Elite AgentOPINION

Housing affordability crisis causing entrenched social wealth divide

Douglas Driscoll, CEO of Starr Partners, calls for urgent Government intervention

The housing affordability crisis is now one of the biggest issues in Australia, causing widespread social, political and economic implications, and according to Douglas Driscoll, CEO of award-winning real estate group Starr Partners, housing affordability is not just a problem for the young generation, it impacts other echelons of the Australian population.

Over time, Australia has started to view property as a business opportunity as opposed to merely somewhere to live, and it is now a national obsession. In fact, Australia has the highest number of residential mortgages per capita in the world, with house prices having risen at a rate that far outperforms that of household income and rents[1].

Douglas is perplexed by the Government’s restraint and says it needs to move beyond deploying election tactics because inactivity is no longer an option: “There’s a lot of conversation but little action being undertaken to reach a resolution. You don’t need to be a professor of economics to see that we need a levelling of the playing field. We require immediate and prudent Government intervention that will protect the interests of future generations, not just win votes at the next election.”

“If you simply just tried to give first home buyers more of an edge this will prove counterproductive and might have disastrous consequences; it could simply add more fuel to what is already a roaring inferno and see property prices artificially increased to a whole new level. Resultantly, investors will just end up outbidding owner-occupiers and paying even more. Conversely, I don’t think it’s fair that we simply hone in on the wealthy. In my opinion, this issue can only be resolved by pincer movement, applying tactics on both sides of the spectrum is the only way we can begin to reach a more level playing field,” says Douglas.

Douglas believes affordability could be addressed on a state-level: “We are so obsessed with our own little patch of Australia, but at the end of the day we need to remember that regional Australia and even other capital cities are not faced with the crippling prices we have in Sydney. The matter is met with incredible complexity; if we change legislation, what does that mean for the other eighteen million Australians living outside of the harbour city?”

Looking abroad, less than 50 per cent of residents in Germany own their home. Tax regulations, stable prices, availability of housing and risk-averse banks make renting the more attractive option[2]. Contrastingly, the UK Government has a number of options for buyers under affordable home ownership schemes. Shared ownership is a scheme that allows UK residents to buy a share of their home and pay rent on the remaining share[3].

Douglas offers six solutions to the housing affordability crisis:

  1. Discounted mortgage rates for first home buyers. Subsidies already exist for students, with the availability of extremely competitive low-interest rate loans and study assist loans, so why can’t something similar be offered to first home buyers? The role and responsibility of any Government is to serve society and create opportunities for the people it represents. Unlike education, home ownership is not a democratic right, but it is certainly something that a government should help encourage and financially facilitate.
  2. Limit negative gearing. Negative gearing looks as if it is going to be front and centre of the political debate for the upcoming Federal election. Contrary to some reports, negative gearing is not necessarily the domain of the wealthy, but it is certainly not something that the working class always benefit from. I don’t subscribe to the theory that negative gearing is responsible for driving property prices up, but it is definitely a contributing factor, and unlike a lot of my peers, I believe that some form of prudent intervention is now needed. I have to question why the Government ruled out changes to negative gearing in the recently announced Federal Budget, because something needs to give. Regardless of their recent manifesto, I still believe it’s a case of when, not if. The two main political parties seem to be diametrically opposed on this matter, but personally I believe that the solution lies somewhere between the two standpoints. Rather than abolish negative gearing altogether, it could perhaps be less generous or capped to a certain number of properties, for example. This would only apply to new transactions with any existing investments being grandfathered.
  1. Abolish stamp duty on first time purchases. Historically, the Government has tried to entice younger generations into buying property by offering grants, but this is fundamentally flawed in my opinion and has never really worked. Instead, first home buyers should be made exempt from having to pay the exorbitant cost of stamp duty.
  1. Allow first home buyers to purchase using their superannuation. In theory, this isn’t a bad idea, but most first home buyers probably don’t have enough money in their super to pay the deposit for a property, especially if they are hoping to buy in Sydney. Rather than simply being able to take the money from their superannuation fund, it should be structured as an interest-free loan, with repayments being made over a long-term period with the full amount needing to be settled before the maturation of the fund.
  1. Significant investment in regional towns. One of the key contributing factors of the affordability crisis is the migration of the masses to metropolitan areas; meaning that we all want to live in the same areas and are often left fighting over the same scraps. Many rural locations are deemed by some city dwellers as antiquated outposts. What if there was considerable investment in these areas that would breathe life back into them and make them more attractive to buyers? Over the past few years, the NSW State Government has spent billions of dollars on macro projects within the confines of Sydney, such as large-scale urban regeneration and new or upgraded transport infrastructure. –Imagine what would happen if they spent similar sums on areas such as Maitland, Wollongong and Bathurst. Would they become viable alternatives for people looking to buy a home? The introduction of high-speed rail connections to these areas would certainly enhance their desirability. Another enticement could be to offer incentives to outer-city locations on an exclusive basis
  1. Shared ownership. The UK’s version of this flexible scheme helps subsidise the purchase price and allows the homeowner to buy bigger shares as and when they can afford to. I think a similar model would work here in Australia. We have to be mindful from a socioeconomic view that property doesn’t just become the reserve of the rich.

[1] AFR, 2016: http://www.afr.com/news/economy/employment/uncovering-the-big-aussie-short-20160223-gn130w

[2] http://qz.com/167887/germany-has-one-of-the-worlds-lowest-homeownership-rates/

[3] Gov.UK: https://www.gov.uk/affordable-home-ownership-schemes/overview

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Douglas Driscoll

Douglas Driscoll is the CEO of award winning real estate group Starr Partners. Originally from the UK, Douglas is widely regarded as one of the industry’s preeminent thought leaders, and is lauded for his dynamic and pioneering approach.