In the 2 decades from 1972 property prices doubled every decade whilst interest rates and inflation were running at higher than 10%. From 2024 property prices can easily increase when interest rates and inflation will exceed 4% for the same reason - demand will exceed supply.
The current rent crisis derives from a lack of stock as the major cause.
The only way to increase supply is for the Federal Government to create incentives for those who have capacity.
To support the bottom end of anything is merely treating symptoms – incentivise the top end and you are treating the cause.
This housing crisis has been 20 years in the making and action is urgent, any delays could be catastrophic. Here are some simple suggestions without political bias.
If the building industry is short on qualified trades, then the Federal Government should sponsor free apprenticeships that bond students to builders and then allow those students to participate in the building industry after 1 year of a longer-term course.
The most assured supplier of new rental stock that doesn’t require Government funding is the Build to Rent sector. This large-scale building of rental properties are funded by large investors such as superannuation and pension funds as long-term investments. Governments should exclude Land Tax at least from this type of activity.
State Governments should be encouraged to eliminate property taxes particularly land tax and stamp duty and transition to an annual property tax on all land titles. Baby Boomers are discouraged to move into retirement housing because of this significant upfront impost and the natural property cycle from the top to the first home buyers at the bottom has stalled.
Overseas students entering the country for tertiary education should be limited to university housing accommodation only and not be allowed to access the open market. Empty nesters (particularly Baby Boomers) could rent surplus bedrooms without upsetting their pensions. This will convert an unproductive asset into something more useful.
The planning process needs to be centralised and control taken away from Local Governments. The planning approval process has never been predictable, transparent or timely. As an example, a development in North Adelaide was approved as I write 6 years after the application was lodged. Only an ex-Sturt footballer has the stamina to withstand the recalcitrance of noisy neighbours and pampering planners. Humbuggery of this sort would be dealt with differently through a single centralised planning office which could incorporate modern day applications such as artificial intelligence to approve trivial applications such as adding a carport to being an ‘over the counter’ consent. Another frustration is the Historic Conservation Zone which is a preservation measure adopted by Councils giving them the right of veto over the destruction of older homes. I am dealing with a 100-year-old Bungalow that has been condemned by two independent Structural Engineers as being unredeemable and yet the Council Panner is insisting the home builder provides a detailed report from a Quantity Surveyor of what costs would be involved in getting it back to a habitable state. Oh, what it’s like to be in a position of power.
Banks have a lot to answer for by insisting on only funding fixed price building contracts. In their defence, this ultra conservative approach was established prior to the Pandemic when building costs were stagnant and increases were picked up by the builder. What followed Covid however was unpredictable, but this insistence persists, and builders are being bankrupted. The only resolve could be that Government steps in as the insurer so that at least the builder can complete the project without having to take up costs that they cannot afford. Just another example of a disincentive to industry to provide housing stock.
Housing is a Federal Government issue, but Local Government is dictating the outcomes.
Rent control and price fixing are not the answer nor is any tampering with negative gearing as suggested by the Greens whose capacity to recite the alphabet is limited to the initials of their leader. To abolish negative gearing would need a rewriting of the tax act as it relates to costs necessarily incurred in earning assessable income under Section 51. Negative gearing is governed by natural market forces as exampled during the Covid year of 2020 when negative gearing was impossible because net rentals exceeded the cost of money. Rent assistance goes straight through to the landlords and is a waste of money no different than the Home Builder Scheme of 2019 went straight through to the vendors of vacant land.
Reverting now to the rent crisis. It is neither an easy fix nor will it resolve quickly so you can expect that rents will continue to rise well into 2024. To some extent the market is in ‘catch up’ mode after an extended period from 2010 – 2020 of virtually no growth, not even enough to cover the low inflation rate. In our rent review recommendations to our landlords, we are referring to retrospective rental rates in a rising market so within a few months the rent is well under current market. We try to apply a level of balance and fairness.