The Elephant in the Heavily Mortgaged Room – More Thoughts on Home Affordability

Remember when the banks were friendly?

The above image was the Commonwealth Bank’s mascot back in the 1980s, when I first seriously engaged with them as a customer as a teenager. I think I took out a term deposit with a 13.75% interest rate in 1982.

Back then, I think we saw our banks, particularly our local branches, as trusted partners in our financial lives. Interest rates, both as a borrower and as a depositor, were much higher than we have now, but home loans were a whole lot smaller, particularly as a ratio of the average wage.

But I digress, mostly to explain the use of the elephant image to match the title of this post. One of my friends texted me after I wrote last night’s posting about house prices to point out another particular elephant in the room which both major parties do not really want to talk about, and which really does impact severely on home affordability.

That is, that foreign investors are able to buy homes in Australia.

Kevin Rudd, probably in order to encourage more investment in Australia from communist China, opened up home ownership to non-permanent residents after his election in 2007. In the intervening 15 years, house prices have continued to spiral upward as a result of the clever policies of both sides of politics, and neither has been willing to address the foreign ownership issue.

I see three upward drivers on house prices from permitting foreign ownership: increased competition for housing from the increased demand, misplacement of capital investment in housing construction to target the new foreign market, and land banking.

The first of these is obvious. Rich non-permanent residents either park their children here (obviously a better place to live than under a Communist dictatorship) or otherwise choose to buy property here, particularly in premium areas. This increased demand results in direct competition for existing and new housing stock with locals, driving up the prices and driving locals out of the market.

The second and third are closely connected. Have you ever been to Melbourne Docklands? It is a hole, a soulless and sterile place. Many of the giant apartment towers there, anathema to the way that Australians prefer to live, have been built to particularly target the foreign investor market.

I would suggest that government policy should have encouraged construction firms to invest their capital in ways which were more likely to target the local market, and perhaps to invest in infrastructure to make outer suburbs more accessible, rather than hoping to hive off existing infrastructure in the inner city.

Land banking is widespread in places like Docklands. Foreign investors consider a property as new for as long as no one has lived in it. Therefore they are happy to not rent out properties and to leave them to sit vacant. Vacancy rates in Docklands, based on water usage, are estimated at 25%. A lot of apartments have been built which are not being released onto the local rental market.

The consequences of government policy enabling foreign investment and then structurally encouraging it have contributed greatly to forcing ordinary Australians out of the suburbs where they have grown up and into more distant suburbs on the outer fringes of the metropolitan area, suburbs where new houses are being built on much smaller blocks and with very little infrastructure in terms of transport, established parklands, schools, and amenities.

My friend has suggested to me that one of the matters causing angry voters in the safe Liberal seats targeted by the ‘Teal’ independents to turn to those new candidates is that they see themselves and their families being forced out, by unrelenting policies driving up house prices, from those suburbs they have considered their intergenerational home towns. The Teals do not offer solutions, but a protest vote is the best way that a message can be sent to try and cause politicians to seriously consider the consequences of these policies and end what is starting to seem like intergenerational theft.

We talk about being ‘slaves to the Man’, about having 30 year mortgages that stifle the quality of our lives in order to keep a roof over our heads. However, that was not previously the case for most people. Mortgages were smaller and houses more affordable, and people would pay their homes off much sooner than 30 years.

A society where a large proportion cannot afford to ever own a home, or spend a large part of their lives in financial serfdom to a crippling mortgage, is not a happy society, and not one which can remain stable and prosperous. This is an issue, an elephant in the room, which the politicians are failing to address, at their own cost.

Published by Ernest Zanatta

Narrow minded Italian Catholic Conservative Peasant from Footscray.

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