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Who really gets hit with higher rates? · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast.
0:13
Speaker 2: I'm James Kirby. Welcome aboard everybody.
0:15
Speaker 1: If you're a property investor, there is a lot happening
0:19
Speaker 1: right now. Okay, we are in a rising interest rate environment.
0:23
Speaker 1: We've got serious changes flagged for the budget and I
0:26
Speaker 1: know a lot of you have been writing in asking
0:28
Speaker 1: me to cover this and I am covering it as
0:31
Speaker 1: it unfolds. But just keep in mind we don't know
0:34
Speaker 1: for sure the final detail until budget week and we
0:36
Speaker 1: will do that budget special podcast of course on the
0:39
Speaker 1: fourteenth of May. Will Hamilton look either way. It's getting serious,
0:43
Speaker 1: that's for sure. So I've got to cover some budget
0:46
Speaker 1: issues today and my guest is perfectly placed to talk
0:50
Speaker 1: about anything within the budget that pertains to property because
0:56
Speaker 1: it's nevd econost Be, the chief economist at Ray White,
0:59
Speaker 1: who's been on the show before.
1:00
Speaker 2: Hi, Narada, how are you?
1:02
Speaker 3: And well thanks you for having me.
1:04
Speaker 1: Great to have you on. It's interesting, folks. We were
1:08
Speaker 1: just talking before the show and you know, in many ways,
1:12
Speaker 1: what looks like unfurling on budget day is bill shortens
1:16
Speaker 1: to sixteen agenda minus to franking credits changes you do
1:20
Speaker 1: wonder if he had left out the franking credit changes,
1:23
Speaker 1: what things have been different, But I.
1:24
Speaker 2: Don't think so.
1:25
Speaker 1: It's ten years later, Narada, it's a different environment. I
1:28
Speaker 1: think in housing, do you think, yeah.
1:30
Speaker 3: Look, absolutely, it's housing is obviously a lot more expensive.
1:35
Speaker 3: People are feeling very angry. Young people in particular are
1:39
Speaker 3: feeling really angry. And also it's not just a difference
1:42
Speaker 3: in terms of pricess, it's also rents. I mean, we
1:45
Speaker 3: had a very prolonged period where rental growth pretty much
1:48
Speaker 3: didn't occur, and we've had the fastest rite of increases
1:51
Speaker 3: that's ever been recorded over the past six years. So
1:55
Speaker 3: it is a radically different environment that we're in.
1:58
Speaker 1: And we have also this consistent, enduring vacancy rate that's
2:05
Speaker 1: just like Zilch is that one to two percent in
2:08
Speaker 1: residential property, which means the cues for rentals are longer
2:12
Speaker 1: than the cues for house sales, and that's been the
2:15
Speaker 1: case for a long time. We're going to look at this,
2:17
Speaker 1: obviously from the investor point of view. But the more
2:19
Speaker 1: you know, obviously, folks, then you know, the stronger you
2:22
Speaker 1: are as an investor, and the more informed you are.
2:25
Speaker 2: So talking about being informed.
2:28
Speaker 1: Our senior reporters in Canberra are very well informed because
2:31
Speaker 1: you know, the government is leaking like a sieve, leaking
2:34
Speaker 1: at a pace I haven't seen for quite some time.
2:36
Speaker 1: I'll just try and synopsize what's been leaked, what I
2:39
Speaker 1: take seriously, and then I'll put it to narrative and
2:41
Speaker 1: see how it matters to you folks. So the key
2:45
Speaker 1: changes would seem to be that the CGT arrangements are
2:48
Speaker 1: going to change. For sure, the fifty percent discount which
2:51
Speaker 1: is applied on CGT after you hold it properly for
2:55
Speaker 1: a year or any asset is going to go, and
2:58
Speaker 1: they're going to go back to the future and revert
3:00
Speaker 1: to the nineteen pre nineteen ninety nine arrangements whereby the
3:03
Speaker 1: indexing is done every year. This sort of smoothing effect
3:07
Speaker 1: that's number one. Number two is negative gearing, And it
3:11
Speaker 1: would seem, believe it or not, that they're going to
3:16
Speaker 1: make changes to trim negative negative gearing, perhaps to two
3:21
Speaker 1: properties per person, but new properties will be exempt from
3:26
Speaker 1: those changes. Narrator, tell me, as a what do you
3:31
Speaker 1: think that will make to the property investment market? What
3:35
Speaker 1: impact do you think those highly likely changes would make.
3:41
Speaker 3: Well, it does make investing in property less attractive. So
3:45
Speaker 3: I mean, I say, okay, so maybe we've talked through
3:47
Speaker 3: both of them. I guess the first one is AJTA
3:50
Speaker 3: changed to an inflation indexed option. It actually could make
3:55
Speaker 3: if we go just say, you know, you're selling in
3:57
Speaker 3: two years, it could be that you pay less tax
4:02
Speaker 3: under that option than the fifty percent because it does
4:05
Speaker 3: rely on two things. It relies on both what inflation is,
4:08
Speaker 3: and it also relies on what capital growth is. We
4:10
Speaker 3: are entering environment where capital growth is likely to be lower,
4:14
Speaker 3: primarily the interest rates have risen, but there's also a
4:16
Speaker 3: lot happening with the budget, and we're also in a
4:19
Speaker 3: higher inflation environment. So when you put back through the
4:24
Speaker 3: methodology that we expect Treasury to use, then it maybe
4:28
Speaker 3: people might come out It might be beneficial for some people.
4:32
Speaker 1: In the immediate term because of our relatively high rates
4:36
Speaker 1: just now of inflation.
4:37
Speaker 2: That is, folks, Okay, So just keep that one in mind.
4:40
Speaker 1: And also the speculation is that in terms of how
4:44
Speaker 1: this will be applied in terms of grand fathering and
4:46
Speaker 1: all that, they are talking about this thing called time
4:49
Speaker 1: based approach where rather than picking evaluation, it will be
4:55
Speaker 1: applied year yearly these new changes that we won't get
5:00
Speaker 1: into that today. But interesting, as I say, I'm reluctant
5:04
Speaker 1: to talk too deeply on it, folks before we know
5:06
Speaker 1: for sure what the facts are. It's only a week
5:08
Speaker 1: hang on, okay, that was CGT and separately on the
5:12
Speaker 1: negative gearing then new houses only. Quick question, how many
5:17
Speaker 1: investors as a portion of all investors in Australia negatively
5:21
Speaker 1: gear new houses right?
5:24
Speaker 2: Any idea?
5:24
Speaker 3: I don't know also top of my head.
5:26
Speaker 2: Actually would it be less than ten percent.
5:29
Speaker 3: It's probably not as high as you would think, primarily
5:33
Speaker 3: because a lot of people have owned investment properties for
5:35
Speaker 3: a very long time. But it's definitely very popular reason
5:40
Speaker 3: for new investors to get into the market. It does
5:43
Speaker 3: allow residential property to be profitable or not profitable that
5:50
Speaker 3: to generate a return in the short term. Part clean environment,
5:53
Speaker 3: we do have extremely low yields and we also have
5:56
Speaker 3: you know, and most investors are relying on capital growth.
5:59
Speaker 1: But what I'm trying to find out is they'll make
6:02
Speaker 1: they're set to make a big song, a dance basically
6:04
Speaker 1: about excluding new properties from any negative gearing changes. What
6:08
Speaker 1: I'm trying to find out is how often do investors
6:12
Speaker 1: negatively gear new property?
6:13
Speaker 2: I thought it was pretty rarely.
6:17
Speaker 3: Yeah, again, we don't know exactly, but it will force
6:21
Speaker 3: more people in. I mean, we'll push more people into
6:23
Speaker 3: the new home market, and which I don't think it's
6:26
Speaker 3: necessarily a bad thing. I think though, what would have
6:29
Speaker 3: been a better option is to keep negative gearing as
6:33
Speaker 3: is and then provide some additional incentive to get more
6:36
Speaker 3: people investing in new homes.
6:38
Speaker 2: What's the weakness of what seems to be proposed.
6:41
Speaker 3: Well, the weakness is that, I mean, again we don't
6:44
Speaker 3: know exactly what they're proposing. The worrying we have is
6:48
Speaker 3: around what will happen to rental stop and we know
6:51
Speaker 3: already that rental availability is very tight in many markets.
6:55
Speaker 3: If we have fewer investors, there are going to be
6:58
Speaker 3: fewer rental properties. Undred that's the way the calculation works.
7:03
Speaker 3: The other side of it that we are concerned about,
7:06
Speaker 3: I mean, there's a lot of concerns, but there's another
7:08
Speaker 3: one around younger people. We know a lot of young
7:10
Speaker 3: people getting into the market, particularly markets like Sydney, need
7:15
Speaker 3: to rely on things like rent vesting to get into
7:18
Speaker 3: the market. So you know, there's a lot of talk
7:20
Speaker 3: about intergenerational fairness that if younger investors are locked out
7:26
Speaker 3: of negative gearing, then there's a path to wealth and
7:29
Speaker 3: a path even potentially time ownership that is locked for
7:32
Speaker 3: them that older generations were able to take advantage.
7:34
Speaker 2: So that's a concern.
7:36
Speaker 3: Another one would be around who steps in. Obviously someone
7:40
Speaker 3: has to provide rental housing. If you have a look
7:42
Speaker 3: in the US when there was a wholesale reduction in
7:47
Speaker 3: investor activity, that's where private equity stepped in, which I
7:50
Speaker 3: think we have discussed before, but I mean that that
7:53
Speaker 3: is a real concern. Like if we start to then
7:55
Speaker 3: have Blackstones in the market buying up a lot of
7:58
Speaker 3: Australian property, that creates it's a very different environment and what.
8:02
Speaker 1: Would trigger that sort of big institutional entry into the
8:05
Speaker 1: market with these changes. I don't immediately understand why it
8:08
Speaker 1: becomes more titable.
8:09
Speaker 3: So if okay, so just say price growth slows down,
8:14
Speaker 3: rents start to increase, yield then becomes more attractive for
8:19
Speaker 3: that sort of investor. So if you look at the
8:22
Speaker 3: average mum and dad investor, they're relying on capital growth,
8:25
Speaker 3: and they can rely on capital growth because of the
8:27
Speaker 3: way that they structure their finances. If you have a
8:30
Speaker 3: look at institutional investors, they need a yield, They need
8:33
Speaker 3: rents to be high relative to the cost property to
8:36
Speaker 3: make it cup because of the way that they would
8:39
Speaker 3: structure it. So we do have build to rent. So
8:42
Speaker 3: build to rent is, you know, one way of looking
8:45
Speaker 3: at it. But when we look at the US and
8:46
Speaker 3: what's happened there, you've got private equity coming in and
8:50
Speaker 3: buying houses, and you've got them buying suburbs, and you know,
8:54
Speaker 3: it may seem alarmis but you know, I think that's
8:57
Speaker 3: you know, that's worst case.
8:58
Speaker 1: If you had the situation where the negative gearing was
9:02
Speaker 1: unlimited in new housing and limited in existing housing, it
9:06
Speaker 1: would encourage that.
9:08
Speaker 3: Well potentially you know, and again well yeah it would.
9:11
Speaker 3: I mean if you then force yield up to a
9:14
Speaker 3: point where it becomes attractive to bigger groups, then that
9:19
Speaker 3: does have that potentially.
9:21
Speaker 2: It's interesting.
9:21
Speaker 1: That's exactly what the super Fund said when Jim Chalmers
9:24
Speaker 1: originally tried to sort of nudge them into going into housing.
9:27
Speaker 2: They said, the.
9:28
Speaker 1: Eels aren't there, the returns aren't there, but of course
9:30
Speaker 1: it could change that. That's a very interesting aspect from
9:33
Speaker 1: an investor point of view.
9:34
Speaker 2: Folks.
9:34
Speaker 1: I suppose it means that you could be bidding against
9:36
Speaker 1: Blackstone or black Rock or Australian super in the market.
9:40
Speaker 2: That's the issue.
9:41
Speaker 1: And whether that is what you would want I wonder.
9:44
Speaker 1: I doubt it very much. Okay, now that's the CGT
9:48
Speaker 1: and the negative gearing possibilities and one other thing there
9:51
Speaker 1: that I know why I'm throwing things at you without
9:53
Speaker 1: warning question without warning? That was this is the third one,
9:56
Speaker 1: the self managed super fund proper dimension. There's a speculation
10:03
Speaker 1: yet again for the I don't know the teamed time
10:07
Speaker 1: that SMSF lending will be banned. I don't know why
10:11
Speaker 1: that's come around again. There must be something scuttle butt
10:14
Speaker 1: around camera that it's threatened even though those new products
10:18
Speaker 1: have come into the market. AMP recently just released a
10:20
Speaker 1: new product for the first major new product for a
10:22
Speaker 1: long time in this space. What's your thoughts on that one?
10:27
Speaker 3: Well, I guess in terms of the market, again, it
10:29
Speaker 3: leads to less investment in residential property and fewer rental properties.
10:33
Speaker 3: So it's really, you know, it's just a lot. I
10:36
Speaker 3: guess it's just another aspect of shifting mind around. And
10:39
Speaker 3: I think this is you know, the policies that we're
10:41
Speaker 3: talking about, SMSs lending, changes to CJT, changes to negative gearing.
10:48
Speaker 3: I mean, all you're doing is shifting the problem of
10:51
Speaker 3: higher processes onto higher rents. And that's all you're doing.
10:55
Speaker 3: You're not solving, You're not solving. The big problem we
10:58
Speaker 3: have is that we just our housing the inefficient and
11:01
Speaker 3: we don't have enough over it and that's a fundamental problem.
11:04
Speaker 2: Okay, we'll take short break. We'll be back in a moment.
11:14
Speaker 1: Hello, Welcome back to the Australians Money Puzzle Podcast. James
11:17
Speaker 1: Kirby here with narrat Econospy of the Rape White Group,
11:21
Speaker 1: Chief economists at the Rape White Group. We were just
11:23
Speaker 1: talking in the first half, in the first section about
11:27
Speaker 1: the potential changes in the budget.
11:30
Speaker 2: Something I suppose we're a borchure off is rates.
11:33
Speaker 1: A rising and I wanted to ask you something narrative,
11:35
Speaker 1: which is I haven't actually dealt with on the show before,
11:38
Speaker 1: but it's something I think that would be worth knowing folks.
11:42
Speaker 2: If it's the case.
11:43
Speaker 1: And in the first part we were talking about how
11:45
Speaker 1: there's more renters in the market now, how people are
11:48
Speaker 1: renting for longer, how people are renting much older than
11:52
Speaker 1: they were, and then on the other side, younger people
11:55
Speaker 1: getting finding much harder to get into the market. It
11:58
Speaker 1: seems to me that the days of constantly the days
12:01
Speaker 1: of the big headlines which say, you know, mortgage changes,
12:06
Speaker 1: mortgage rate rises, that used to be front page news,
12:09
Speaker 1: and of course it's still is. But I wonder does
12:11
Speaker 1: it affect as many people as it used to, because
12:14
Speaker 1: I'm thinking back on some of the recent reports which signal,
12:19
Speaker 1: if you like, that that base is actually shrinking. Am
12:22
Speaker 1: I on the right track there?
12:25
Speaker 3: Yeah? I mean Lydia Lukat who isn't impacted by right rises.
12:29
Speaker 3: It's mainly older Australians and merely because they own their
12:33
Speaker 3: own homes and possibly own investment properties as well. So
12:37
Speaker 3: you know, someone at Retina is probably in some cases
12:41
Speaker 3: they are actually benefiting from higher interest rates because.
12:44
Speaker 2: Sure better cash rates. Yeah.
12:46
Speaker 3: Of course, the other thing too is that there is
12:48
Speaker 3: a bank doesn't need to move much on interest rates
12:52
Speaker 3: because compared to say the early eighties, people have just
12:55
Speaker 3: got such much higher levels of debt. So even if
12:58
Speaker 3: small nut jobwards has quite an oversized impact on people
13:02
Speaker 3: with mortgages.
13:03
Speaker 2: So but what about the people with mortgages? I was
13:06
Speaker 2: reading as I say.
13:07
Speaker 1: The kind of ultimate article on all these issues is
13:11
Speaker 1: the Australian Housing and Urban Research Institute ahu URI. They
13:15
Speaker 1: forecast home ownership in Australia will fall from the current
13:18
Speaker 1: level of about sixty seven about sixty seven percent used
13:21
Speaker 1: to be much higher, used to be in the high seventies,
13:23
Speaker 1: to around sixty three percent. I mean, is it the
13:27
Speaker 1: case that pool of mortgage pairs, as you say, one
13:31
Speaker 1: side of the story is they are so indebted that
13:35
Speaker 1: a mortgage rape rise hurts more, but there's less of them.
13:40
Speaker 2: Isn't there of carrying the load?
13:42
Speaker 3: Ah, I would say that. I mean it's usually they
13:46
Speaker 3: It's always been a third of a third people range.
13:49
Speaker 3: A third of people own property and then own outright,
13:52
Speaker 3: and then a third of people have a mortgage. I
13:54
Speaker 3: guess a better hurry data is showing is that fewer
13:57
Speaker 3: people will own property out right in the future, and
14:02
Speaker 3: then on the other hand, more people are going to
14:04
Speaker 3: be renting as well, and then the mortgage. You know,
14:07
Speaker 3: more people with mortgages. So I think you know that's
14:10
Speaker 3: it is a clear trend. I think the idea that
14:12
Speaker 3: you get to retirement and have paid off your mortgage,
14:14
Speaker 3: I think for a lot of household is quite foreign
14:17
Speaker 3: an houras in previous generations it was a very normal
14:20
Speaker 3: thing to do is to have paid off your mortgage
14:22
Speaker 3: way fifties.
14:23
Speaker 1: Perhaps that idea of once heard in each group. That
14:27
Speaker 1: has to change, obviously with what they're saying. If the
14:29
Speaker 1: level of horn orm ship starts stopped and in the
14:32
Speaker 1: long in the in the fullness of time, there will
14:34
Speaker 1: be less mortgage payers.
14:38
Speaker 3: Again, it's hard to I mean, if they become if
14:41
Speaker 3: they remain renters, yes, will they more people have paid
14:46
Speaker 3: off their homes? I think probably not. I think that's
14:49
Speaker 3: probably not the way that that it's expected to move
14:53
Speaker 3: because people have much high levels of debt now and
14:57
Speaker 3: increasingly finding them much more difficult. Well, I mean also
15:01
Speaker 3: banks are really extending loan terms. I mean, if you
15:03
Speaker 3: have a look at cv they've moved from a you know,
15:06
Speaker 3: you know, it used to be a pretty standard to
15:09
Speaker 3: get a twenty five year year loan. It's now thirty.
15:11
Speaker 3: And every time they move it out it increases people's
15:14
Speaker 3: borrowing capacity, but also then increases the time period of
15:17
Speaker 3: which they're paying off a mortgage.
15:19
Speaker 2: So it's the sort of pain bubble what they used
15:22
Speaker 2: to call the mortgage belt.
15:23
Speaker 1: In our minds, we used to picture young families basically
15:26
Speaker 1: with small children. Has that actually changes there are much
15:30
Speaker 1: more regularly Are there older people in that cohort?
15:32
Speaker 2: Now?
15:34
Speaker 3: Oh? Absolutely absolutely there would be. Again coming back to
15:37
Speaker 3: people hitting retirement with a mortgage, you know, I think
15:40
Speaker 3: a lot of people would you know, ideally, I think
15:43
Speaker 3: for most people would be downsize, pay off the mortgage,
15:45
Speaker 3: and you know, take the extra money. But then we
15:49
Speaker 3: also know the difficulties of downsizing that often housing suitabill
15:53
Speaker 3: that there's not much housing that's suitable for people to
15:55
Speaker 3: move into. There's not much incentive to downside from attaxerspective,
16:00
Speaker 3: so you know, there's a lot of challenges in trying
16:03
Speaker 3: to get people to do that.
16:05
Speaker 1: Right, So that once upon a time when you had
16:08
Speaker 1: a mortgage rate rise you were really hitting younger families
16:11
Speaker 1: in the suburbs, You're now hitting possibly a group that
16:14
Speaker 1: hasn't expanded much at all. Possibly in the fullest of time,
16:18
Speaker 1: they get smaller, but it will definitely get older. And
16:22
Speaker 1: that group is actually people may more likely be in
16:25
Speaker 1: their mid forties mid fifties with mortgages.
16:28
Speaker 2: Yeah, is that how it's Yeah?
16:30
Speaker 3: Absolutely, absolutely I think the ideas of having tied off
16:33
Speaker 3: a mortgage in your fifties, you know, would have been
16:36
Speaker 3: very common in generation and go I don't think it
16:38
Speaker 3: is as common as this.
16:39
Speaker 1: Point right right, And to your point that they don't
16:43
Speaker 1: have to move them much for the pain to hit,
16:46
Speaker 1: if you like, because they're because this court is so indebted.
16:50
Speaker 1: Then one last question is there are some senior economists
16:54
Speaker 1: out there who you know, I'm sure, who are talking
16:56
Speaker 1: that there's still two more rate rises to come, even
16:59
Speaker 1: if in from the rest of the year.
17:01
Speaker 2: Do you think that's the case.
17:04
Speaker 3: But the thing is that this outlook can change very quickly.
17:07
Speaker 3: And you know, we know that a lower than expected
17:10
Speaker 3: inflation rate, for example, which seems unlikely at this point.
17:14
Speaker 3: But the other one would be what happens with unemployment.
17:18
Speaker 3: And you know, unemployment seems stable, but when you look
17:21
Speaker 3: underneath the you know, when you look a bit more
17:23
Speaker 3: closely at the data use, unemployment is rising very rapidly.
17:27
Speaker 3: Victoria has a much higher level of unemployment than other states.
17:30
Speaker 3: And then you look at things like high frequency data
17:33
Speaker 3: around job ads, and seek have now publishing the number
17:38
Speaker 3: of job ads and that's been reducing quite rapidly. So
17:41
Speaker 3: I think that's you know, there's a lot going on.
17:43
Speaker 3: I think, you know, when you look at headline inflation,
17:46
Speaker 3: obviously things are very alarming that we've got four point
17:49
Speaker 3: six percent inflation, even taking out fuel and all the
17:52
Speaker 3: other highly errable elements are still sitting at three point three.
17:57
Speaker 3: But then I think the economy is a lot weaker
18:00
Speaker 3: than what people are, some other economists feel, and I
18:03
Speaker 3: think that's going to be the factor that does start
18:05
Speaker 3: to balance things out over the Yeah.
18:09
Speaker 2: Less rather than more intergect rises in.
18:11
Speaker 3: Yeah, absolutely, you know, again, we don't know, and I
18:14
Speaker 3: think this is the thing too, Like you even look
18:16
Speaker 3: at market expectations of rights, and that's what the market's
18:19
Speaker 3: expecting at this point. But that you know, again, overnight,
18:24
Speaker 3: you know, a new piece of data comes in and
18:26
Speaker 3: that drops and.
18:27
Speaker 2: It can turn on a dime.
18:29
Speaker 1: Yeah, as you say, there, it's really just where the
18:31
Speaker 1: betting is at in terms of those money markets.
18:33
Speaker 2: Yeah, all right.
18:34
Speaker 1: Now, Narada has done some really interesting work on one
18:37
Speaker 1: of our pet subjects, which is why is Melbourne so
18:40
Speaker 1: bad as a market compared to other markets. When we
18:43
Speaker 1: say so bad, what we mean is from an investment
18:46
Speaker 1: point of view as an investor, why the returns are
18:48
Speaker 1: so low there compared to other markets such as Queensland
18:52
Speaker 1: and West Australia in particular.
18:56
Speaker 2: The answer will be revealed after the break.
19:04
Speaker 1: Hello, Welcome back to The Australian's Money Puzzle podcast. James
19:07
Speaker 1: Kirby here with narrator Conospy Okay, narrator. So the other
19:13
Speaker 1: states would have it that Melbourne's property market is less
19:16
Speaker 1: rewarding for investors due to the fact that there are
19:19
Speaker 1: Oh I can't remember how many taxes there are. It's
19:21
Speaker 1: impossible to keep account of them all. That's one argument
19:25
Speaker 1: a state government that is not pro business and certainly
19:28
Speaker 1: not pro property. I think that's an argument that can
19:31
Speaker 1: be persuasively argued. But you pouring through the hard data,
19:36
Speaker 1: you have a different explanation.
19:37
Speaker 2: Tell us about it.
19:38
Speaker 3: Yeah, so I came from a slightly different angle. I
19:41
Speaker 3: had a journalist ring me and say, oh, well, we
19:44
Speaker 3: the taxes on Victorian investors are good because it has
19:48
Speaker 3: made housing more affordable. And of course I'm like, no,
19:52
Speaker 3: that's not what's happening. And so basically what we did
19:55
Speaker 3: we had to look through, We had to look over
19:57
Speaker 3: the past five years. We looked at what has happened
19:59
Speaker 3: to how rices and what's happened to rents, and rents
20:02
Speaker 3: have well and truly exceeded house price growth. So that's
20:07
Speaker 3: that was that's been clear that.
20:08
Speaker 1: I'm sorry, that's nationally is it near that Victoria.
20:13
Speaker 3: So clearly the taxes have And then the other one
20:17
Speaker 3: is looking at Victorian rental bonds and there has been
20:20
Speaker 3: a sharp production in number of rental properties, so that
20:24
Speaker 3: sharp production in the number of rental properties has led
20:27
Speaker 3: to an outpaced increase in rents when you haven't looked
20:32
Speaker 3: at why Melbourne is so cheap though, that's a separate issue,
20:35
Speaker 3: and the reason is two things. The first one is
20:39
Speaker 3: that Melbourne has been building far more than in any
20:43
Speaker 3: other state over several decades now, so in terms of
20:47
Speaker 3: housing supply, they have provided a lot more housing than elsewhere.
20:52
Speaker 3: But then I think too, you also have to overlay
20:55
Speaker 3: that with sentiment, and the way people are looking at
20:59
Speaker 3: Victoria is not not only that it's highly taxed and
21:01
Speaker 3: it's not very attractive for investors, but I think too
21:04
Speaker 3: that even owner occupies and first time buyers, for example,
21:08
Speaker 3: have much lower levels of sentiment in Victoria than elsewhere
21:13
Speaker 3: because unemployment is higher, debts higher. There's a lot not
21:17
Speaker 3: going right about Victoria, which also flows through to property markets.
21:21
Speaker 3: We can even see it at the moment with consumer sentiment.
21:24
Speaker 3: You know, as soon as the feel you know, as
21:27
Speaker 3: soon as the Middle East conflicts started and consumer sentiment
21:30
Speaker 3: hit that rock bottom level, we did see the number
21:34
Speaker 3: of people attending open homes sharply declined. So you know,
21:37
Speaker 3: there is also when people are happy or Conno, I'm
21:40
Speaker 3: not happy, that's probably the wrong way to put it.
21:42
Speaker 3: When they're confident about the future, they are happy to
21:45
Speaker 3: invest in housing, even if it's their own house. When
21:48
Speaker 3: they're not so confident, they're not so happy to do that.
21:50
Speaker 1: But a key issue there that you have sort of
21:53
Speaker 1: excavated is that's a supply. All things been equal, comparing
21:57
Speaker 1: state to state, the supply is best in Victoria.
22:00
Speaker 3: Yeah, oh absolutely.
22:01
Speaker 2: Why is that?
22:02
Speaker 3: Do you know, just a very well developed development industry.
22:06
Speaker 3: If you have a look at the level of building
22:09
Speaker 3: that's taken place, it's not just houses, it's also units.
22:12
Speaker 3: And then I think this is also something that is
22:15
Speaker 3: threatening to that is the fact that, as you said before,
22:18
Speaker 3: the Victorian government is not really pro business and certainly
22:21
Speaker 3: not pro property and as a result, that could impact
22:26
Speaker 3: you know, what has been a strength for Melbourne that
22:28
Speaker 3: they have built a lot, they've been able to accommodate
22:31
Speaker 3: rising population levels, you know, relatively easy compared to other states,
22:35
Speaker 3: and you know that that's under threat if we don't
22:38
Speaker 3: see that level of building taking place.
22:40
Speaker 1: Okay, So it's a historic observations as much as anything.
22:44
Speaker 3: Yeah, absolutely, it's yeah. And you know, if you have
22:47
Speaker 3: a look now, it's definitely not like apartments are not
22:50
Speaker 3: getting built to the same level in Melbourne now as
22:53
Speaker 3: they were last decade. The houses there's a lot of
22:55
Speaker 3: houses being built on the urban fringe, but not much
22:58
Speaker 3: in feel compared to another time periods.
23:01
Speaker 2: Okay.
23:01
Speaker 1: And also, while I have you one last thing, infleation.
23:05
Speaker 1: I see a lot about inflation and construction materials, producer
23:08
Speaker 1: price index impacts and all that.
23:10
Speaker 2: Is it an issue?
23:11
Speaker 1: Is it a specific issue, like is it a disproportionate
23:14
Speaker 1: issue in housing that inflation spike the four point six
23:20
Speaker 1: that we saw recently. Is it even higher in construction materials?
23:24
Speaker 3: Yeah, I mean, depending what construction material you're looking at.
23:26
Speaker 3: But you know, construction is very it's very challenged.
23:30
Speaker 1: At the moment.
23:30
Speaker 3: And if you look at what's happened was happening even
23:34
Speaker 3: before the Middle East conflict, we were seeing too few
23:38
Speaker 3: trades in Australia, so that was really pushing up prices.
23:41
Speaker 3: We're now adding in rising construction materials, so that's also
23:45
Speaker 3: a problem. And then this really underpins affordability in Australia.
23:49
Speaker 3: If we can't build at an affordable level, we can't
23:52
Speaker 3: sell properties at an affordable level. So you know, even
23:55
Speaker 3: though pricing may look a little bit muted over the
23:58
Speaker 3: next year or so, you know, potentially longer, longer term,
24:02
Speaker 3: you know, we can't supply housing an affordable right. You
24:06
Speaker 3: know that's problematic for affordability, right.
24:10
Speaker 1: Okay, well we've covered a lot of ground there in narrator,
24:12
Speaker 1: thank you very much, very interesting as always, great to
24:15
Speaker 1: talk to you. Narrator Connor Spy from the Grayhai Group,
24:18
Speaker 1: thanks for coming on the show.
24:19
Speaker 3: Thanks for having me.
24:21
Speaker 1: Great to have Nearrada always on the show. Okay, folks,
24:24
Speaker 1: I won't do any correspondence this week because all my
24:26
Speaker 1: questions wouldate to share markets and other issues other than property.
24:30
Speaker 1: So if you have a property question now as your chance.
24:33
Speaker 1: It's funny how it comes in waves and currently the
24:36
Speaker 1: inbox is full of non property questions, so I'm happy
24:38
Speaker 1: to take some new ones their money puzzle at the
24:41
Speaker 1: Australian dot com dot au. Talk to you soon, yass