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The state with an oversupply of property · The Money Puzzle

0:13
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:16
Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody,
0:21
Speaker 1: and welcome to the show. If you are an active
0:24
Speaker 1: investor in property in any fashion, if you're an investor
0:29
Speaker 1: in any fashion, or even if you are looking at
0:32
Speaker 1: buying a home, it's worth knowing that one of the
0:37
Speaker 1: items of news we've been covering so far this year
0:40
Speaker 1: was about the buffer. That is, For what it's worth,
0:43
Speaker 1: if you go into a bank, anybody, whatever the interest
0:46
Speaker 1: rate number is on the documents that you have got
0:50
Speaker 1: ready to get your loan at the bank, they add 3%.
0:54
Speaker 1: So if you think you're getting a loan at 6%
0:56
Speaker 1: from the bank, they have to assess you on the
0:58
Speaker 1: basis of 9%. That's called the buffer, 3% buffer. There
1:03
Speaker 1: has been a campaign to try and cut that back
1:05
Speaker 1: or eliminate it entirely. And I'm afraid to say APRAC.
1:09
Speaker 1: The regulator came out yesterday and said, sorry, we're not
1:12
Speaker 1: touching that buffer. So we're going to have to struggle
1:14
Speaker 1: on with that as investors. That's, I suppose, the news
1:18
Speaker 1: you don't want to hear. The news you probably do
1:20
Speaker 1: want to hear is that AMP is still a very
1:23
Speaker 1: important institutional player in the local market. They've done a
1:27
Speaker 1: fairly thorough deep dive into residential property this week. And basically,
1:35
Speaker 1: the message from that report is that nothing is going
1:37
Speaker 1: to stop. Both prices running higher and rents running higher
1:42
Speaker 1: in the year ahead. And we could easily see prices
1:45
Speaker 1: match where they went last year. They did 9% across
1:49
Speaker 1: the board last year. They've done about four and a
1:51
Speaker 1: half this year already. Plenty of time to get to
1:55
Speaker 1: that same number. So 8% or 9% again this year.
1:57
Speaker 1: Looking pretty good, I have to say, in all markets
2:00
Speaker 1: except one big one, Melbourne. Second biggest city in Australia.
2:04
Speaker 1: And guess what? The prices are going down. prices are
2:08
Speaker 1: going down in Melbourne. Go figure. They are marching steadily
2:13
Speaker 1: forward everywhere else. We may talk about that for a
2:15
Speaker 1: moment with my guest today. She has herself done some
2:22
Speaker 1: very interesting work in recent times on property on an
2:25
Speaker 1: area I never saw before. And she has modeled, if
2:29
Speaker 1: you like, what's going on in the market post-COVID and how,
2:34
Speaker 1: as investors, we will actually be rewarded by buying bigger
2:38
Speaker 1: space that beyond doubt, the rental growth coming down the
2:43
Speaker 1: line will come on bigger properties. Interesting work she's been doing.
2:49
Speaker 1: Her name is Eliza Owen. She's at least a research
2:51
Speaker 1: economist at CoreLogic. How are you, Eliza?
2:55
Speaker 2: James, I'm going well. Thanks for having me.
2:57
Speaker 1: Love you to have you on the show. Tell us
2:59
Speaker 1: briefly about this work you've been doing. What did you
3:01
Speaker 1: discover that you didn't already know about the market when
3:05
Speaker 1: you started to look at the issue of size, the
3:09
Speaker 1: size of a property and the ability to drive rents
3:12
Speaker 1: from it.
3:12
Speaker 2: So we've been looking at trends in Australia's housing market
3:17
Speaker 2: by bedroom. So we're really just starting to scratch the
3:21
Speaker 2: surface of this data. But one of the most notable
3:25
Speaker 2: differences in trends by bedroom has been rental growth over
3:29
Speaker 2: the past few years. So if we look at the
3:33
Speaker 2: latest annual growths for rents by bedroom across Australia, it's
3:39
Speaker 2: actually larger houses that are attracting higher rates of rent growth.
3:44
Speaker 2: In the year to June, rent growth in five bedroom
3:46
Speaker 2: plus houses was sitting at 8.7%. And that ranges all
3:51
Speaker 2: the way down to these houses with two or fewer
3:54
Speaker 2: bedrooms where annual growth was 7.6%. In the unit segment,
3:59
Speaker 2: we're still seeing relatively small units attract the highest rate
4:02
Speaker 2: of growth. two bedroom units sitting up 7.9% in terms
4:07
Speaker 2: of rental growth in the past year. But crucially, these
4:10
Speaker 2: small units have seen the rate of annual rate growth
4:14
Speaker 2: decline rapidly. So down from about 14% growth this time
4:19
Speaker 2: last year, whereas the larger units, three, four bedrooms, and
4:23
Speaker 2: that is full strata property. So we'll include things like
4:26
Speaker 2: townhouses as well. Rent growth there has been much more stable.
4:30
Speaker 2: So at a very high level, I guess you could
4:32
Speaker 2: say larger properties are currently attracting higher or more stable
4:38
Speaker 2: growth in rent values.
4:40
Speaker 1: What did that tell you? Is it the shared house movement,
4:44
Speaker 1: if you like, dominating? Is that what it's about? Yeah.
4:47
Speaker 2: So, I mean, we don't know exactly without going out
4:50
Speaker 2: and surveying prospective tenants, right? But I think it would
4:53
Speaker 2: make sense that this is in reaction to higher rental
4:58
Speaker 2: costs and people trying to scale their rent costs through
5:02
Speaker 2: sharing accommodation. So if you look at the overall value
5:08
Speaker 2: of weekly rents across Australia, say, in the house segment,
5:11
Speaker 2: we range from $ 543 a week for a house with
5:16
Speaker 2: two bedrooms or less. You go up to five bedroom
5:19
Speaker 2: plus houses, your rent value is $ 874 a week. But
5:24
Speaker 2: when you divide this by the number of bedrooms, so
5:26
Speaker 2: the small houses by two, the big houses by five,
5:31
Speaker 2: what you find is that your rent per room goes down. Interestingly,
5:36
Speaker 2: that also means that on a percentage yield basis, your
5:42
Speaker 2: gross rent yields are actually higher technically for smaller properties,
5:46
Speaker 2: even though the overall rent is higher on larger dwellings.
5:51
Speaker 1: But for someone who was an investor, it seems to
5:53
Speaker 1: me that in terms of where rental growth is what
5:57
Speaker 1: really matters.
5:58
Speaker 2: Yes.
5:58
Speaker 1: You know, in terms of financing your investment actions. It
6:02
Speaker 1: tells us that standalone properties, we know they are the
6:05
Speaker 1: elite level for property investors. They win virtually on all
6:10
Speaker 1: counts because of land value and many other historic reasons.
6:13
Speaker 1: And then on top of that, you're telling me that
6:15
Speaker 1: these type of properties, standalone, if they have multiple bedrooms,
6:19
Speaker 1: that ability to be a shared house would seem to
6:21
Speaker 1: be a really strong rental option for investors.
6:24
Speaker 2: Yeah, so they're currently attracting higher rental growth. And the
6:27
Speaker 2: other thing too is capital growth. So larger dwellings over
6:31
Speaker 2: time tend to accrue a greater amount of capital growth.
6:35
Speaker 2: So it really does depend on your strategy. So those
6:38
Speaker 2: who are looking for purely rent yield, positive cash flow,
6:44
Speaker 2: maybe it is a cheaper unit that you can get
6:46
Speaker 2: more return on from that sense. But for a lot
6:49
Speaker 2: of investors in Australia, obviously capital growth is the name
6:51
Speaker 2: of the game. And so that's where larger dwellings can
6:54
Speaker 2: be a benefit as well.
6:56
Speaker 1: Yes. So looking back on this, I had never seen
6:59
Speaker 1: this work being done before. It's a really interesting observation
7:03
Speaker 1: that you've come out with, if you like, the conclusions
7:06
Speaker 1: of what you did. Do you think it's a one-off
7:09
Speaker 1: or do you think this is the way we're going?
7:11
Speaker 1: Do you think this is going to be part of
7:14
Speaker 1: the move on?
7:15
Speaker 2: I mean, looking back, sir, that pre-pandemic, there was fairly
7:20
Speaker 2: uniform growth in rent values. It's just that the pandemic,
7:24
Speaker 2: I think, has changed a lot of dynamics that influence
7:28
Speaker 2: these markets. So, for example, if you look at small bedrooms,
7:33
Speaker 2: they're very tied to net overseas migration patterns in terms
7:38
Speaker 2: of their rate growth, because a lot of that stock
7:41
Speaker 2: is located in your most popular migrant destination of inner
7:45
Speaker 2: city Sydney melded Brisbane. So there's been a lot of
7:49
Speaker 2: fluctuation and deviation in rate growth among that segments, I
7:54
Speaker 2: think long term, we'll probably get back to a more
7:57
Speaker 2: normalized pattern where the growth in rents is a bit
8:00
Speaker 2: more uniform. But again, longer term, the capital growth has
8:04
Speaker 2: been higher in larger dwellings. So that will be a
8:07
Speaker 2: consideration for investors as well.
8:09
Speaker 1: Okay, very interesting. Now, while we're talking on that whole picture,
8:12
Speaker 1: the larger picture, You've probably seen that work I mentioned
8:15
Speaker 1: about AMP. Useful because they're not in, they're not specialist
8:19
Speaker 1: property people. They look across the board at all types
8:22
Speaker 1: of things and items, developments for the economy. So the
8:26
Speaker 1: point I'm making is it's not a property economist making
8:30
Speaker 1: a view. It's an economist who looks at national accounts
8:33
Speaker 1: making a view. And that report from AMP this week
8:38
Speaker 1: just made that core point that they couldn't see anything
8:41
Speaker 1: stopping price rises. and rental rises motoring along this year.
8:47
Speaker 1: The outstanding point they make, which is the point every
8:50
Speaker 1: economist makes, is that there's a lack of supply, that
8:53
Speaker 1: there is undersupply in most states, and that is to
8:56
Speaker 1: some extent compounded by labor shortages, by elevated immigration, and
9:03
Speaker 1: those factors all combined will keep pushing the market higher.
9:07
Speaker 1: They're talking that we could see something in the order
9:09
Speaker 1: of 8% or 9% this year on houses. 5% maybe
9:13
Speaker 1: on rental growth. What do you think of that? Are
9:17
Speaker 1: you comfortable with that sort of outlook? Is there anything
9:19
Speaker 1: you would disagree with there?
9:21
Speaker 2: I totally agree with the idea that the persistent undersupply
9:25
Speaker 2: of dwellings relative to growth in our population has contributed
9:29
Speaker 2: to property values rising long term. If you look at
9:33
Speaker 2: monthly change in home values nationally for the past decade,
9:36
Speaker 2: they've spent 70% of the time in price growth mode.
9:41
Speaker 2: So I think that's spot on. Obviously, there's a lot
9:44
Speaker 2: of variations within the housing market at this moment. Looking
9:49
Speaker 2: at the range of annual capital growth across the capital cities,
9:52
Speaker 2: for example, we haven't seen this level of range in
9:55
Speaker 2: at least a decade. So it is very hard to
9:58
Speaker 2: describe Australia's housing market. as just one market right now.
10:02
Speaker 2: But I think... It's always hard, right? Yeah. Yeah, it's
10:07
Speaker 2: always hard, but there's a lot of different dynamics. So
10:09
Speaker 2: broadly speaking, yes, that undersupply supports capital growth. If you
10:12
Speaker 2: really look at where we are in the cycle at
10:13
Speaker 2: the moment now, though, it's looking at the 28-day change
10:17
Speaker 2: in the home value index, the daily home value index,
10:21
Speaker 2: we're seeing a slowdown in the growth rate since the
10:24
Speaker 2: start of the year through the month of July. So
10:27
Speaker 2: there are some additional headwinds to consider for the market
10:30
Speaker 2: at the moment, namely that we're at the point in
10:33
Speaker 2: the interest rate hiking cycle now where even if rates
10:37
Speaker 2: don't go up any further, they're likely to be higher
10:40
Speaker 2: for longer than first anticipated. So people who had previously
10:44
Speaker 2: been pricing in this expectation of a rate reduction later
10:47
Speaker 2: this year may be holding back a bit. And we're
10:50
Speaker 2: seeing that 28-day change slow down through the month. And
10:54
Speaker 2: that could be a reflection of weakening economic conditions now
10:58
Speaker 2: as well, because we're at a point where those high
10:59
Speaker 2: interest rates are starting to unwind the labor market, create
11:04
Speaker 2: a slowdown in business confidence, consumer sentiment. that could all
11:08
Speaker 2: have an impact on creating a slower growth rate through
11:11
Speaker 2: to the end of 2024.
11:13
Speaker 1: So I'm inferring from that then that we wouldn't get 9%
11:17
Speaker 1: this year because we would need it to keep motoring
11:20
Speaker 1: at the pace it was and you're suggesting it won't, no?
11:23
Speaker 2: Correct. I think it'll slow down. And if you look
11:25
Speaker 2: year to date at the moment, we're only up about 4%
11:30
Speaker 2: through the year anyway. So I think it might be
11:33
Speaker 2: a bit of a stretch to say we're going to
11:35
Speaker 2: get to 9% by the end of this year.
11:37
Speaker 1: Very interesting. Okay, look, I think we'll take a short break. Eliza,
11:40
Speaker 1: we'll be back in a moment. Hello, and welcome back
11:49
Speaker 1: to the Australian's Money Puzzle Podcast. I'm James Kirby, and
11:53
Speaker 1: I'm talking to Eliza Owen. She's a regular on the show.
11:55
Speaker 1: She's terrific on how our market is looking and nationwide picture.
12:01
Speaker 1: She's an economist, but she's also a specialist, and she
12:03
Speaker 1: can really give you a flavor of what's going on
12:06
Speaker 1: in the property market. Now, one of the things she said,
12:09
Speaker 1: if you remember, in the first segment was about how
12:11
Speaker 1: diverse this market is. And I just wanted to draw
12:14
Speaker 1: out something with you now, Eliza, which is I knew
12:16
Speaker 1: that Perth was the strongest market, and I knew Queensland
12:19
Speaker 1: was going very well. And I knew Victoria was the
12:23
Speaker 1: weakest market. And I was amazed, actually. I didn't quite
12:26
Speaker 1: realize that it's literally going backwards, right? So it's about
12:30
Speaker 1: minus 1% so far this year in Victoria, while the
12:33
Speaker 1: rest of the nation is about up 4%. But what
12:36
Speaker 1: I didn't know, Eliza, was there's actually an oversupply of
12:39
Speaker 1: property in Victoria. Is that so? And could you explain
12:43
Speaker 1: what's going on?
12:44
Speaker 2: Yeah, I think it's quite safe to say that there
12:46
Speaker 2: is an oversupply, especially when you think about the purchasing
12:49
Speaker 2: market for residential property. So over the June quarter, values
12:54
Speaker 2: were down 0.6% in Melbourne and 0.7% in regional Victoria.
12:59
Speaker 2: If you consider the transaction activity in regional Victoria in
13:03
Speaker 2: the June quarter, for example, There were 10,000 properties added
13:06
Speaker 2: to the market for sale in the period, but only
13:09
Speaker 2: about 6,800 properties were actually bought in that same time.
13:15
Speaker 2: So that points to a massive oversupply in the sense
13:18
Speaker 2: of more people looking to sell their property, the more
13:20
Speaker 2: people looking to buy. This note from AMP also spoke
13:25
Speaker 2: to the fact that construction levels have been high relative
13:28
Speaker 2: to population growth. Obviously, Victoria has suffered a deterioration in
13:34
Speaker 2: net interstate migration through the pandemic. But on top of that,
13:38
Speaker 2: the state has just supplied a lot of property and
13:41
Speaker 2: that helps to absorb additional demand and keep growth in
13:45
Speaker 2: property prices low. So if you look back to dwelling
13:48
Speaker 2: completions between 2010 and 2023, there were about 773 properties
13:58
Speaker 2: established across Victoria, completed across Victoria, cumulatively in the period.
14:03
Speaker 2: That is not only the highest of any of the
14:05
Speaker 2: states and territories, but it beats New South Wales, our
14:09
Speaker 2: most populous state, by about 100,000 dwellings.
14:14
Speaker 1: So they've built 100,000 more homes in Victoria than New
14:17
Speaker 1: South Wales.
14:18
Speaker 2: That's right. Over that period from the end of 2010
14:20
Speaker 2: to end of 2023. That's amazing.
14:21
Speaker 1: A smaller city.
14:25
Speaker 2: Yeah, and it says something potentially about the development sector
14:30
Speaker 2: in the state. They seem maybe a bit more overzealous
14:33
Speaker 2: around upswings because we know that developers respond to periods
14:37
Speaker 2: of high capital growth in terms of establishing real property.
14:41
Speaker 2: Maybe they don't turn off the taps as quickly when
14:43
Speaker 2: the property market goes into decline. But that all sort
14:46
Speaker 2: of points to this state of oversupply in the market.
14:50
Speaker 2: which means buyers have more negotiating power to bring prices
14:54
Speaker 2: down and that lowers the asset value of Overland.
14:57
Speaker 1: See, that's amazing. Do you think that's going to be
14:59
Speaker 1: replicated around the country or do you think it's a one-off?
15:03
Speaker 2: I think it's probably a temporary state for Victoria. I
15:07
Speaker 2: think in response to this, on top of the constraints
15:10
Speaker 2: that we're seeing in the construction industry at the moment,
15:13
Speaker 2: we're probably going to see supply peel back quite a
15:16
Speaker 2: bit across the state. Not to mention that the additional
15:20
Speaker 2: affordability presented across Victoria now will probably also create more
15:26
Speaker 2: people staying in the state rather than moving to southeast
15:30
Speaker 2: Queensland or whatever. Because that premium between Melbourne and Brisbane
15:36
Speaker 2: has been completely eroded. The median house value across Brisbane
15:39
Speaker 2: is actually now higher than across Melbourne. Same for typical
15:43
Speaker 2: unit values. So that supply and demand will start to
15:46
Speaker 2: balance out across the state. And I think from that perspective,
15:50
Speaker 2: it could be a good buying opportunity. I think Melbourne
15:53
Speaker 2: is one of the best cities in the world, and
15:56
Speaker 2: it's currently available at a discount.
15:58
Speaker 1: At a discount. I completely agree with you. It's very interesting,
16:02
Speaker 1: the side point you made there, that the traditional view
16:05
Speaker 1: that you could pack it up in a Melbourne suburb,
16:07
Speaker 1: move to Queensland better, whether cheaper houses, not any longer. Look,
16:13
Speaker 1: we will take a break and we will be back
16:15
Speaker 1: with you in a couple of minutes. Hello and welcome
16:22
Speaker 1: back to the Australian's Money Puzzle podcast. I'm James Kirby,
16:25
Speaker 1: the wealth editor, talking to Eliza Owen of CoreLogic. Eliza,
16:29
Speaker 1: of course, is an economist at CoreLogic. We talk to
16:32
Speaker 1: her regularly on the show. Very interesting, as always. And
16:35
Speaker 1: what I really like about talking to Eliza is I
16:37
Speaker 1: find out things I didn't already know. I didn't know
16:40
Speaker 1: that there was an oversupply of property in Melbourne. That
16:44
Speaker 1: is really interesting. And it really, I think, in a way,
16:48
Speaker 1: confirms beyond all doubt that it is not just a
16:51
Speaker 1: sort of bargain basement of the nation from property investment
16:55
Speaker 1: point of view, but it's going to stay that way
16:57
Speaker 1: for some time because oversupply is not something you can
17:00
Speaker 1: change very quickly. It's also unique in our market because
17:05
Speaker 1: undersupply is the big problem and has been for so long.
17:09
Speaker 1: And that's what we read about all the time. And
17:11
Speaker 1: I think a minor but really interesting sort of dimension
17:15
Speaker 1: of what she was alluding to in those first segments
17:18
Speaker 1: of the show is that traditionally there's always been this
17:21
Speaker 1: migration out of Victoria to Queensland. And that may not
17:29
Speaker 1: keep going at anything like the levels it did previously
17:32
Speaker 1: because simply it doesn't make sense financially anymore because Brisbane's
17:36
Speaker 1: got dearer. or Queensland's got dearest. So you sell your
17:39
Speaker 1: house and you move to Queensland. If it costs the same,
17:43
Speaker 1: then you mightn't be as fast to go. The deal
17:46
Speaker 1: has fallen apart from a financial point of view. Very interesting, Eliza.
17:49
Speaker 1: Really great. Thank you very much for those observations. And
17:53
Speaker 1: also what you were saying at the start of the
17:56
Speaker 1: show about how the big house with the many bedrooms
18:00
Speaker 1: that can become a shared house is such a rentable
18:04
Speaker 1: opportunity now and has that extra I mentioned that standalone
18:07
Speaker 1: properties tend to do better anyway. Okay, really interesting. I'm
18:11
Speaker 1: going to do some questions. All right, the first is
18:14
Speaker 1: not actually on direct property, but I'll read it out.
18:16
Speaker 1: It captures a lot of issues that investors face. It's
18:19
Speaker 1: from Warren. Would you be able to do something on
18:22
Speaker 1: getting exposure to the Australian property markets through the ASX?
18:26
Speaker 1: I can think of various building product manufacturers, REITs, and
18:31
Speaker 1: commercial property. There's also less obvious players like Harvey Norman
18:36
Speaker 1: that own a lot of land. Okay, Warren, a couple
18:38
Speaker 1: of things. The issue of accessing the property market through
18:42
Speaker 1: the stock market is a completely and totally different game
18:46
Speaker 1: than owning direct property. And what you might learn in
18:50
Speaker 1: direct property would not tell you much about how to
18:53
Speaker 1: assess a REIT or a property trust. That's one thing
18:55
Speaker 1: I think I've learned over a long period of time.
18:58
Speaker 1: I think it would make it all too difficult to
19:00
Speaker 1: try and assess companies the property value of companies because
19:03
Speaker 1: they own some property, like Harvey Norman or News Corp,
19:06
Speaker 1: for instance, which owns its own buildings. It's very hard
19:08
Speaker 1: to assess from a property perspective. It's too complex, I think,
19:12
Speaker 1: for retail investors. So you're back to what they call
19:15
Speaker 1: the REITs, the property trusts. There's a spectrum of them,
19:19
Speaker 1: maybe 10 or 20, probably about seven or eight that
19:22
Speaker 1: really matter. I think we need someone else on the
19:25
Speaker 1: show to talk about them. The only thing I would
19:27
Speaker 1: say is over 20 years watching them, Goodman Group, is
19:31
Speaker 1: just in the league of its own. It's something like
19:33
Speaker 1: the Commonwealth Bank. It does what the others do, but
19:36
Speaker 1: it does it so much better from a stock perspective.
19:39
Speaker 1: And it's been rewarded in doing so. It's now a
19:41
Speaker 1: top 10 stock. Do you ever look at the property trusts, Eliza?
19:45
Speaker 1: And do they tell you anything at all in terms
19:48
Speaker 1: of informing your daily work and analysis? the residential market?
19:52
Speaker 2: I think we're very lucky at CoreLogic that we've got
19:54
Speaker 2: the comprehensive view of the property market from decades of
19:58
Speaker 2: data collection, comprehensive coverage. So it's not something I've really
20:02
Speaker 2: had to look into before. Sorry, Warren. I'm glad you
20:06
Speaker 2: said it was a pretty different ballgame, James, because it's
20:08
Speaker 2: not something referring very closely.
20:12
Speaker 1: Do you guys, are your services used by those property trusts?
20:15
Speaker 1: I presume they're not because they're all office and industrial.
20:18
Speaker 1: There's literally almost no residential except maybe some developers like Mervac.
20:22
Speaker 2: It would be some of these groups, I'd say, who
20:25
Speaker 2: buy our data. I've also had a lot of interest
20:28
Speaker 2: recently from institutional investors looking to play in the build-to-rent space,
20:33
Speaker 2: so superannuation funds and things like so. That's been an
20:36
Speaker 2: interesting dimension to the market. Clearly, it's modernizing and I
20:41
Speaker 2: need to get across it. Yes.
20:43
Speaker 1: No, they're definitely keen and they're talking big numbers. Some
20:47
Speaker 1: of the big funds, that is big industry super funds, folks,
20:51
Speaker 1: are making arrangements and statements to the effect that they
20:54
Speaker 1: will be involved in build-to-rent. But Actual activity on the
20:58
Speaker 1: ground is pretty slim so far, but I wouldn't rule
21:02
Speaker 1: it out as being a factor in the market in
21:04
Speaker 1: the future.
21:05
Speaker 2: Okay.
21:05
Speaker 1: Karen asks, if I can reduce the running costs of
21:08
Speaker 1: my mortgage by extending the term, what is the longest
21:11
Speaker 1: mortgage in the market? That's a great question, Karen. Most
21:16
Speaker 1: mortgages are 25 or 30 years. There are, by the way,
21:20
Speaker 1: I did some work for you. Karen and I went
21:23
Speaker 1: to one of the financial product companies that look at
21:28
Speaker 1: mortgages just to see what the situation was in relation
21:33
Speaker 1: to this. It turns out that there are some banks
21:38
Speaker 1: and finance companies in the market that will offer a
21:42
Speaker 1: 40-year mortgage. And that can be very useful because if
21:47
Speaker 1: you're thinking that you might extend your mortgage, then if
21:51
Speaker 1: you could do that, if you could extend, say, a
21:55
Speaker 1: 30-year mortgage to a 40-year mortgage, it would be very
21:59
Speaker 1: useful for you. Steve Mickenbecker, who has been on the
22:03
Speaker 1: show in the past, he's very good on this whole area,
22:08
Speaker 1: this whole issue. He's from the CanStar Group, Karen. I
22:12
Speaker 1: asked him particularly about this, and he says, 30-year mortgages
22:17
Speaker 1: remain dominant. Only a handful of lenders offer longer And
22:22
Speaker 1: half of those are for first home buyers, okay? And
22:26
Speaker 1: he says only one lender in the past two years
22:29
Speaker 1: has gone over the 30-year mark. But there are, it's
22:35
Speaker 1: very small. There's only four lenders offering nine different products
22:41
Speaker 1: on a 40-year basis. On a 30-year basis, there are
22:45
Speaker 1: 88 lenders offering 360. So there you go. There you
22:49
Speaker 1: can see. They're out there. They're out there, but it's
22:51
Speaker 1: very rare. Are you familiar with this, that people are
22:55
Speaker 1: extending their mortgages to bring the monthly mortgage bill down, Eliza?
23:00
Speaker 2: Yeah, I think it is a strategy. We are getting
23:03
Speaker 2: to the kind of pointy end again with high interest rates,
23:06
Speaker 2: rising mortgage costs and cost of living pressures. So you're
23:09
Speaker 2: really seeing that come through the data in terms of
23:12
Speaker 2: lower household savings rates, people working more hours. And people
23:16
Speaker 2: restructuring their mortgage payments, so less going into offset and
23:20
Speaker 2: redraw facilities and more having to go to the principal
23:22
Speaker 2: and interest payment. 40 years is also the longest term
23:25
Speaker 2: that I've seen floating around. But again, like you say,
23:30
Speaker 2: it can be harder for older Australians to take on
23:33
Speaker 2: those longer loan terms. These tend to be the non-bank
23:36
Speaker 2: lenders as well that take on those more unique terms.
23:40
Speaker 2: And of course, as Karen would probably know, this is
23:42
Speaker 2: going to increase your mortgage interest costs. over time as well.
23:46
Speaker 2: So that's something to be conscious of.
23:49
Speaker 1: Yeah, a very valid point. So currently, your monthly bill
23:51
Speaker 1: will come down, but your mortgage, that is the amount
23:56
Speaker 1: you owe the bank, will rise very roughly. I think
24:00
Speaker 1: we had these figures on the show a few weeks ago.
24:03
Speaker 1: On an average mortgage, if you changed out, say, 25
24:09
Speaker 1: to 30 years, your bill might come down by $ 120
24:12
Speaker 1: a month, something of that order. But what you would
24:17
Speaker 1: owe the bank would actually lift by over $ 100, 000. So
24:21
Speaker 1: that's how it works. So keep that in mind. It's
24:23
Speaker 1: very much a case of buy now, pay later on
24:26
Speaker 1: a grand scale. If someone's right up against it and
24:28
Speaker 1: it really makes sense to pay off the mortgage rather
24:30
Speaker 1: than losing an investment property, say, it's certainly something worth
24:34
Speaker 1: exploring if you can do it. Okay, final questions from Andrew.
24:38
Speaker 1: It would be great to hear a hypothetical discussion about
24:41
Speaker 1: how inflation and deflation could have be more effectively handled
24:48
Speaker 1: by raising or lowering the GST rather than interest rates.
24:54
Speaker 1: This would evenly spread out the pain and incentivize people
24:58
Speaker 1: during tough times across all products rather than just pounding
25:02
Speaker 1: those with outstanding mortgages. This comes up all the time.
25:06
Speaker 1: Is there any other way to steer the economy than
25:09
Speaker 1: this terribly blunt instrument of mortgage rates, interest rates, which
25:14
Speaker 1: hit those in the property market, particularly owner-occupiers and, to
25:19
Speaker 1: that extent, investors. You're an economist, well-credentialed, Eliza. What do
25:25
Speaker 1: you say to experiments beyond rate-setting?
25:31
Speaker 2: Yeah, I'm also a recent first-home buyer. I love this question. Yeah,
25:34
Speaker 2: really good point from Andrew. But at the end of
25:36
Speaker 2: the day, I think interest rates are still the best
25:39
Speaker 2: mechanism for targeting inflation. There's a few issues with trying
25:43
Speaker 2: to use fiscal policy and taxation or even other suggestions
25:47
Speaker 2: like superannuation to do this. First is that monetary policy
25:51
Speaker 2: works a lot faster than fiscal policy. You think about
25:54
Speaker 2: some of the debates we've had around GST in recent
25:57
Speaker 2: years or even the Stage 3 tax cuts. These issues
26:00
Speaker 2: are debated for a long time. They take a long
26:02
Speaker 2: time to actually pass through Parliament and take effect in Parliament.
26:08
Speaker 2: people's cost of living and take pay and things like that.
26:11
Speaker 2: At the end of the day, monetary policy has been
26:13
Speaker 2: used for a long time because it's much more responsive
26:16
Speaker 2: to economic conditions than the fiscal policy. I would challenge
26:20
Speaker 2: the idea that an increase in GST spreads pain equally. Famously,
26:24
Speaker 2: GST can actually act as a bit of a regressive
26:27
Speaker 2: tax because a 10% increase in the cost of goods
26:30
Speaker 2: and services means more to people low-income households than it
26:34
Speaker 2: does for high-income households. So unless you're actually taking that
26:37
Speaker 2: GST money and giving it back directly to lower-income households
26:41
Speaker 2: to make it more progressive, it's not necessarily equally affecting households.
26:48
Speaker 2: And the other thing I would say is beyond the
26:52
Speaker 2: household sector, where we are actually seeing a decline in
26:57
Speaker 2: discretionary spending, more people curb their spending, struggling with the
27:01
Speaker 2: cost of living, It's not just a question of households
27:05
Speaker 2: spending less. We also need the government to be spending less,
27:09
Speaker 2: winding back infrastructure projects. We are seeing that come through
27:12
Speaker 2: in fiscal policy as well. So there's definitely things that
27:17
Speaker 2: the government can do to help reduce inflation, but I
27:20
Speaker 2: don't think that looks like a change in tax settings
27:23
Speaker 2: or superannuation settings or anything like that.
27:26
Speaker 1: Okay, I hope that's clear to you, Andrew, and thank
27:28
Speaker 1: you for the question. Just wheeling back to where we started, actually, Eliza,
27:32
Speaker 1: We mentioned at the very start that APRA this week
27:35
Speaker 1: had reiterated that they're not going to change the buffer.
27:40
Speaker 1: That means that everyone who goes in and gets a loan,
27:43
Speaker 1: whatever percentage loan they get, if it's 6%, they're going
27:46
Speaker 1: to get assessed at 9%. They're going to keep that 3%
27:49
Speaker 1: buffer in there, which is a block, of course, for
27:51
Speaker 1: many people, especially investors. But that is macro prudential policy,
27:55
Speaker 1: isn't it? That's halfway house between rates or fiscal policy,
27:59
Speaker 1: that is actually a regulatory move to try and massage
28:03
Speaker 1: the economy, isn't it, by the RBA or at least
28:06
Speaker 1: by the regulators, the APRA?
28:08
Speaker 2: Yeah, the banking regulator APRA. So APRA is more concerned
28:11
Speaker 2: with financial stability in the lending space and prudent lending
28:16
Speaker 2: than they are necessarily with macroeconomic targets and things like that.
28:19
Speaker 2: And I do think, though, that the 3% buffer is
28:23
Speaker 2: going to be in place for a long time. I
28:26
Speaker 2: think it potentially could be in place when the cash
28:29
Speaker 2: rate starts to move lower as well, because the Council
28:32
Speaker 2: of Financial Regulators may be conscious of the effect of
28:36
Speaker 2: a rate reduction in reinvigorating house price growth and the
28:40
Speaker 2: effect that could have in terms of wealth effects and
28:43
Speaker 2: inflationary pressures as well. So I think as long as
28:46
Speaker 2: we're getting to this kind of sticky last leg of
28:51
Speaker 2: our high inflation journey, And by the way, high interest
28:54
Speaker 2: rates have been working to bring that inflation down. It's
28:57
Speaker 2: just the final leg is a little bit trickier. I
29:01
Speaker 2: think they're going to want to keep lending conditions pretty
29:04
Speaker 2: conservative while that is happening and while we get an
29:07
Speaker 2: adjustment to interest rates. So that's my guess. I don't
29:10
Speaker 2: have any particular insight or knowledge or anything like that, but.
29:14
Speaker 1: It We wouldn't want to be waiting for those buffers
29:17
Speaker 1: to be removed. We wouldn't start. It might be a
29:20
Speaker 1: mistake to think that they are temporary, even though they
29:22
Speaker 1: are supposed to be temporary.
29:24
Speaker 2: Look, I think they may be temporary. I just think
29:26
Speaker 2: it's longer that they may be in place on the
29:29
Speaker 2: other side of the rate hiking cycles because lending has
29:34
Speaker 2: already been incredibly resilient. Property prices have already been incredibly
29:38
Speaker 2: resilient to high interest rates. Once those interest rates move lower,
29:42
Speaker 2: there could be some risk of a resurgence in housing,
29:46
Speaker 2: implications for wealth effects. And so I think they'll want
29:49
Speaker 2: to keep lending growth pretty contained while that change is
29:54
Speaker 2: made in the cash rate.
29:55
Speaker 1: The temporary position of a buffer of 3%, folks, It
29:58
Speaker 1: could be temporary for a long time. Interesting. Okay. Hey,
30:01
Speaker 1: thank you very much, Eliza.
30:04
Speaker 2: Absolutely. Thank you so much for having me.
30:07
Speaker 1: Great to have you. Always great to have you. And
30:09
Speaker 1: great to have you folks on board. We were hoping
30:13
Speaker 1: on the show today just to ask you something. Perhaps
30:16
Speaker 1: you might think about this. We get lots of correspondence
30:20
Speaker 1: and we get all sorts of praise through the system,
30:22
Speaker 1: which is lovely to have. But what we'd like... is
30:26
Speaker 1: if you would mention the show to one other person.
30:29
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30:31
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30:33
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30:36
Speaker 1: Keep in mind that we have an email for all correspondents.
30:39
Speaker 1: It's themoneypuzzle at theaustralian.com.au. And today's show was produced by
30:46
Speaker 1: Leah Samanglu.
30:48
Speaker 2: Talk to you soon. Thank you.