Latest / The Money Puzzle / Public school zones are property goldmines...true or false?

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Public school zones are property goldmines...true or false? · The Money Puzzle

0:10
Speaker 1: Hello and welcome to the Australians Money Puzzle Podcast. I'm
0:13
Speaker 1: James Kirby. Welcome aboard everybody, Well, welcome aboard. Eliza Owen
0:17
Speaker 1: my guest today, regular on this show. Delighted to have
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Speaker 1: Eliza come into the studio. How are you, Eliza?
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Speaker 2: Really good? It's great to be here. It's great to
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Speaker 2: see you in.
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Speaker 1: Person, isn't it. Yeah, well, I don't know if it's
0:29
Speaker 1: great to see me in person, but it's nice to
0:31
Speaker 1: do so. As you know, folks, Eliza's been on the
0:36
Speaker 1: show regularly and we always have very interesting discussions about
0:40
Speaker 1: properly because she's right across it working for the Toutality
0:43
Speaker 1: Group formerly core Logic. Now what cut my eye was
0:47
Speaker 1: She's done a deep dive and I've never seen this
0:50
Speaker 1: done before on this What will we call it? Is
0:54
Speaker 1: it a suburban myth? Maybe it is a suburban myth
0:57
Speaker 1: on the back of your figures. That's how in private
1:02
Speaker 1: school zones, public school zones, I'm sorry, posh school zones,
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Speaker 1: we can see do very well and that they are
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Speaker 1: a sort of secret, sort of gold mine of the
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Speaker 1: property sector. Everyone assumed that I reckon it was true once.
1:15
Speaker 1: Is it still true?
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Speaker 2: This is a great question, and it's probably worth just
1:19
Speaker 2: doing a little bit of background on where we were
1:21
Speaker 2: coming at from with this research. The background was that
1:24
Speaker 2: we developed this new tool where we could essentially create
1:27
Speaker 2: custom boundaries, draw a circle on a map of the
1:31
Speaker 2: property market, and analyze all the properties within that. So
1:35
Speaker 2: we applied it to school zones where we identified top
1:41
Speaker 2: performing public school zones so that we could answer this question,
1:45
Speaker 2: is it worth paying premiums on houses in these top
1:51
Speaker 2: performing public schools to save on private school fees and
1:56
Speaker 2: the kind of cost benefit of that. So we found yes,
2:00
Speaker 2: it probably is worthwhile in most markets to be paying
2:04
Speaker 2: a premium anywhere between fifty thousand dollars all the way
2:08
Speaker 2: up to one point two million dollars, which I'll come
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Speaker 2: back to in a second, but you'll be paying potentially
2:15
Speaker 2: hundreds of thousands of dollars on school fees, and where
2:18
Speaker 2: real mortgage payments go down over time, school fees tend
2:22
Speaker 2: to go up and up and up. Plus you're getting
2:24
Speaker 2: the benefit of a really solid education.
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Speaker 1: But so it sounds to me that if it's true
2:30
Speaker 1: still that as a property investment, a property inside a
2:35
Speaker 1: top school zone is a good asset it's true, but
2:42
Speaker 1: it's a closer on thing that you had to actually
2:45
Speaker 1: go deep in. You had to look at everything. You
2:47
Speaker 1: had to subtract, as such the school fees that person
2:50
Speaker 1: might be paying over a long period of time and
2:52
Speaker 1: on balance, whereas once upon a time, I imagine it
2:55
Speaker 1: was a knockout. Is the reason there's such a premium.
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Speaker 1: Do you think there was a period where these zones
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Speaker 1: really and that they've run so high now that there
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Speaker 1: isn't much left in it? Because it seems to me
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Speaker 1: that you found in Sydney and Melbourne school zones often
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Speaker 1: the capital growth was actually weaker than the rest of
3:11
Speaker 1: the city. Explain what happened there?
3:13
Speaker 2: So this was the big catch right. We could look
3:16
Speaker 2: at the median house values in and outside of the catchments,
3:19
Speaker 2: but we could also look at the capital growth trend
3:21
Speaker 2: long term, and that turned out to be weaker.
3:23
Speaker 1: When you say long term, how long is that?
3:25
Speaker 2: So we looked at a fifteen year period and for
3:28
Speaker 2: six of the nine areas that we analyzed, we found
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Speaker 2: that the fifteen year capital growth was lower than outside
3:35
Speaker 2: the catchments. We don't really know why exactly, but we
3:39
Speaker 2: think it could be linked to an affordability issue. These
3:44
Speaker 2: areas inside catchments. Not all of them, by the way,
3:46
Speaker 2: not all the areas we analyzed had a premium, but
3:49
Speaker 2: most of them did, and we think that because they're
3:52
Speaker 2: just inherently higher, it's harder for them to accrue more
3:55
Speaker 2: value over time.
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Speaker 1: Yes, they've reached it, perhaps reached something of a ceiling.
4:00
Speaker 1: So if you were to buy something in these school zones,
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Speaker 1: the first thing is they're much dearer than surrounding properties
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Speaker 1: for like for like. Secondly, the growth is weaker over
4:13
Speaker 1: fifteen years than outside. So really it seems to me
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Speaker 1: you'd want to have kids in schools as an investor,
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Speaker 1: it mightn't really stack up absolutely.
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Speaker 2: It really comes down to your individual cost benefit analysis,
4:28
Speaker 2: which is going to include your education goals. But another
4:32
Speaker 2: catch that we found with this analysis is that if
4:36
Speaker 2: we're looking at just public schools that are not selective,
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Speaker 2: then the schools we looked at Epping Boys, Cheltenham Girls
4:42
Speaker 2: in Sydney, Princess Hill in Melbourne, for example, they rank
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Speaker 2: really well within public schools that are not selective, but
4:50
Speaker 2: when you start doing the rankings by all schools, they
4:54
Speaker 2: fall right down the list. So even if you pay
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Speaker 2: those premiums. You not necessarily going to be ranking in
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Speaker 2: the top ten or twenty when it comes to HSC
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Speaker 2: and VC results. That's something to keep in mind as well.
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Speaker 2: And it's kind of an unfortunate statement about the equality
5:10
Speaker 2: of you know, education quality across the.
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Speaker 1: The schools that serves. They change. Yes, school that's a
5:15
Speaker 1: great school is not necessarily a great school ten years later.
5:17
Speaker 2: Well, one of the more positive stories we found was
5:19
Speaker 2: Elizabeth Murdock, for example, which has actually been rising through
5:23
Speaker 2: the rankings, so that had outperformed in terms of capital
5:26
Speaker 2: growth and the premium wasn't even as high at about
5:30
Speaker 2: fifty thousand dollars. So there were some good news stories
5:32
Speaker 2: that emerged from it as well. But hopefully it's useful
5:36
Speaker 2: for house hunters in that young family stage of life
5:41
Speaker 2: to help them realize, you know, whether it's going to
5:43
Speaker 2: be the best decision for them to buy in or
5:45
Speaker 2: out of the catchments.
5:46
Speaker 1: So it works well, it would seem to work well
5:49
Speaker 1: for homeowners that are using the schools, and obviously the
5:53
Speaker 1: more kids you haven't the school, the better. These exact true,
5:56
Speaker 1: all fine, but from an investment point of view, then
5:59
Speaker 1: what about years did you look at that at all
6:01
Speaker 1: inside that ranger, I think we found out about renting
6:04
Speaker 1: in that area.
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Speaker 2: Yeah, so we had a look at rent values over
6:06
Speaker 2: time as well. Each of the areas, or most of
6:09
Speaker 2: the areas that we analyzed, had a premium on rents,
6:12
Speaker 2: and that premium on rents averaged about three and a
6:14
Speaker 2: half thousand dollars a year. So again, if you're making
6:18
Speaker 2: that cost benefited analysis when it comes to schooling, I'd
6:21
Speaker 2: say it's still worthwhile renting within the catchments that we
6:25
Speaker 2: looked at, because most private schools are going to be
6:28
Speaker 2: starting at least three and a half grand a year.
6:31
Speaker 2: So depending again on how you treat education, how you
6:35
Speaker 2: value education, that could be worthwhile. One of the things
6:41
Speaker 2: that's really worth noting about this analysis, and this is
6:43
Speaker 2: where I come back to that one point two million
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Speaker 2: premium I talked about earlier. This was for a pocket
6:48
Speaker 2: of Sydney's North Shore where you had a cluster of
6:52
Speaker 2: Cholara High, Willoughby Girls and Linfield Learning Village, But all
6:57
Speaker 2: the catchments also encompass a lot of the North Shore
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Speaker 2: train line. We weren't controlling for other factors here, so
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Speaker 2: that could be another reason there's a premium in that area.
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Speaker 1: Okay, Yes, of course, it's not just the school, Okay.
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Speaker 1: Was there any evidence that the volume of rental property
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Speaker 1: in the school catchment zones was higher than the zones
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Speaker 1: outside the schools.
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Speaker 2: We didn't look at the volume, but we did look
7:24
Speaker 2: at trends like time on market, selling times, whole periods.
7:29
Speaker 2: Conditions were generally tighter within the catchments. There's all sorts
7:34
Speaker 2: of housing techniques that people have used to try and
7:37
Speaker 2: get their kids into these catchments, into good schools. Unfortunately,
7:41
Speaker 2: there's even been cases of fraud.
7:43
Speaker 1: Of course, family address or whatever.
7:47
Speaker 2: Which I think to me ultimately screams for the need
7:50
Speaker 2: to kind of uplift the education standards in other areas
7:53
Speaker 2: of the city so you don't get such housing pressure
7:56
Speaker 2: in those catchments.
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Speaker 1: And there's also something of a jerry wondering that can
8:01
Speaker 1: happen in the schools because they can change their zones,
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Speaker 1: can't they. It's their right to do whatever they like,
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Speaker 1: and if they want to snip out a neighborhood they can,
8:10
Speaker 1: and you can't take them to corder or anything if
8:12
Speaker 1: you bought a house in that district. Well.
8:14
Speaker 2: I also thought it was interesting that Doncaster, which was
8:18
Speaker 2: a really high performing school in the VCE. They established
8:21
Speaker 2: a second campus so that they could expand their school
8:25
Speaker 2: zones and that ended up creating an uplift in price
8:29
Speaker 2: premiums in those some of those suburbs as well. So
8:32
Speaker 2: it's fascinating the interlink between the two. Another really interesting
8:37
Speaker 2: one was Cherrybrook Tech, which a lot of people talk
8:40
Speaker 2: about in Sydney as one that increases house value. That
8:43
Speaker 2: wasn't the case. We actually found that it sat about
8:45
Speaker 2: one hundred and fifty thousand dollars under the medium of
8:48
Speaker 2: surrounding houses.
8:50
Speaker 1: Hy on a straight price straight price comparison.
8:54
Speaker 2: Yeah, so again just coming back to the methodology part
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Speaker 2: of it was basically we looked at the school zone
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Speaker 2: as if was one housing market, and then we compared
9:03
Speaker 2: it with houses in the same suburb that were outside
9:07
Speaker 2: of the catchment. So we get a little bit of
9:08
Speaker 2: a like for like. But the reality is outside the
9:11
Speaker 2: Cherrybrook Tech catchment, you have new metro stations, you have
9:15
Speaker 2: houses that are probably larger, including in dural which is
9:19
Speaker 2: this kind of you know, you get more estate housing
9:22
Speaker 2: outside the catchment there, so that probably drags up the
9:25
Speaker 2: median as well. So there's a lot of things to
9:27
Speaker 2: take into account when you're looking at some of these areas.
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Speaker 1: Gee's fascinating though, I mean, it really is, and I
9:33
Speaker 1: can you know, I know that it's a big game
9:35
Speaker 1: in both Melbourne and Sydney particularly, but in all cities
9:38
Speaker 1: about the housing whether to make the effort to buy
9:42
Speaker 1: inside the school zone. And it's interesting. I mean, tell
9:45
Speaker 1: me if I'm wrong, but it would seem in conclusion
9:48
Speaker 1: on your report, which is a terrific exercise that, as
9:50
Speaker 1: I say, I've never seen done before that for homeowners
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Speaker 1: using the schools on balance over a long period of
9:58
Speaker 1: time parannum, there is probably and that the clearity is
10:02
Speaker 1: an advantage. But for investors, the capital prices are so high,
10:08
Speaker 1: and they're higher right than the neighborhoods outside generally, so
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Speaker 1: so you're as an investment option, it's doesn't necessarily seem
10:19
Speaker 1: to appear better.
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Speaker 2: No, I would say if you're looking at this from
10:22
Speaker 2: an investment perspective, you might be better off looking at
10:25
Speaker 2: other amenities, such as new infrastructure that's going in so
10:28
Speaker 2: you can capture the value before it's established. We're actually
10:32
Speaker 2: seeing a lot of that in Sydney with the establishment
10:35
Speaker 2: of the Metro West and the metro airport lines. Some
10:39
Speaker 2: of our fastest capital growth in the city across the
10:42
Speaker 2: market is occurring in those areas where they're awaiting those
10:47
Speaker 2: metro lines to be established. So maybe better off looking
10:50
Speaker 2: at something like that than an established good school zone
10:54
Speaker 2: from an investment perspective.
10:55
Speaker 1: Interesting. Yeah, and Velbrunt Similarly the tunnel, which obviously is
10:59
Speaker 1: going to go across to the West Sidney. Some of
11:01
Speaker 1: those suburbs are quite are red hot actually already, and
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Speaker 1: I'm sure that's the factor that I haven't seen any
11:07
Speaker 1: sort of deep research work like you've done here. Terrific. Okay,
11:10
Speaker 1: we'll take short break. We'll be back in a moment.
11:11
Speaker 1: We've got some very interesting issues you want to deal with,
11:14
Speaker 1: including the nasty business of under quoting, which I'm afraid
11:19
Speaker 1: is back with us. Hello, Welcome back to The Australian's
11:34
Speaker 1: Money Puzzle podcast. James Kirby talking to regular guests Eliza
11:38
Speaker 1: Owen of the Cautality property group, which you probably knew
11:42
Speaker 1: as core logic now under quoting. I did something on this,
11:47
Speaker 1: so we have it in the Wealth section of The
11:49
Speaker 1: Australian this week, and it's worth I would say humbly
11:52
Speaker 1: that it's worth looking at for the simple reason that
11:55
Speaker 1: there does seem to be does seem to be an issue.
11:57
Speaker 1: And one of the more interesting observations was by Anysa Cavello,
12:00
Speaker 1: who will be on the show By the Way next week.
12:02
Speaker 1: She's a property buyer's advocate based in Melbourne and she,
12:06
Speaker 1: like everyone in the story, she said, yes, it's happening,
12:09
Speaker 1: but in a sort of fiercely pragmatic passion. She also said,
12:13
Speaker 1: it's proof that the market is rebounding. Underquoting. It seems
12:17
Speaker 1: to be a real issue in a rising market, particularly
12:21
Speaker 1: at the entry level. Entry lever seems to be the
12:23
Speaker 1: part when everyone's got the toughest, doesn't it. Really.
12:27
Speaker 2: I think it's really hard. As you say, at an
12:29
Speaker 2: inflection point in the market when it's rising, kind of
12:32
Speaker 2: compounds the issue because on top of potential underquoting, you've
12:35
Speaker 2: got unintentional underquoting where the market is just moving faster
12:40
Speaker 2: than where people think the market is. I know from
12:43
Speaker 2: the first home buyer experience, it's just kind of a
12:47
Speaker 2: part of the process and unfortunately a bit of a
12:49
Speaker 2: humiliation when you understand that the listing price isn't representative
12:54
Speaker 2: of what a property is necessarily going to go.
12:57
Speaker 1: For isn't there laws against it?
13:00
Speaker 2: Yeah, there definitely is, but I think that it can
13:03
Speaker 2: be maybe difficult to bear out and potentially also a
13:10
Speaker 2: lack of complaints, And this is something that I think
13:13
Speaker 2: was in your eyes.
13:14
Speaker 1: People don't complain because they just move on. They just
13:17
Speaker 1: move on to share. Well, that's it, you know, we
13:19
Speaker 1: go to the next auction next.
13:21
Speaker 2: They accept it as a function of the market, which
13:23
Speaker 2: is really weird because you don't see it in other transactions.
13:26
Speaker 2: But I think fair trading so far this year in
13:29
Speaker 2: New South Wales has received one hundred and twenty five
13:33
Speaker 2: complaints about under quoting. In the year to date for
13:37
Speaker 2: New South Wales there's been seventy four thousand sales. So
13:40
Speaker 2: that gives you a sense in.
13:42
Speaker 1: The ocean, you know, exactly so, but yeah, so it
13:45
Speaker 1: probably not indicative of the issue.
13:47
Speaker 2: Potentially not. And I guess that's the thing. If you
13:50
Speaker 2: do think that an agent has misrepresented what the property
13:55
Speaker 2: was going to go for, maybe it is worth looking
13:57
Speaker 2: at fair trading and making a complaint. But I think
14:00
Speaker 2: think it's also really worthwhile as a buyer to arm
14:03
Speaker 2: yourself with comparable sales information, right, Yeah, yeah, or the
14:07
Speaker 2: valuation that you can see on listings. Sometimes if it's
14:09
Speaker 2: not suppressed, or even if you have apidata, you can
14:12
Speaker 2: look it up there and just.
14:13
Speaker 1: Use your common sense. I mean, if you're talking to
14:15
Speaker 1: an agent and they're saying, okay, well, the range on
14:18
Speaker 1: this is let's pick a number. Okay, the range on
14:21
Speaker 1: this is eight fifty to nine hundred, and last weekend
14:25
Speaker 1: you saw several similar properties that all went for over
14:28
Speaker 1: a million, then that is not the price that's going
14:31
Speaker 1: to go for whatever that agent is saying. And I
14:33
Speaker 1: find if you quiz the agent, they'll say this is
14:36
Speaker 1: the They're careful. They're all careful not to be seen
14:40
Speaker 1: as overcoating. So what their defense would be is they
14:42
Speaker 1: will say, this was the figure that we agreed in
14:45
Speaker 1: the kitchen two months ago when I sat down with
14:47
Speaker 1: these people for the first time, and they don't change it.
14:51
Speaker 1: But I would like you to explain what is really
14:56
Speaker 1: not the downside of all this. I mean, the obvious
14:59
Speaker 1: downside is that people waste their time, and it's not
15:02
Speaker 1: just wasting their time and people trying to buy a home,
15:04
Speaker 1: you're trying to imagine living there. But I think the
15:06
Speaker 1: worst part of it is that people are used as
15:08
Speaker 1: cannon fodd are really at auctions, aren't they? So they
15:10
Speaker 1: turn up all they've done all this work, as Louis
15:13
Speaker 1: Christopher was saying in the story, they've done their pest
15:16
Speaker 1: inspections and their size inspections, and they're sitting there like innocently,
15:20
Speaker 1: and you know, the auction opens and they're gone. They're
15:23
Speaker 1: knocked out in minutes. So that's the downside I think
15:27
Speaker 1: of it.
15:27
Speaker 2: I agree. I guess I've never really understood the upside.
15:30
Speaker 2: To be honest, I would have thought it'd be more efficient.
15:33
Speaker 1: There is no real lopside. It distorts the market. I mean,
15:37
Speaker 1: someone wins this one. The seller wins, I suppose because
15:40
Speaker 1: perhaps they had a perhaps they had a livelier auction
15:43
Speaker 1: than they might have had. But that's about it.
15:45
Speaker 2: Really. Yeah, perhaps you create more of a sense of
15:48
Speaker 2: urgency for the buyers that are eligible to get the property.
15:52
Speaker 2: But as you say, the downside is the financial, temporal
15:56
Speaker 2: and emotional investment that people are making in the property journey.
16:00
Speaker 2: And it is a bit of a rite of passage
16:02
Speaker 2: when you're a first home buyer in Australia to set
16:04
Speaker 2: to revise your expectations. We have a tool if you
16:08
Speaker 2: google it, it's just mapping the market catality. You can
16:11
Speaker 2: actually see median house and unit values by suburb. Even
16:15
Speaker 2: going into that and saying, okay, what are the suburbs
16:18
Speaker 2: that are ten twenty percent below my budget? That's probably
16:22
Speaker 2: where I'm going to have a lot more control in
16:24
Speaker 2: the buying process.
16:26
Speaker 1: Allowing for the price ranged to be ten or twenty
16:29
Speaker 1: percent under.
16:30
Speaker 2: That's what I range speaking from a person.
16:34
Speaker 1: Such a low and then you've got less likely to
16:38
Speaker 1: be disappointed. Yeah, I think so.
16:40
Speaker 2: But even as someone who'd been researching the property market
16:43
Speaker 2: for years and years, I still had to go through
16:45
Speaker 2: that same revision of.
16:46
Speaker 1: My own and you know, you know more than most.
16:48
Speaker 2: I went into some ouctions quite hopeful, but that arm
16:51
Speaker 2: yourself with comparable sales that have happened recently take into account,
16:56
Speaker 2: and hey, if you've got the money, why not get
16:58
Speaker 2: some buyer representation as.
17:00
Speaker 1: Well an advocate at the auction for you. Yes. Absolutely,
17:03
Speaker 1: And look, the one thing that I think all the
17:05
Speaker 1: listeners would know is that this used to be very hard.
17:08
Speaker 1: To find out what the comparable sales were. You had
17:11
Speaker 1: to go down to the titles office, and you can
17:13
Speaker 1: do it in two seconds, souse, use those tools all right?
17:16
Speaker 1: I think since I have you in the studio, I
17:18
Speaker 1: wanted to ask you all a two other quick questions, just observations. Really,
17:21
Speaker 1: we talked some time ago and we had a very
17:23
Speaker 1: interesting discussion, and I did the story which was one
17:26
Speaker 1: of the more interesting ones I thought in Property of
17:28
Speaker 1: the Year so far from me, which was about the
17:31
Speaker 1: apartment people losing money in apartments. One in five apartments
17:35
Speaker 1: selling at a loss inside of Melbourne. Ninety percent of
17:38
Speaker 1: loss making sales of dwellings in Sydney being apartments, a
17:41
Speaker 1: real weakness in that market, and you mentioned and you
17:43
Speaker 1: showed how it was weak for years now. I've just
17:47
Speaker 1: discovered recently that you know, coming up to half of
17:51
Speaker 1: all apartment buyers are downsizers, and downsizers invariably are selling
17:55
Speaker 1: a home, so there they've got much more money than
17:59
Speaker 1: the average apartment buyer. But I just wonder if that
18:02
Speaker 1: cohort then is more exposed than we might have realized
18:04
Speaker 1: to these weak apartment prices. If the people are that
18:08
Speaker 1: core hord that are setting the family home and moving
18:10
Speaker 1: into apartments, if apartment prices are so weak, are they exposed?
18:14
Speaker 2: This is such a good question, because if you look
18:18
Speaker 2: at the performance in houses and units over time, annualized
18:22
Speaker 2: growth over the past decade has been about six percent
18:26
Speaker 2: for houses compared to just three percent for you.
18:28
Speaker 1: And it's mortari on it's six percent, isn't it exactly?
18:31
Speaker 2: But I guess it's worth making the distinction between apartments
18:36
Speaker 2: that are likely to sell for a loss versus apartments
18:39
Speaker 2: that downsizes would be targeting. A lot of those loss
18:42
Speaker 2: making sales we talk about are skewed by a very
18:45
Speaker 2: specific kind of development that went up throughout the twenty
18:49
Speaker 2: tens when investors were very active in the market, and
18:52
Speaker 2: they were I would say somewhat investor gradestock a lot
18:55
Speaker 2: of them, not necessarily the kinds of things that are
18:58
Speaker 2: downsizer would be targeted. So there aren't markets where units
19:02
Speaker 2: actually outperform houses where you'd have to imagine cashed up
19:07
Speaker 2: downsizes might be interested in. Like Maruci in the Sunshine
19:13
Speaker 2: Coast region, annualized growth for units is eight percent in
19:17
Speaker 2: the past decade compared to seven percent for houses.
19:19
Speaker 1: Is that right? So these are a tree change beauty
19:21
Speaker 1: spots basically where retirees flocked too, So we can guess
19:24
Speaker 1: the rest for sure. So we can guess the suburbs
19:28
Speaker 1: around the country, won't them off. Yeah.
19:30
Speaker 2: Yeah, So that's a really important distinction to make, is
19:33
Speaker 2: that the apartment stock is shaped by demand, and if
19:37
Speaker 2: demand is coming from cashed up boomers, then you're going
19:41
Speaker 2: to get some really nice stock. And I actually think
19:44
Speaker 2: that's really exciting.
19:45
Speaker 1: They're not going to buy an anonymous apartment on the
19:50
Speaker 1: twenty second floor of an anonymous tower in the middle
19:52
Speaker 1: of the city, probably probably, And even if.
19:55
Speaker 2: They do, even if they buy something that doesn't return
19:57
Speaker 2: a lot of capital growth by the time you're downsizing.
20:00
Speaker 2: Is high capital growth really one of your goals financially?
20:04
Speaker 2: Maybe it is, But I think you've got to make
20:06
Speaker 2: a compromise between what's a high growth asset and what's
20:09
Speaker 2: a suitable home for you to live in. In most cases,
20:13
Speaker 2: you're not going to make as much money off an
20:15
Speaker 2: apartment as a house because house has the associated land,
20:18
Speaker 2: which is where most of the value is coming from.
20:21
Speaker 2: But if you're at a stage of life where a
20:24
Speaker 2: house is just too difficult for you to maintain, then
20:27
Speaker 2: you're risking some of the appreciation on the actual house itself,
20:31
Speaker 2: you know. So there's a compromise that's got to be made,
20:33
Speaker 2: and hopefully you can strike a good balance between a
20:37
Speaker 2: sound investment and something that's also manageable and enjoyable for.
20:41
Speaker 1: You to live. Okay, So as you say a good
20:43
Speaker 1: point that it's not a strictly financial and economic move,
20:48
Speaker 1: it's a lifestyle move, and then we have to sort
20:51
Speaker 1: of apply a different criteria, okay. And just one of
20:53
Speaker 1: the quick thing about property looking forward, a lot of
20:56
Speaker 1: talk about tax now. Every single tax summit of that
21:02
Speaker 1: nature when the government have them, they have them to
21:05
Speaker 1: see if they can get some support for tax changes,
21:09
Speaker 1: and it would seem the big items on the agenda
21:11
Speaker 1: are capital gains tax reform, which would play straight into
21:15
Speaker 1: property trading if you like, or property sales. Immediately, all
21:18
Speaker 1: property sales would not be as lucrative because they're talking
21:21
Speaker 1: about winding back capital gains tax benefits if you like.
21:26
Speaker 1: Also some talking about access to the pension again that's
21:29
Speaker 1: linked with the price of a family home. And then
21:32
Speaker 1: we have the new supertax, which again will kick property
21:35
Speaker 1: holders first, I think because they're the most illiquid and
21:38
Speaker 1: that they're sitting ducks really in an unrealized gains tax.
21:42
Speaker 1: It seems to me that there's a sense perhaps that
21:44
Speaker 1: whatever way it moves, it's property that's going to get
21:46
Speaker 1: it in the neck if there's tax changes, what do you.
21:50
Speaker 2: Think, Yeah, I think it's a real possibility. And we've
21:54
Speaker 2: you know, I've seen the pendulum kind of swing both
21:57
Speaker 2: ways on housing affordability and what we need to do
21:59
Speaker 2: to dress housing. Twenty twenty one, we had the inquiry
22:03
Speaker 2: into housing affordability and supply was very supply focused. I
22:07
Speaker 2: think now we've got the pendulum swinging more towards demand
22:10
Speaker 2: for a few reasons in that there's more there's a
22:14
Speaker 2: gradual decline in home ownership. There's a recognition even from
22:18
Speaker 2: property owners who are trying to help their kids into
22:21
Speaker 2: the housing market. They're recognizing how difficult it is, and
22:25
Speaker 2: also supply constraints. There's only so much we can do
22:28
Speaker 2: to affect supply when cyclically we've got a bunch of
22:31
Speaker 2: dwellings stuck in the pipeline that continue to place this
22:35
Speaker 2: strain on labor and material costs. So eventually you've got
22:38
Speaker 2: to look at demand, and a lot of that demand
22:40
Speaker 2: side comes from the tax space. So I think the
22:43
Speaker 2: pendulum is swinging. I think we've moved a long way
22:46
Speaker 2: from twenty nineteen, when capital gains negative gearing was smacked
22:50
Speaker 2: down at the face it was untouchable. Yes, society is
22:53
Speaker 2: reactive and we have to remember that property operates within
22:58
Speaker 2: a reactive institution and it is subject to change, and
23:02
Speaker 2: we don't rule it out.
23:03
Speaker 1: Okay, very interesting. I expect you're I expect you're right.
23:06
Speaker 1: It'll be really interesting to see which taxes do come through.
23:09
Speaker 1: But it seemed to me that when you look at
23:11
Speaker 1: all the suggestions and the submissions, the common denominators, invariably
23:16
Speaker 1: property is right in the middle of that. Okay, we'll
23:19
Speaker 1: be back with some questions, some of which are quite
23:22
Speaker 1: properly focused in a moment. Hello, Welcome back to the
23:38
Speaker 1: Australians Money Puzzle podcast. I'm James Kirby talking to Eliza
23:43
Speaker 1: Owen of the Cautality Group Property Research House. I'm sure
23:46
Speaker 1: you're familiar with it now. As a question from let's
23:49
Speaker 1: post the first one from Bruce who says about that
23:52
Speaker 1: discussion on capital gains tax discount, I accept that fifty
23:56
Speaker 1: percent was introduced to these complexity, but surely with modern
24:00
Speaker 1: computing power it would be relatively easy to adjust CGT
24:02
Speaker 1: for inflation and to throw a cat amongst the pigeons.
24:07
Speaker 1: Some may argue that other forms of income are not indexed,
24:10
Speaker 1: so why should CGT get this break? Okay, great question, Bruce.
24:15
Speaker 1: Two parts to it. One is that the original explanation,
24:20
Speaker 1: the original I think it was John Howard and his
24:22
Speaker 1: solution about inflation and indexing and everything else around CGT
24:26
Speaker 1: was to introduce this discount, basically a permanent discount, which
24:30
Speaker 1: meant if you held a property or any other asset
24:32
Speaker 1: for more than a year and you sold it, there
24:35
Speaker 1: was a fifty percent discount on the capital against tax,
24:40
Speaker 1: which like if your salary owner works out at something
24:42
Speaker 1: like your what your tax is on your salary now,
24:45
Speaker 1: so it comes in maybe twenty twenty something percent. Now.
24:49
Speaker 1: He then adds that the logic for it was indexing,
24:53
Speaker 1: So why don't they just index it? Again? Well, I'm
24:56
Speaker 1: which you, Bruce, why don't to index everything? But of
24:58
Speaker 1: course they don't. They some things, they don't index other things,
25:01
Speaker 1: and that is how they Actually that's a policy lever
25:04
Speaker 1: and that's not going to change. So for instance, oh hey,
25:08
Speaker 1: well the new supertax is and indexed, for instance, but
25:10
Speaker 1: the pension's indexed twice a year, so you get all
25:13
Speaker 1: those sort of variations. What do you think about his
25:16
Speaker 1: basic contention that does not need to have the discount
25:18
Speaker 1: at all.
25:19
Speaker 2: I think indexation is a great idea, Yeah, for sure.
25:25
Speaker 1: I think it was.
25:25
Speaker 2: Lucy Ellis a few years ago made this really elegant
25:28
Speaker 2: argument that you could discount capital gains by two and
25:32
Speaker 2: a half percent a year the mid range of the
25:34
Speaker 2: inflation target over the.
25:36
Speaker 1: Long term, and you'll be doing the same thing from
25:37
Speaker 1: a policy perspective.
25:38
Speaker 2: Yeah, and that could be a really interesting way to
25:41
Speaker 2: wind back what is largely considered an overly generous capital
25:45
Speaker 2: gains discount on windfalls. I also think it could have
25:48
Speaker 2: better housing outcomes, because if you look at periods of
25:52
Speaker 2: windfall capital gain, we actually see a spike in short
25:55
Speaker 2: term selling, which can be disruptive to renters because people
26:00
Speaker 2: are bought in. They've made, you know, a few hundred
26:02
Speaker 2: thousand dollars their property. Yeah, exactly one year before you
26:09
Speaker 2: get a fifty percent discount on capital gains. Come on, man,
26:12
Speaker 2: that doesn't seem fair to me. Have them hold the
26:15
Speaker 2: property for longer, and you can incentivize that through a
26:17
Speaker 2: gradual indexation of the of the capital gain. I'm not
26:21
Speaker 2: sure about the computational capability required to adjust for inflation.
26:25
Speaker 2: But I agree with the Bruce. I think you'd have
26:28
Speaker 2: to imagine that the technology and the data we have
26:30
Speaker 2: is a lot more sophisticated to do that.
26:32
Speaker 1: Now, Absolutely you would. Yeah, I mean, the only thing
26:34
Speaker 1: would be getting it past the people who had a
26:37
Speaker 1: miserable rental yield and finally cuts some cafital gains and
26:40
Speaker 1: thought they were going to get a fift percent discount,
26:42
Speaker 1: but they're probably brand fathered.
26:44
Speaker 2: Yeah, that's a really good point.
26:45
Speaker 1: Yeah, all these things are generally If you didn't, I mean,
26:48
Speaker 1: there would be there would be a lot of trouble
26:50
Speaker 1: I with think politically. Okay, but thank you, Bruce. This
26:53
Speaker 1: is always information only, not advice, of course. Okay, Melissa,
26:56
Speaker 1: Hello Melissa, what are your feelings about income protection and
27:00
Speaker 1: life insurance paid from within superannuation. I've left it late
27:03
Speaker 1: to consider insurance, and now that I have my first child,
27:06
Speaker 1: I'm refocusing on my priorities. Okay, Well, very broadly, and
27:11
Speaker 1: this is for all the Melissas in the world. It's
27:13
Speaker 1: not an individual piece of advice. But paying your life
27:17
Speaker 1: insurance inside your super probably makes a lot of sense
27:19
Speaker 1: because you're super fun unless you have an SMSF and
27:23
Speaker 1: you haven't said so, your big super fund will get
27:26
Speaker 1: a much better deal on life insurance than you will
27:28
Speaker 1: as an individual should you call up one of the
27:30
Speaker 1: big life insurers and try and do a deal with them.
27:32
Speaker 1: So it is one of the advantages of having yourself
27:35
Speaker 1: in a big super fund. Income protection insurance I put
27:38
Speaker 1: to one side. To be honest, that's a whole debate
27:40
Speaker 1: about whether you ever needed and at what point you
27:43
Speaker 1: needed and where you need it. It costs a lot,
27:45
Speaker 1: I know that, and I might just put that one
27:47
Speaker 1: to one side. But on the life insurance broadly, for
27:51
Speaker 1: most of the time you get a better deal. It's
27:54
Speaker 1: inside your super fund, all right. And David says, you
27:58
Speaker 1: claim that you can negatively gear shares as easily as
28:02
Speaker 1: you can negatively gear property, and that's inaccurate for three reasons.
28:06
Speaker 1: Margin loans of higher interest margin loans are subject to
28:09
Speaker 1: margin cause margin loans offer lv or as compared with property. Yes, okay, David, True. However,
28:16
Speaker 1: you don't have to be It doesn't have to be
28:18
Speaker 1: a margin loan. It doesn't always have to be a
28:21
Speaker 1: margin loan to negatively gear shares. So I suppose the
28:23
Speaker 1: first thing I wanted to talk about with you, Eliaiah
28:25
Speaker 1: is it is a funny thing that you can negatively
28:29
Speaker 1: gear shares of property. And for a long time they
28:31
Speaker 1: were both negatively geared, and there was they were commonly
28:35
Speaker 1: negatively geared. And then around the gfcch a while ago,
28:40
Speaker 1: I admit, the whole thing of negative gearing shares was
28:43
Speaker 1: just like forgotten. It was just like pushed to one side,
28:46
Speaker 1: too dangerous. But everyone said, yeah, I keep going on
28:49
Speaker 1: the property. So there seems to be a cultural acceptance
28:53
Speaker 1: that you can negatively gear property but not shares, but
28:56
Speaker 1: you can do both.
28:57
Speaker 2: Is that because shares were rising so consistently posted to
28:59
Speaker 2: you with lower interest.
29:01
Speaker 1: Right pre GFC. Yeah, yeah, yeah, there was a long
29:04
Speaker 1: there was, there was a long good spell. Yeah, absolutely,
29:07
Speaker 1: very a.
29:07
Speaker 2: Bit out of my wheelhouse here now that way, you've
29:10
Speaker 2: mentioned shares, not property.
29:11
Speaker 1: But it fell. But as we often mentioned and recall
29:14
Speaker 1: on the show, shares fell fifty in two OA two
29:17
Speaker 1: oh nine. Now that hurts a lot of people. But
29:20
Speaker 1: to David's point, David and anyone who's interested in this,
29:24
Speaker 1: you can negatively gear shares number one, number two. Yes,
29:27
Speaker 1: margins are are common but they are not the only
29:31
Speaker 1: way that you can borrow to buy shares and negatively gear.
29:35
Speaker 1: There's all sorts of structured products, equity builders and all
29:39
Speaker 1: the sort of thing out there from the banks. There
29:40
Speaker 1: is also just general loans of a various type where
29:43
Speaker 1: you can just get a loan, and of course how
29:46
Speaker 1: you gear is up to you. I mean, some people
29:49
Speaker 1: use their mortgage if their spare capacity on that. That's
29:53
Speaker 1: obviously the only negative there is. The lower the rate
29:55
Speaker 1: you pay, the lesser negative gearing sort of works. But
30:00
Speaker 1: I'm just making the point that yes, you can negatively
30:03
Speaker 1: gear into shares, and it doesn't have to be margin loanes.
30:05
Speaker 1: I'll take your point, David that margin loanes have all
30:07
Speaker 1: those issues, but you can do it outside margin doones.
30:11
Speaker 1: We might come back to this another time when we
30:13
Speaker 1: have someone more willing to wade in, sorry David, of
30:19
Speaker 1: share trading, which obviously we couldn't possibly ask Eliza Oh
30:22
Speaker 1: to do because she is a property expert and has
30:25
Speaker 1: been terrific on the show today. Thanks at Elizah.
30:27
Speaker 2: You thanks so much for having me.
30:29
Speaker 1: Really good to have you in the studio and lovely
30:31
Speaker 1: to talk, as I say, face to face. We'll do
30:32
Speaker 1: it as often as we can on the show. Okay, folks,
30:35
Speaker 1: keep those emails rolling. The money puzzle at the Australian
30:39
Speaker 1: dot com dot au talk to you soon.