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Did you know that Property Investors are swallowing up even more of the housing market?
In Australian politics there are relatively few issues outside of foreign policy that the two major parties can agree on. But there is one issue where both sides ostensibly agree: greater levels of home ownership.
In the run up to the last federal election, then Opposition Leader Anthony Albanese promised that a Labor government would help people achieve the “great Australian dream of home ownership”.
“For too long Australians who have worked hard have been locked out of the housing market by flat wages and rising prices, unable to even get a foot in the door let alone a roof over their heads,” Albanese said.
Opposition leader Peter Dutton shared similar views on home ownership with the press late last year: “the best way to empower Australians — to make them masters of their fate — is through home ownership.”
The leaders of the major parties sharing this view on home ownership is nothing new. Over 70 years ago there were debates in federal parliament not too dissimilar from todays, in which the leaders of the Coalition and Labor made their case on which party would do a better job building more new homes and getting more Australians into homes of their own.
Rhetoric collides with reality
The peak rate of home ownership was recorded 57 years ago as part of the 1966 census, at which time 73 per cent of households owned homes. More recently, the Australian Institute Of Health and Welfare (AIHW) recorded a home ownership rate of 71.4 per cent in 1995. As of the latest data from the 2021 census, the home ownership rate has dropped to 66 per cent.
This raises an uncomfortable question for the nation’s leaders. After spending more than $20.5 billion on grants, concessions and other cash grants to first home buyers in the decade to 2021, home ownership rates have not risen, but instead have continued to decline.
Solely based on the decline in the proportion of households who own homes, there around 560,000 households who are renting today who would have otherwise been homeowners if the home ownership rate remained as it was in 1995.
Rise and rise
Despite rising levels of home ownership being the stated priority of both the major parties their policies have achieved the polar opposite. The AIHW data instead illustrates a very different trend: the rise of the property investor.
In 1995, 18.4 per cent of households rented from a private landlord. As of 2020, 26.2 per cent rented from a private landlord and this is arguably somewhat distorted lower by the snapshot being taken during the pandemic.
If we extrapolate that on to the current number of households as determined by the ABS, private landlords have roughly 810,000 more tenant households today than they would have if the ratio of private landlord held housing to overall housing stock remained the same as 1995.
Today’s market
According to data from the ABS, over the last 12 months 33.4 per cent of new mortgages for existing properties have flowed to property investors. In terms of new mortgages overall including construction loans and brand-new properties, that figure rises to 34.3 per cent.
By dollar value the proportion of mortgage lending flowing to investors recently hit the highest level since 2017, hitting a share of 36.2 per cent of all new housing finance.
With investors holding 26.2 per cent of occupied housing stock, this level of activity implies a growing proportion of the nation’s housing stock once more flowing to investors, unless otherwise offset by a much greater proportion of owner occupiers making fully cash purchases or investors selling out of the market at a greater rate than they are buying in.
Which raises the big question in all of this, how is the home ownership rate going to rise when the current set of incentives and policies have delivered 25 years of strong growth in the proportion of investor held housing stock instead?
Aspiration nation
Both of the major parties like to paint themselves as the standard bearers for aspirational Australians, of folks who are trying to get ahead. But the simple reality is recipe for success is not what it once was.
In decades past, a household could work hard within the reality of their circumstances and work their way up to a median or well above median household income, then be able to purchase a home that reflected that.
In 1999, a household in the 80th percentile for income (higher than 80% of households), could purchase a home that was valued in the 80th percentile. Meanwhile the median earning household could purchase the median house. This is based a household having a 20 per cent deposit, additional cash for stamp duty and spending 25 per cent of gross income on the mortgage.
Today the median earning household can only afford 13 per cent of homes and even more affluent households in the 80th percentile are now competing for median priced homes. In states like NSW and Victoria its even worse. In NSW, households in the 80th percentile can only afford 1/3 of homes, while in Victoria less than half are affordable for these more affluent households.
Reality check
Both Labor and the Coalition speak of hard work and the importance of home ownership, yet neither has the makings of a credible plan that would see home ownership rates increase back toward levels seen in the mid-1990s, let alone the all-time peak.
It was once said that doing the same thing again and again, and expecting a different result was the definition of insanity. After spending over $20 billion on first homebuyer support mechanisms over the past decade and actually lowering the home ownership rate during that time, it’s clear a different strategy is needed.
Ultimately, where we go from here is in the hands of the electorate. For decades political leaders have talked the talk on home ownership, then failed to walk the walk. Up until now that arguably hasn’t had a major political downside for the major parties, but with the issue of housing fast becoming one of the hottest in Canberra and around dining tables, one wonders if that will change.