State of the Market – May 2017 – Opinion

289 Richardson St Middle Park 3

What is the market really doing?

We get asked this question daily so we decided to conduct a 3-Week, 100 Auction Report challenge during the month of May.

Well, there were no surprises! All three measurements showed that the market is in what we call “ times”, but now, since 2008, increasingly what we call normal.

But normal does not mean OK for everybody.

The market is sound and operating on sustainable demand and supply fundamentals, but it is in crisis.

No, not the codswallop headlines you read of a market crashing – but yes, the market is in crisis, because it is becoming so inequitable.

We are in a strong and vibrant market as proven by our 100 auction reports – but we are in a crisis – of our own making and one that needs our attention.

Our housing market in Melbourne has major flaws for young people, for the lower paying professions like teachers and nurses and policeman and………….well, ultimately for us (the well off).

It’s a crisis because it is unaffordable for our and for some of the workers needed for a balanced community to operate.

Some time ago we would have been looking to help our young people find shelter, now we are looking to just make money out of them.

A number of  journalists have allowed the political debate to move from the issue of housing affordability to the market will crash. The trouble is the market is unlikely to crash in the short term, as we are on sound demand and supply fundamentals and so when it doesn’t happen, we will all drift away and back to the footy results.

The most recent federal budget was a good example – as predicted a few weeks before, there would be no credible and significant addressing of the housing affordability issue and there wasn’t. But we have moved on because we are all so enamoured with the great distractor – tax the banks.

Meanwhile as the latest James 3-Week 100 Auction Report challenge confirms, the housing market soldiers on ever and ever higher ABOVE, what many young people and some middle-aged people can afford.

So is housing the responsibility of our government(s)?

The answer is unequivocally, yes!

MMmarket

Just as the army, the environment, roads and police require a co-ordinated government response, market forces will not solve or improve the housing problem for young people without a government reset.

If we were going into our shops and not finding enough food to eat, there would be outrage and fighting in the streets. The concept is the same with the housing crisis right now – it’s just not as obvious and not quite as immediate in terms of our survival.

So let’s start with negative gearing – a great idea in 1980s, like V12 engines and video recorders, but an idea that may have now passed its use by date.

Why?

I, as a well off 57 year old, can walk down the street to an auction and pay $20,000 a year to buy a home. However the young person standing next to me has to pay $80,000 per year to buy that exact same home  – is that equitable?

OK let’s ban negative gearing immediately!!

Well if you do great, you will have investors from Beijing to London, from Mumbai to New York dancing in the streets; as by reducing negative gearing you will take away significant competitors to international buyers, without helping the young.

Oh, and please don’t quote me the FIRB stats of how we have knuckled down on overseas buying – our Australian culture doesn’t quite understand how international work and how money can move through various sources from Asian matriarch to student studying here. And who is to say that is all wrong anyway – we do want and need skilled immigration, lest we end up with a market as flat as Africa or as boring as North Korea.

Cutting back all skilled family migration is not a decision any thinking person sees merit in.

Ok well let’s build more homes. That is a great idea. By logic it has to happen, otherwise increasing homelessness. Where and with what levels of infrastructure – and with what social ramifications?

And what about young people? At the risk of sounding like a “one less avo and toast” ……… there does need to be an attitudinal change from some young people ….. from giving up, it’s my right, the government should do it to…………to……… how I am going to make this work, how am I going to buy my first home, with a view of it leading to a family home, with a view to it contributing to my future children’s, spouse and my own happiness?

Our Inner Melbourne market is:

1) A strong and vibrant market based on fundamentals of demand and supply and driven in a large part by asset exchange, not income affordability.

2) An unaffordable and inequitable market for the young and lower paid important workers like teachers, police etc

3) One with no plan or politically or journalistic commitment to try and find a co-ordinated solution to a major crisis.

So please stop the stupid headlines about a 1% drop in Clearance rate meaning something as important as a 1 degree change in the earth’s core temperature.

Please stop quoting from a PR department that produces a graph claiming the housing world will end with a 23.4567% drop in the market, based on their new study of carrot prices in Peru.

And please start encouraging the powers that be – Federal and State governments – to take a more serious and co-ordinated view on housing for young people and housing for emergency workers and teachers and housing based on a need for a roof over one’s head nearby to family, rather than solely a wealth creation vehicle for us already wealthy baby boomers.

As for the markets – they will continue to be robust overall and go up and down in the shorter term, as long as the fundamentals remain as they are.

And Melbourne’s Markets demand and supply fundamentals are sound.

We are not in a crazy market and the market is not about to fall like a discovered Ponzi scheme (all things being equal), but we are in a housing crisis.

Hold on Mal – that is rubbish, young people and teachers and nurses can afford homes in Bendigo or Pakenham or ………… Werribee South.

That is true and I get the argument (that I heard again this week), but what about the 2 BIG MAC rule.

If you buy your second McMansion in the outer or regional, you can just about guarantee you will never be able to afford the step up to inner city prices later in life – when you want to send your kids to a private school or you want to return to the lifestyle you grew up in.

Why?

and the gap numbers create.

The “it’s affordable in the country” argument has merit, but only if you want a permanent tree change lifestyle.

The lower mortgage solution is an hour and half away (three hour round trip and the traffic is getting worse); not seeing your family as much (when you’ve had a baby), you fall further behind those that own a home in Inner Melbourne due to capital growth AND it’s more expensive to live (petrol) and longer in the car / on the train to get to work.

Younger people get as much help as you can, buy smart (PPP’s), buy Inner (with ) and buy now.

HO22

Why is our market so good, yet so bad – all at the same time?

Demand;

Locals – driven by a visual of others accumulating great wealth in home ownership and yes the ability to pay the .

Locals – in need of accommodation near the infrastructure they deem important – schools, train, shops, and friends/family

Investors – driven by negative gearing – the greatest gift to the “amateur” investor ever and possibly passed its use by date. The Paul Keating argument that it created rented accommodation is still 100% true – that was great in the 80s, but is now bad news in the 2010s as today’s negatively geared rented accommodation is not extra accommodation; today’s negatively geared rented accommodation is existing accommodation and it is at the expense of young people’s home ownership. It needs a tweak – maybe new builds only.

Overseas – Migration is such a positive for Australia and skilled migration has been brilliant. However it has created some unintended issues and to minimize the race issue – the young people homeless ownership issue is a lot about the children of these migrants. One generation on, how do skilled migrant’s children afford housing without separating families by distance.

Overseas – Investors. I’m no rocket surgeon or brain scientist, but why is not Melbourne housing one the greatest investments of all time for overseas buyers.

Interstaters – Jobs, jobs and jobs. Melbourne is looking good – people are coming here for jobs and culture and lifestyle and ……. they need housing.

As an interstater by birth and son of a migrant, it’s all of the above, it’s all pretty obvious.

Less obvious

Governments themselves – are so reliant on the taxes that rising home prices and exchange create; that they are secretly or subconsciously cheering on the price explosions for budget repair.

Supply

Infrastructure and paying for it – less welfare and more infrastructure please. Support the young able bodied with housing or they will not be able to support those now on welfare in the future.

So why should we care – because our society is breaking down and families are being split, because we don’t have a workable plan.

The housing issue is a slow societal cancer that if not remedied, will ultimately destroy our community’s fabric.

BUUUUUT – At the end of the day, the market is what it is and only one person will be able to address all the current issues required for home ownership and that person is…… YOU.

Start now, start smart – but most of all start or else you shall get left behind.

contact


Tags: , , , , , , , , , , , , ,

Be with James

Would you like to talk to us about finding or negotiating on your next home?
We buy 100 homes for our clients every year.
We buy Inner East and Bayside over $2m.
View more MasterClass Articles

Inside James Market News