage available. The minimum wage then in 1980, $128.29 per week.

Today the minimum wage is $772.60pw, or 6 times higher. On that rate of wage increase the same block of new developed land should be in the market for around $50k. Enough said about the cost of a block of land today or the handkerchief size of each lot.

The change by my observation of QLD prices is connected to this century or most recent 22 years of government. In the late 1990’s (1996-98) one could purchase a basic 3 bedroom new house and land package cyclone rated in Mackay QLD for around $125k. A suitable comparison given it’s a high cost location subject to mining influences. The minimum wage was approx half todays figure. Hence on the same basis today a $250k new house and land on blocks of 500-600sqm if all was fair.

No need to point the finger as to how this all came about, or who has been complicit.

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As an economist, whenever I see problem I ask myself what is causing the problem? Is it from the demand or the supply side of the equation. For many years the pet store galah would screech “supply”. Politicians be they local, state of C’th pat themselves on the back when “removing obstacles” to increasing supply (of land, or some other component of housing).

While I can’t pinpoint an exact cure, many interventions by gov’t have been disastrous form Australians, young and old.
One Kevin Rudd back in the day removed John Howard’s cap on foreigners buying new developments ie off the plan. Howard’s policy was to restrict foreign buyers to no more than 50% of new apartments in any development, but Rudd scrapped that and allowed foreigners to buy the entire inventory of apartments.

Bad enough as this denied Australians from entering the housing market.

Even worse was the realisation soon after making their purchases that many foreign buyers had an allergy to leasing out and so kept their investments unlet and locked up. The rental market was thus robbed of new premises, making it harder still for renters fighting for the few premises available.

I do not think limiting an Australian investor’s right to offer her apartment via airBNB is a fair answer.
A fair answer is say limiting foreigners from buying in certain areas or demanding they make premises they buy available to let or limit their purchases to premises above a certain price point.

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From a practical point of view how would you stop housing being used as an investment? I agree that the tax rules make them too attractive to investors and ought to be changed.

I see no prospect of preventing investment in housing and some nasty consequences should you succeed. For one the building of housing for rental would cease forthwith. How will that improve the housing crisis?

Reality explained. Solutions debatable?

Is having adequate supply of developed land part of the solution? Although continuing to expand outwards the urban footprint is not desirable in many locations.

Is having sufficient resources including skilled labour to meet demand critical to keeping construction costs down?

Is relocating employment opportunities to be near to new developments important? Is it about matching demand and supply to provide the jobs to pay for the new homes?

Well as an ex landlord myself, I have no problem with having a second property as an investment for the purpose of earning rental income and a capital gain when I sold. And I availed myself of the tax deductions allowed as long as the property was rented.

But it was for someone to live in on normal 12 month+ leases.

It was not for AirBNB type short stays. It was not a holiday home rented out by the week. It was not for the purpose of pure capital gain, and left unoccupied lest tennents cause damage.

It was for people to live in as they needed to as part of normal life.

I would propose that unless the property was for the purpose of providing longer term secure rental accomodation, tax deductions should not be available, just as your principle place of residence cannot have tax deductions.

Now having said that, I would add another solution. Where I live, there are many older proprerties on what were called 1/4 acre blocks although most were more like 1/6 acre.
People buy them, demolish the old house, and build a mcmansion on the block.
How about a great incentive from Gov to instead encourage the building of two homes on the site. Side by side, or front and rear.
If you have a big family, then use both houses. When the kids fly away, then rent out the other, or sell.

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Well done. A reasonable and concrete proposal. At least better than many of silly populist solutions that will just make things worse.

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I agree with Greg .
Being old fashioned I would like to see land purchased by local government and tiny houses installed and rent at good affordable prices, and a price they can buy at after so many years being a tenant.
I know just a dream but imagine all the homeless, workers,single parents etc and more have a roof to feel safe.
They have started this in Scandinavia and elsewhere.
Unfortunately all the politicians in Oz just feather there own nest and cannot see this, just the votes and think everyone here only wants the good life and not care about equality , so untrue.

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Greg is bang on and so are you. In the UK and elsewhere there are groups of very tiny houses which are only used as short term accommodation for the homeless, these all have addresses, and are provided by local councils. I don’t recall details, alas, and all my web searching has thus far not turned up the information I want. It could easily be done here, if governments of all kinds had a modicum of social conscience in these days of homelesssness, especially for those older women who are stuck through no fault of their own.

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From Council Rates when inspecting a property for sale in StKilda:
A property approx. 11m x 50m is valued by the State General Valuer at about 3 Millions Land Value.

If it’s to be an investment property the costs of Rates and Land Taxes will be enormous, and high rents a consequence.

The ‘gentrification’ of StKilda has been going on for some time now and there’s very few shared accommodations and boarding houses, putting many homeless people out in the street.
Interestingly, when our State Premier came to open the ‘Victorian Pride Centre’ in Fitzroy street, (cost of millions partly funded by the State, Council donating land worth millions) trucks had cleared away all traces of homelessness in the Fitzroy street shopping strip.

Even apartment units are being let short term or for Airbnb reducing the availability for long term tenants.

Are there too many concessions to investors? The argument is that if it wasn’t attractive to investors there would be even fewer properties for lease creating a bigger problem for tenants?

It’s a vicious circle in MHO.

The issues raised in The Guardian include ‘negative gearing’ and ‘capital gains’ tax treatment. I’d suggest it requires a lengthy discussion. There is the impact of competition on the market for established properties, and there is the the cost of the supply of new land with/without dwellings.

The lessons of the property market is it varies by location and property type. Those who are professional investors (we were not) rely on selected property values escalating faster than inflation and the investors total debt. Hence the price to buy in and rental costs need to increase faster than inflation to justify the outcome.

Agree increasing the supply of lower cost housing will put downward pressure on the market.

Reverting investment conditions to those that preceded the reforms of the 2000’s would put property back on a more equal footing.

Melbourne has a population density of approx 453 per square kilometre. Tokyo city more than 6,000 per sq km. There are certainly other ways to approach housing, smaller and more affordable?

Note:
We’ve owned several rental properties over time. Partly due to regular relocation for employment. We often rented and decided to secure a place having a property to fall back on if needed. Our first experiences predate the introduction of Capital Gains Tax (CGT) by Hawke/Keating and the more recent Howard Govt reforms. The second coincided with the run away increases in property values across Australia.

I spent my teen years in Moe, Victoria. Over half of Moe houses were government built and owned. They were manufactured in Dandenong and taken by road in halves. I believe there was a rent and buy scheme but not sure. That many of those houses are still existing 70 years later indicates they were likely fit for purpose. It was done in the past, why can’t governments see their way to doing this today. Developers have no interest in making supply meet demand when they can make huge profits developing. I see many empty houses when walking around, bought by developers, not tenanted because they need repairs, a year or two later the bulldozer moves in and an expensive McMansion appears, either owned by the developer and rented out, or sold at great profit due to the supply/demand imbalance.

I believe governments are responsible for 4 things: health, education, security and housing. They begrudgingly provide support for health and education, enthusiastically support security not the least by buying useless military equipment, and drop the ball completely on housing.

I agree with those that say housing should not be an investment. It is a necessity like food, clothing, air and water. I am aghast that my residence, bought for just over $100K in 2000, is now ‘valued’ at 7 or 8 times the purchase price and appreciating at $100K a year. There is a reason, and it is because people do see housing as an investment. Easy to see why - own four houses and bludge for the rest of your life. Instead of investing in something that could benefit Australia the ‘go to’ investment is to leech off people that can’t get into the housing market by renting at rates that do not reflect in any way the cost of maintenance. It may not be called serfdom, but it has all the hallmarks.

Another side issue of housing- the number of new developments, apart from environmental problems with large footprints in the inner burbs is Lack of Tradies for maintenance jobs.
Cannot find a handyman / carpenter to do repairs. And for someone to clean my split air conditioner I’m expected to pay $140 for call out fee to get a quote! (Jim’s) How did it come to this?
Please advise how I can get help with maintenance and repairs when on low income?

OT but to reply, My brief checking with various Jim’s franchisees for various services all returned above expected prices/quotes. Possibly high franchise fees and cuts to Jim? Ring a few installer companies. You should find some that will quote fixed prices on the phone excluding gas leaks. I no longer bother Jim’s.

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