Latest / Uncomfortable Conversations with Josh Szeps / "There IS no Housing Crisis, Akshually ☝️" with economist Cameron Murray

Transcript

"There IS no Housing Crisis, Akshually ☝️" with economist Cameron Murray · Uncomfortable Conversations with Josh Szeps

• 0:00
  Get a humans welcome to the safe space for dangerous ideas.
• 0:07
  It is the dangerous question that is most likely to be on the tip of the tongue of a certain
• 0:13
  cohort of middle-class middle-aged people at barbecues or bars.
• 0:18
  And that is, why are houses so bloody expensive?
• 0:22
  What has happened in the past half-century, in rich western countries, to put houses
• 0:27
  into the millions of dollars far out of the reach of the average working man?
• 0:32
  Last month I got on this show Peter Tualup, one of Australia's leading economists, to
• 0:37
  give us the answer, the conventional economic answer for this.
• 0:40
  And it was absolutely fascinating.
• 0:41
  You should go back and listen to that episode if you're interested in this.
• 0:45
  Basically, saying, look, there's more demand than there is supply.
• 0:48
  We are nimby's, our councils love heritage protections.
• 0:53
  We don't want big skyscrapers right next to us.
• 0:55
  We don't want lots of townhouses crammed together.
• 0:58
  We like our streets the way that we are and therefore we prevent people from building.
• 1:02
  And logically, if you have more demand than you have supply, prices will go up.
• 1:07
  After that episode dropped.
• 1:08
  We got pushback from a small cohort of economists who said, actually that can't really explain
• 1:15
  what is going on.
• 1:16
  And if you really think about it carefully and you do your economics right, you may be led
• 1:22
  to a very, very uncomfortable conclusion indeed.
• 1:26
  The conclusion that house prices are not too high and the housing crisis is not in fact
• 1:36
  a crisis.
• 1:38
  Cameron Murray, today's guest, has a PhD in economics from the University of Sydney
• 1:42
  and importantly, he then worked as a real estate developer in the property industry.
• 1:47
  So he knows what he's talking about.
• 1:49
  He is a friend and colleague of Peter Tualup.
• 1:51
  The two of them disagree completely about the causes of the housing crisis.
• 1:55
  And so I wanted to get Cameron on to provide this counter-argument really to say, well,
• 2:00
  let's think carefully about what would constitute a housing crisis, where we are, what impact
• 2:04
  demographics and population and immigration and tax policy might have on housing and all
• 2:09
  to understand what is fixable and what ain't.
• 2:13
  Cameron writes the fresh economic thinking blog on the sub-stack.
• 2:17
  You should check it out and I hope you enjoy as much as I did the one the only Cameron
• 2:20
  Murray.
• 2:21
  The question is, is there something wrong with housing?
• 2:30
  Like, we have this strange situation.
• 2:33
  A lot of people think that the price is wrong and there's the wrong number.
• 2:38
  And so I'd say, well, what's the right price?
• 2:40
  What's the right number?
• 2:41
  How do we know this?
• 2:43
  And I don't think we've interrogated that enough.
• 2:46
  And a lot of our reactions are more of a gut feel or an emotional response to what is...
• 2:53
  Well, can I give you a couple of metrics that we might use?
• 2:55
  Okay.
• 2:56
  Let's do that.
• 2:57
  If something that's essential for people to have in order to live a hobo has been
• 3:06
  essentially doubling in value every 10 years for the past half century, that would be
• 3:12
  one metric.
• 3:13
  One metric would be, is it possible for people who don't have wealthy parents who got into
• 3:19
  this particular industry early on when it was affordable to plausibly, you know, on an
• 3:25
  average income, acquire this essential asset?
• 3:27
  Okay.
• 3:28
  So the first one was kind of like a price to income type situation, or maybe just asset
• 3:33
  bubble question or, you know, so let me give you some other metrics.
• 3:39
  If we look at the survey of income and housing, which is like the largest survey run by the
• 3:43
  ABS, I think there's about 18,000 people in it now.
• 3:47
  Runs every second year since the late 80s.
• 3:50
  If you look at the rent income ratio for rental households, it's a flat line, 20% since
• 3:56
  the late 80s till the 2021 census, if we look at the census, this is rents.
• 4:03
  Yeah.
• 4:04
  So we're talking about two things, sort of, rhyme.
• 4:06
  Yeah, yeah.
• 4:07
  What's up with that?
• 4:08
  The question is.
• 4:09
  Yeah.
• 4:10
  So let's get to that.
• 4:11
  If rents are flat, how can prices diverge from rent so much, right?
• 4:15
  How do they just do that?
• 4:17
  Well, they just do that because the relationship between rents and prices is called the yield
• 4:21
  or the capitalization rate, right?
• 4:24
  And so prices can rise, but the affordability of owning can stay fixed if the interest rate
• 4:32
  falls, because that's what ties those two things together.
• 4:35
  And since the 80s, so we had high interest rates in the 80s, then we had a 90s recession.
• 4:40
  And since that, we sort of had this price adjustment to these new low interest rates,
• 4:45
  which let prices rise while rents were flat.
• 4:48
  And that happens because interest rates were so low, so people, at least if they were
• 4:52
  on a variable rate, not like in the States, they can always refinance to a lower rate
• 4:57
  in the US, right?
• 4:58
  So you can ratchet down when it's beneficial, and then when interest rates rise, just keep
• 5:02
  it and wait.
• 5:03
  That's insane, isn't it?
• 5:04
  It's pretty good.
• 5:05
  Well, I want to talk about a true Fannie Mae and Freddie Mac.
• 5:06
  Well, it's good for the buyer.
• 5:07
  It may not be good for the economy overall, if it contributed to the crash in 2017.
• 5:12
  Yeah.
• 5:13
  I think that's, it's not clear at all.
• 5:14
  Okay.
• 5:15
  So we should get into that.
• 5:17
  So what you find, you know, if the interest rate, think about June COVID, right?
• 5:20
  You could borrow a million dollars at 2%.
• 5:23
  So a better way to think of that is-
• 5:24
  I did, by the way.
• 5:25
  Yeah, yeah.
• 5:26
  I bought my first home in 2021, and I loved it in for three years through sheer dumb luck,
• 5:31
  and I was paying 2.05% in 2024 when everyone else was paying 8 or 9%.
• 5:36
  Yeah, I got on too.
• 5:38
  So stupid.
• 5:39
  So I'm going to come back to that after this.
• 5:40
  Remind me about this 2021 period.
• 5:42
  Yep.
• 5:43
  So you could rent a million dollars for 20,000 a year, or you could rent the house for 30,000.
• 5:49
  So it became cheaper to rent the money and become your own landlord and buy a house.
• 5:54
  If you can get a deposit.
• 5:55
  Yeah.
• 5:56
  Well, you'd be surprised that, you know, pre-financial crisis, you basically could get
• 6:03
  zero deposit mortgages, and you could still even get, you know, 5% deposit mortgages
• 6:08
  until the 2017 sort of Royal Commission.
• 6:11
  So you could get zero down mortgages in the 2000s.
• 6:14
  Yeah, yeah, I got one.
• 6:16
  Really?
• 6:17
  Yeah.
• 6:18
  Yeah, you could even borrow the stamp duty in some places.
• 6:20
  So they'll give you 104.5%, 105%.
• 6:24
  What was the bank's hedge?
• 6:27
  I mean, a mortgage is more of a bet on your future income capacity than the house itself,
• 6:33
  right?
• 6:34
  So the house is collateral in case things go bad, but it's really a bet on your income
• 6:37
  earning capacity.
• 6:38
  So if you're young and your income's growing, they're pretty confident, right, that you're
• 6:42
  not suddenly not going to be able to pay anymore because of the law.
• 6:46
  I'm not 100% sure.
• 6:47
  You can still get high loan to value ratio mortgages, but I don't think you get no deposit
• 6:52
  mortgages anymore.
• 6:53
  No, what?
• 6:54
  I mean, 20% would be normal.
• 6:55
  I mean, wouldn't it?
• 6:56
  Today?
• 6:57
  It's very conservative.
• 6:58
  Yeah.
• 6:59
  Yeah.
• 7:00
  Like, I think the average loan to value ratio these days across the whole mortgage book is
• 7:06
  only around 40% or 50%, so half of people have paid off half their mortgage.
• 7:12
  The Reserve Bank had some research out the other day.
• 7:15
  So the point back to your metric thing is, yeah, the price of the asset of housing must
• 7:20
  rise in a low interest rate environment.
• 7:22
  There is no economic environment where you can have a 10% yield on a house and 2% yield
• 7:32
  on cash because people just take the cash and get the 10%.
• 7:35
  So it kind of has to happen.
• 7:37
  They're tied together, which is why during COVID, for example, everyone thought the market's
• 7:41
  going to crash, right?
• 7:43
  In 2020, early 2020, we thought, this is the end of the world and interest rates started
• 7:47
  coming down.
• 7:48
  Lots of stimulus was in the works.
• 7:49
  And I did a podcast then and people said, oh, you know, we should get out prices again
• 7:53
  to crash right.
• 7:54
  And I'm like, yeah, but, you know, your mortgage interest rates dropped from what then was
• 7:58
  around 4% to 2%.
• 8:00
  It's halved.
• 8:01
  How can the price fall when you're now paying half the interest?
• 8:04
  I said, it's more likely that prices are going to rise 20% than 4%, 20%.
• 8:09
  This is May 2020.
• 8:10
  During the panic, you were wrong because they rose more than 20%.
• 8:13
  They rose.
• 8:14
  And I remember people would write on the internet, where did this guy get his economics
• 8:18
  degree?
• 8:19
  The back of a cornflakes packet.
• 8:21
  And hey, I was very conservative, right?
• 8:23
  In Brisbane, I think it went up 45% in the next two years.
• 8:27
  So you've got to understand that the asset price of housing is tied to the macroeconomic
• 8:33
  factor.
• 8:34
  Right.
• 8:35
  I mean, the other thing though, I would just mention there is a huge amount of money was
• 8:37
  being pumped into the economy and like subsidies for indirect cash payments to people and
• 8:41
  to businesses, right?
• 8:42
  Which they had then had nothing to do with because we couldn't travel and we couldn't buy
• 8:44
  anything and supply chains were fucked up.
• 8:46
  So if you did have extra money, you could put it.
• 8:48
  There was one obvious thing to do with it, which would be to move to the gold pit.
• 8:52
  Yeah.
• 8:53
  By an apartment on the gold.
• 8:54
  Yeah, yeah, yeah.
• 8:55
  That's right.
• 8:56
  And so actually, that's another sort of factor that's happened.
• 8:59
  And I think we confuse that when it comes to the rental market is that a lot of the rental
• 9:04
  growth we've seen is just the inflation of all consumer prices in the economy because
• 9:08
  of the COVID era stimulus and that's happened globally as well, right?
• 9:12
  Just to clarify, sorry, just finished that thought, rents in Sydney in real terms compared
• 9:18
  to the price of other goods and services are lower today than they were in 2015.
• 9:24
  Right.
• 9:25
  They have not inflated as much as a vast inflation as the CPI has actually fell for quite a
• 9:30
  few years.
• 9:31
  The interesting thing that I've heard you talk about on this, which is that we often
• 9:34
  think that what rents are is what rents are being advertised on rental properties that
• 9:39
  are on the market.
• 9:40
  But actually, there's a difference between what the rents being advertised are and what
• 9:44
  the rents that people are actually paying are.
• 9:47
  And journalists and academics sometimes make them a mistake of just looking at all the
• 9:49
  rental ads and saying, look how high rents are.
• 9:52
  Well, that may just be that more expensive places are on the market at the moment.
• 9:56
  There may be.
• 9:57
  That's right.
• 9:58
  The luxury project in this suburb, which is half of the rents rental property is being
• 10:02
  advertised.
• 10:03
  Yeah.
• 10:04
  So you think about that like the ABS uses the analogy of the bathtub, right?
• 10:08
  The rental ads is the temperature of the water coming into the bath.
• 10:12
  And what you're paying is the temperature of the water in the bath.
• 10:15
  So yes, if you're adding more hot water, eventually your bath gets warmer.
• 10:19
  So you're adding higher new rents, eventually people's rents go up, but a lot of people
• 10:24
  who haven't moved recently, they're not always getting their rents increased to match
• 10:28
  whatever the asking prices elsewhere, they're asking rents.
• 10:31
  So I don't want you to be misunderstood here, you suggesting, I mean, the straw man of
• 10:38
  your position would be, it really doesn't matter how expensive property is as long as
• 10:42
  interest rates are low enough that your repayments are affordable because people can still continue
• 10:46
  paying for it.
• 10:48
  But obviously that's not a long term sustainable solution because interest rates won't
• 10:52
  remain low forever.
• 10:53
  Shocks will happen to the economic global economic system.
• 10:56
  There'll be reasons to raise interest rates.
• 10:57
  And then the property that was 400,000, well, they won't fall back enough because they
• 11:02
  never do.
• 11:03
  They never have.
• 11:04
  I mean, where can you point, what can you point me to have in Spain, in the US, in previous
• 11:10
  in, you know, 1850s, insertions and stuff like they do sometimes.
• 11:15
  But if there's a problem, if the property that my parents bought 40 years ago was 180
• 11:21
  grand, and now it's 4 million, there's how, how high to property, how high to interest
• 11:27
  rates have to go to get a $4 million property back to 180 grand, or whatever that is in
• 11:31
  those.
• 11:32
  So there's a few factors going on there.
• 11:33
  So you've got to, when you make a long term comparison, you also have to say, so this
• 11:37
  house 40 years ago might have been, you know, in the worst suburb, the furthest you could
• 11:43
  commute, that exact same house is not the same relative position or rank in the market
• 11:49
  as it was.
• 11:50
  It'd be now very desirable, gentrified suburb.
• 11:54
  So not only has, but it's not, and also I made that up, just in case people think my parents
• 11:58
  have a formula in their house, unfortunately they sold that house in the 1990s.
• 12:02
  So that house would be worth 4 million.
• 12:04
  But you can basically throw a, throw a dart at a dartboard, can't you, in terms of Sydney
• 12:08
  and Melbourne and markets like that.
• 12:10
  And yeah, you'll be able to give me a particular area in sound less Melbourne that hasn't performed
• 12:14
  as well as others.
• 12:15
  But anywhere where human beings want to live, where people want, you know, coming back to
• 12:19
  the metric of, you know, being of the live a life, people want to live anywhere at the
• 12:25
  right price.
• 12:26
  And, and we have this strange, I think, how do I put it?
• 12:32
  This idea that we just, we don't want to do everything.
• 12:35
  We just want well-located, cheap high quality housing.
• 12:39
  That's all we want.
• 12:40
  Well, but, but to have that in a market means that relative to that well-located high quality
• 12:47
  housing, the poor quality, poorly located housing must be absolutely dirt cheap.
• 12:53
  So what you're just really saying is all prices should fall because the one I want is
• 12:57
  too expensive.
• 12:58
  And that's fine.
• 12:59
  If you don't own a house, why don't you say all prices should fall because all of them
• 13:02
  are too expensive?
• 13:03
  You can.
• 13:04
  If that's what you want.
• 13:05
  What you find though is the day after you buy a house at the barbecue, rather than
• 13:08
  being the one complaining, you're the one going, don't you think my suburbs, you know,
• 13:12
  the next one's a boom?
• 13:13
  Yeah.
• 13:14
  So you have this political economy issue.
• 13:15
  So I want to get into that, but before you mention something about, you've got your low
• 13:19
  interest rate.
• 13:20
  Yes.
• 13:21
  That's right.
• 13:22
  Yep.
• 13:23
  And I think you also mentioned something about, you know, what people can't afford to buy
• 13:25
  houses these days.
• 13:28
  Would you, it's not widely known, but if you look at the 2021 census, you'll find that
• 13:33
  the homeownership rate increased between 2016 and 2021.
• 13:38
  So in August 2016, there was a census.
• 13:40
  We all completed it in August 2021.
• 13:43
  And it was something like 66.0% in 2016, 66.7%, right?
• 13:47
  So it's slight increase.
• 13:50
  There was a, the big downward trend happened between 2011 and 2016 in terms of home
• 13:54
  ownership.
• 13:55
  So we have this big boom, but that 2021 census also misses you, you know, if you bought
• 14:01
  your house after August as a, as a homeowner.
• 14:04
  And what you find is that home ownership basically, or new first home buying doubled in 2021
• 14:11
  when we brought those low interest rates in during COVID.
• 14:14
  So we were tracking at something a little less than 90,000 per year, first home buyers for
• 14:18
  the five years prior to that.
• 14:19
  And then we got something like 183,000 first home buyers in 2021.
• 14:23
  So we literally brought forward an extra years worth of first home buying into that year.
• 14:29
  So in terms of the whole story of our people can't afford houses these days, we've got
• 14:35
  to understand that yes, we brought first home buyers from 2023 and 2024.
• 14:40
  We brought them forward into 2021 and 2022.
• 14:44
  So of course, it's harder for those who are left in 2020, 2023 and 24, those remaining
• 14:51
  potential first home.
• 14:52
  Of course, it's harder for them because if it was easy, they would have bought earlier
• 14:54
  when the interest rates were low.
• 14:56
  Right.
• 14:57
  I'm not that interested in what happened in the only the five year timeframe.
• 15:00
  We're talking about a problem that is plaguing many, many countries, many, many hundreds
• 15:05
  of millions of people across this timeframe, basically since the end of the Second World
• 15:09
  War.
• 15:10
  Okay.
• 15:11
  Well, let's go back.
• 15:12
  Let me give you a quote from a famous visitor to Sydney, right?
• 15:15
  This is what the first thing they noticed, they wrote it in the diary on the first day
• 15:19
  in Sydney.
• 15:20
  They said, I'm quoting, the number of homes recently finished and others building is truly
• 15:24
  surprising.
• 15:25
  Nevertheless, everyone complains of the high rents and difficulty in procuring a house.
• 15:30
  Okay.
• 15:31
  Who is that?
• 15:33
  Probably like Queen Elizabeth II in 1925 or something.
• 15:37
  You're right onto it.
• 15:38
  This is Charles Darwin.
• 15:39
  When he visited Sydney on the HMS Beagle in 1836, right, population of New South Wales,
• 15:45
  19,000, what were people in Sydney doing, complaining about the high rents and difficulty
• 15:50
  in procuring a house, right?
• 15:53
  You can be wrong a lot and then write at some point.
• 15:56
  What do you mean?
• 15:57
  Well, you can be complaining.
• 15:59
  People can be winters who complain about things a lot, but at some point, they can be
• 16:03
  right.
• 16:04
  At some point, there was a lot of them, and I'm not saying they're wrong, man, but we need
• 16:09
  to have the context of what we should expect from the market for housing because I think
• 16:12
  that sort of helps us understand what we should or could do and what the consequences will
• 16:18
  be, because if we don't understand what we get from the market, we could have the sort
• 16:22
  of, oh, just let the market rip it all sold everything.
• 16:24
  Okay.
• 16:25
  Well, pretty sure in 1836, we let the market rip.
• 16:27
  In the 1850s, if you search the archives in Queensland when we were auctioning off
• 16:32
  state land, privatising the land, the biggest gripe was all these wealthy British were
• 16:37
  coming over to buy the land and no one can afford to buy land in Southeast Queensland.
• 16:42
  You can sort of fast forward to the end of the 19th century.
• 16:45
  1872, the housing question was Friedrich Engels in Germany, complaining about the housing
• 16:51
  situation in the industrial cities of Europe, right?
• 16:54
  The biggest issue of the time was the expensive housing in the growing cities.
• 16:58
  We got go to 1879, we've got Henry George, complaining of the same thing, you know, the
• 17:03
  enigma of progress and poverty, and when we have all this growth and innovation, we end
• 17:08
  up with all these people left behind in the cities and this poverty.
• 17:11
  And we can go to the 1910 New South Wales first rents inquiry into the problem of rising
• 17:18
  rents in Sydney, right?
• 17:19
  Then we've got the 1919 Pittington inquiry into the problem of rising rents.
• 17:23
  And we have the 1937 slum abolition inquiry in Victoria, right?
• 17:27
  Of the problem of slum housing in the cities and it just goes on and on and on, right?
• 17:33
  Has anyone ever accused you of being a nerd?
• 17:36
  Because that was ever aggressive, that was like nerd level knowledge.
• 17:40
  So is your point that there's nothing aberrant about the situation at the moment?
• 17:44
  My point is the market is doing what we should expect the market to do.
• 17:48
  That's what I think.
• 17:49
  We've got this, and I think sometimes we have this emotional reaction like, oh, the market's
• 17:55
  doing something wrong, it must be those nasty planners that must be this or the politician
• 17:59
  I don't like.
• 18:00
  If we zoom out and we look abroad and we look historically, housing's doing what housing
• 18:04
  always does.
• 18:05
  Housing cycles, it leaves people behind during booms and busts, it squeezes people out,
• 18:11
  it's a good, but hang on, is that true for the past half century in Australia?
• 18:16
  Oh, so now you're getting to this sort of anomalous part of the housing history, right?
• 18:21
  It's pretty fucking long anomaly if it's everyone, almost everyone who's alive has never
• 18:26
  experienced anything else.
• 18:28
  Not really.
• 18:29
  So let's go, let's go to this before the Second World War, okay?
• 18:32
  We've got the slum abolition inquiries, we've got all these high rents in the city, we've
• 18:37
  got these classic Victorian cases about what a fair wage is so that a worker can afford
• 18:41
  a house in Melbourne.
• 18:43
  Now, you're testing my memory here, but I'll remember his name later, I lose your
• 18:47
  third credit card.
• 18:48
  Oh no, sorry guys.
• 18:51
  Home ownership in Australian cities then was around 40%, touch over 40%, prior to the
• 18:56
  Second World War.
• 18:57
  It's nearly 70% today, right?
• 18:59
  So we're doing better than we were for 150 years before the Second World War, in terms
• 19:02
  of home ownership.
• 19:03
  Well, there were 13 people living in Australia before the Second World War, everyone has arrived
• 19:06
  since the Second World War.
• 19:07
  Oh, there's a few millions, don't you?
• 19:09
  You're testing my knowledge, but I think it was nearly 40%.
• 19:11
  But yeah, I mean, it was a completely different country, before there was no immigration,
• 19:17
  I mean, it was the massive waves of migration.
• 19:20
  Well, that's interesting.
• 19:21
  Migration.
• 19:22
  So if there was no immigration, so we sort of had closed borders during the depression
• 19:26
  and a bit in the 1920s, housing was still a problem, right?
• 19:29
  So we can talk about that again as well.
• 19:32
  So the abnormal part of housing is really the two decades after the Second World War.
• 19:38
  Not just in Australia, but globally.
• 19:39
  It's abnormal in a lot of big parts of the economy, it's abnormal in healthcare, right?
• 19:43
  This is when we had national insurance for healthcare, it's when we came up with national
• 19:47
  pensions, we started the Commonwealth State Housing Agreements and soldier settlements
• 19:52
  and basically giving people stuff, right?
• 19:55
  Because we don't want returned soldiers marching in the street getting upset, we've left
• 19:58
  them behind.
• 20:00
  So this was sort of a revolutionary time for the nerds in public policy land.
• 20:05
  And what happened in not just Australia, but many countries, we transformed housing from
• 20:11
  this thing that poor people crammed together with extended families in slums in the city
• 20:17
  to actually, we built new suburbs, subsidized people into home ownership and got, you know,
• 20:22
  30%, a third of all households out of renting in into home ownership to get it up to 70%
• 20:27
  by 90%.
• 20:28
  And if people in America think about the rise of suburbia and the GI bill and...
• 20:33
  And I think that was the Freddie May, Fannie Mac, which I get them backwards, Fannie
• 20:37
  May, Freddie Mac.
• 20:38
  Yeah.
• 20:39
  It was a period of subsidizing cheap mortgages as well, right?
• 20:42
  Which is essentially the time.
• 20:43
  The 1950s, pleasantville.
• 20:44
  Yeah.
• 20:45
  Yeah.
• 20:46
  But that was the social policy of the time and that's what transformed things, housing
• 20:49
  slow moving.
• 20:50
  So those people who own homes raised families and had kids for the next 20 years, right?
• 20:56
  So I think what we do, and at the end of that sort of period, and in the 80s when we
• 21:00
  are sort of unwinding the government involvement in a lot of these areas, we have this period
• 21:05
  of high interest rates preventing a lot of speculation in all asset markets, right?
• 21:11
  So I think that's sort of the story you tell.
• 21:15
  From today, I feel like there's a bit of a rose tinted glasses view of, oh, but back
• 21:19
  then everyone could afford this.
• 21:21
  Well, we could do that today.
• 21:22
  We could offer subsidized housing.
• 21:25
  Lots of countries do.
• 21:27
  But we have this strange debate where we think, no, no, no, we'll just...
• 21:30
  The market will solve it.
• 21:32
  But if we look at the...
• 21:33
  The roleicking free markets of the 1800s, the biggest problem at the time is expensive
• 21:38
  housing and the boom and bust property cycle.
• 21:41
  And yet here we are sort of saying, no, that's...
• 21:43
  That's going to solve our problem now.
• 21:44
  I mean, I'm not...
• 21:46
  You're talking specifically to your economist colleagues who think that if we just build more
• 21:50
  than the price will be down, but I don't think the layperson thinks that the market...
• 21:54
  I mean, I think the layperson...
• 21:56
  I think the layperson thinks that the market is broken and we need to spend a lot more
• 21:59
  money on public housing and...
• 22:03
  I trust the people.
• 22:04
  And I think everyone knows that negative gearing is a problem in Australia.
• 22:08
  I think everybody knows...
• 22:09
  Everybody...
• 22:10
  I mean, I don't say that they're necessarily right because I don't know enough economics
• 22:13
  to understand it.
• 22:14
  But I think that people are aware that there are policy levers that are not being deployed
• 22:18
  that could be deployed to get...
• 22:19
  Yeah.
• 22:20
  Look, I don't think negative gearing is a big issue in property markets.
• 22:23
  I don't...
• 22:24
  It's...
• 22:25
  No one's making people pay a price that results in negative cash flow, right?
• 22:30
  But they do that because they're expecting growth.
• 22:33
  And there are periods of time during a slump where you can't, you know, and except for
• 22:38
  fancy suburbs of Sydney, you know, houses are positively geared because people think
• 22:43
  it's risky.
• 22:44
  So the price is lower.
• 22:45
  You know, in the early 2000s in sort of suburban Queensland, before that boom, you could positively
• 22:51
  get your houses because people thought, oh, well, I'm not going to buy it unless I get
• 22:55
  a positive return because I don't think there's a future growth potential.
• 22:58
  Yeah, yeah.
• 22:59
  So this is so negative gearing.
• 23:00
  No, I think it's sort of...
• 23:01
  Negative gearing has become a proxy word in Australia for what I think is a bigger philosophical
• 23:07
  concern that people have, which is about a financialisation of real estate.
• 23:13
  So that instead of it being, I think, I think if you poll and you may have done this,
• 23:17
  so John, I'm wrong.
• 23:18
  If you poll the 1000 Australians about what wire house prices are so high, and you probably
• 23:24
  wouldn't even need to ask them are, they would probably just say they are.
• 23:27
  I think their explanations would coalesce around something along the lines of it has become
• 23:33
  a way for people who have assets to be able to invest and get big returns and people own
• 23:38
  ten properties and rent them out and all of the incentives are towards the top end
• 23:43
  of town to allow wealthy Chinese buyers to swoop in and treat them like a financialised
• 23:48
  instrument instead of prioritising the core principle that human, that it's an accommodation
• 23:54
  for a human being and that that should be, that there's a sense that there's a cart
• 23:58
  before the horse thing.
• 24:00
  And what you pointed to earlier about the political problem of this is really keen because
• 24:06
  the media only wants to talk about how sad it is that property prices are really high.
• 24:13
  But everyone who then gets into the property market of course doesn't want to lose their
• 24:18
  shirt.
• 24:19
  Well, I don't want the fortune that I paid for my tiny inner-west terrace to be free
• 24:25
  of it and for me to still owe it to the bank.
• 24:28
  So of course I want to get capital flow, but it sounds nasty to say that.
• 24:34
  On the other hand, I think it is nasty for people who through no doing their own just
• 24:40
  happen to buy an $80,000 home in Baumein in 1968 to resent any policy that would bring
• 24:51
  it down from being $4.2 million to $3.8 million.
• 24:54
  So in my book, The Great Housing Hijack, I call this the symmetry of property markets.
• 25:00
  All their own property, their income is the rent and the rising capital value, the rising
• 25:07
  value of the house.
• 25:09
  Their incentive is to keep prices up and keep rents up.
• 25:13
  And then there's the people who pay rent and haven't bought yet, and dollar for dollar,
• 25:18
  any benefit to those who own home is a loss for those rents or those future buyers.
• 25:24
  And that is the sort of behind all of housing is this tension that I think we try and avoid.
• 25:32
  We try and say, no, there's a housing crisis when it's just an investment return boom,
• 25:38
  right?
• 25:39
  For 70% of the population who have already bought in.
• 25:41
  Yeah.
• 25:42
  And so what you'll hear is like a politician at breakfast will go to a property council
• 25:47
  thing and we're going to support you guys and housing is going to be a great investment
• 25:51
  in this country.
• 25:52
  What does that mean?
• 25:53
  Because rents and prices are going to rise if it's not a great investment if they're
• 25:56
  going to fall.
• 25:57
  Yeah.
• 25:58
  Right.
• 25:59
  So breakfast they say that and then at dinner they go to the social housing group and go,
• 26:01
  no, we're going to help the poor and we're going to bring down prices and rents.
• 26:06
  Because we're just avoiding this sort of distributional issue at the heart of housing, right?
• 26:11
  That every policy change that creates a winner, you know, the new home buyer or the
• 26:16
  rental creates a loser in terms of the landlord.
• 26:19
  And this is why I think for 200 years we've had this conversation and only very brief political
• 26:26
  moments was there, you know, the opportunity to do something pretty substantial.
• 26:30
  But I think the concern Cameron is that those two, the two sides of that, of that equation
• 26:35
  used to be the same cohort of people at different stages in their life.
• 26:40
  I think people have a sense that, yeah, of course there's a, there's a, you know, house
• 26:44
  prices go up.
• 26:45
  Well, if you've bought, then that's great and if you haven't bought, that's not great.
• 26:48
  But you will buy and then it'll be great.
• 26:50
  That was the logic up and I think up until maybe as recently as six or seven years ago,
• 26:56
  certainly is certainly up until like 15 years ago when prices, when, when median prices
• 27:01
  in big cities were still under a million dollars, it was conceivable that there was a way
• 27:06
  for average people to save up 10 or 20% and get into the market.
• 27:11
  Yeah, the sense that people have now, I think why they're angry is that those two sides
• 27:15
  of the equation are becoming, the fear is different populations and we're becoming a bifurcated
• 27:21
  society where there are the people who had the resources to get in when they did.
• 27:27
  And now if you're starting from scratch, the prices are just too high in comparison
• 27:32
  to, yeah, both historically, like it doesn't make sense.
• 27:35
  Yeah, I get the fear and I think that's true in certain world progress three or four times
• 27:39
  higher than inflation for a half century or whatever it is.
• 27:43
  Yeah, I think we get confused with nominal numbers, right?
• 27:47
  I got a grass.
• 27:49
  That's the, that's Australian house prices with.
• 27:52
  Yeah, yeah, what do we got?
• 27:52
  2010.
• 27:53
  That's the graph.
• 27:53
  This is 20.
• 27:54
  I get my nerd on here.
• 27:55
  Yeah, where's my glass has gone?
• 27:56
  I don't mind.
• 27:57
  Uh, is, uh, so is it nominal prices?
• 28:01
  Uh, it doesn't say unfortunately.
• 28:03
  It just says, well, it says real, okay, real residential property prices for Australia.
• 28:07
  Yeah, yeah.
• 28:08
  This is from, uh, the Bank for International Settlements, right?
• 28:11
  Oh, yeah.
• 28:12
  Be careful with their data.
• 28:13
  Really?
• 28:14
  Yeah, some, because they're trying to create consistent data from different methods in different
• 28:19
  countries.
• 28:20
  Okay.
• 28:21
  Well, we can clip it over the data if you want.
• 28:22
  It's probably roughly right.
• 28:23
  Yeah.
• 28:24
  Yeah.
• 28:25
  But so 2010 is set as the baseline.
• 28:26
  I don't know why they've done that.
• 28:27
  I don't know.
• 28:28
  Um, set any baseline.
• 28:29
  Yeah.
• 28:30
  Uh, so 2022, 12 years later is 140, so it's up to 145.
• 28:36
  45.
• 28:37
  So it's up 45%.
• 28:38
  Correct.
• 28:39
  Australia wide, right?
• 28:40
  So, so it's going to be much worse if you're in Sydney or, uh, or Melbourne.
• 28:44
  Uh, and 2000 is, no, Melbourne prices haven't moved much in the last seven or eight years.
• 28:49
  They're historically cheap relative to Sydney.
• 28:52
  In fact, Brisbane's historically expensive relative to Sydney.
• 28:55
  Yeah.
• 28:56
  That's because everyone in Sydney bought a place in Brisbane.
• 28:58
  Yeah.
• 28:59
  I'm actually looking at the real estate windows here and thinking, geez, that's not
• 29:01
  too bad, actually.
• 29:02
  Uh, and so from 2000, what's that 2000 is about 55% of the
• 29:08
  value.
• 29:09
  So it doubled between 2010 and then another almost 50% in the, in the next 10 years.
• 29:15
  And you can, you know, it's like, so a few things there.
• 29:19
  And that's real.
• 29:20
  That's after adjusting for inflation.
• 29:21
  Yeah.
• 29:22
  But not adjusting for income.
• 29:23
  So real incomes for households have increased as well, right?
• 29:25
  So that we're paying more in rents than we do in terms of sort of consumer prices.
• 29:31
  Um, and secondly, you know, you should expect prices to double if you have the interest
• 29:37
  rate.
• 29:38
  So if you're paying 8% in 2000, you're paying 4% today.
• 29:42
  You must double the price relative to the rent or it tripled, but yeah, yeah, that's
• 29:49
  okay.
• 29:50
  That's okay.
• 29:51
  I like them down.
• 29:52
  Yeah.
• 29:53
  It goes up and down here.
• 29:54
  Look at this, you know.
• 29:55
  Um, well, just for people who can't see the graph, which is everyone, when he says it
• 30:00
  goes up and down, he means it goes up, up, up, up, up and then there's a tiny little
• 30:03
  dip and then it keeps going up, up, up, up and then there's a tiny little dip.
• 30:05
  I give you an example.
• 30:06
  We sell the house in 2009, uh, in Ipswich and, um, it's the suburbs of Queensland,
• 30:14
  uh, basically outskirts of Brisbane, basically.
• 30:17
  I don't know what the equivalent here is, um, probably Gosford, maybe, uh, and a $200
• 30:24
  and something thousand dollars in 2009.
• 30:27
  The person who bought it from me sold it for the exact same price in 2019, nominally.
• 30:31
  Yeah.
• 30:32
  That is, but so we got a point that you did a very real like that person just happened
• 30:36
  to get the one spot, like, and that, honestly, you're about the eighth economist who's
• 30:42
  given me that exact example of someone lying in South, southeast Queensland at that exact
• 30:48
  time, because it's the one cherry that they can pick out of the basket lying cherry.
• 30:52
  Well, I guess my point is, right, the housing market has to match over the long term,
• 30:57
  the returns of all how other assets, right?
• 30:59
  So if we have 10 years of negative cash flow, because we're negative gearing, plus flat
• 31:05
  nominal returns, which are essentially declining real returns.
• 31:08
  So 10 years, it's, you're looking at 30% real decline, um, it's a huge loss.
• 31:13
  So it just catch up to the overall asset market means we have to do quite a lot of
• 31:19
  things.
• 31:20
  Right.
• 31:21
  So yes, this comes back to my thing, my description of the way I think most people would
• 31:26
  articulate the problem, which is that it's being conceived of as an asset and treated
• 31:29
  as an asset.
• 31:30
  And the market is the sort of primary consideration, rather than governments deploying policies,
• 31:36
  the release of people.
• 31:37
  Well, that's always been the case.
• 31:38
  You can't, you can't sort of detach it unless you stop people trading.
• 31:42
  So I'll give you an example of how do you know you don't have to stop people.
• 31:44
  I mean, there are jurisdictions that make it harder or easier to, you know, limiting the
• 31:48
  number of properties that you can own to individual beings, you know, each individual
• 31:52
  human being can.
• 31:53
  So in, for example, in Singapore, right, taxation.
• 31:56
  Your first home has no stamp duty, your second home has 30%.
• 32:00
  If you're a foreign buyer, you've got to pay 60% to the government if you want to buy
• 32:03
  property, right?
• 32:04
  So they're just basically saying, sorry, you're only get one or you pay us.
• 32:08
  And that's fine.
• 32:09
  That's a redistributive policy to intervene and potential trades in the market.
• 32:14
  We could do that if you want.
• 32:17
  That's what they do.
• 32:18
  But I think it's important to remember that housing has always been an asset, right?
• 32:23
  It is the, the first asset that exists that, you know, Lords would secure their wealth
• 32:29
  with real.
• 32:30
  Yeah.
• 32:31
  It's real.
• 32:32
  It's the, it's the real estate.
• 32:33
  It's the main game in town, right?
• 32:35
  So if you don't want it to be like that, somehow you have to create a way to access housing.
• 32:40
  That's sort of an, I think you're aligning something there, Cameron, because like it hasn't
• 32:45
  been an act.
• 32:46
  Yes.
• 32:47
  It's real estate and Lords sat on their land and Empire's conquered land and like land
• 32:54
  is the kind of ultimate, you know, asset in the sense that it is, it is finite.
• 33:04
  It is real.
• 33:08
  It was not the case that there was an expectation that people would be flipping houses selling
• 33:13
  them, like getting tax breaks on them, doing them, like it was not a wheely, daily business.
• 33:19
  It was the most concrete and sort of profound asset that one could own.
• 33:24
  And most people couldn't own it because we were in feudal societies or the church owned
• 33:29
  everything, whatever.
• 33:30
  And it's only quite recently, right in the post-war era, that this dream of home ownership
• 33:35
  has come about where it's like every little guy can own his little quarter acre block.
• 33:40
  And the sense is that the 1950s dream of every little guy owning a quarter acre block has
• 33:45
  given way to a kind of 1980s to 2000s reality of yes, hyperlow interest rates, a lot of
• 33:53
  people blame.
• 33:54
  I'm Greenspan for having caused the financial crisis in the States.
• 33:57
  Some stripper in Florida owns seven homes because she thinks she can get away with it.
• 34:01
  It's always going to go up and there's this kind of wheely, daily sort of raganite attitude
• 34:06
  towards property that replaced the sort of gravitas that you're claiming real estate has.
• 34:12
  I think that's how people would watch wrong with that.
• 34:15
  That's wrong with that.
• 34:16
  Well, I would cast them back into the 1880s, Victoria and Land Boom and read a book called
• 34:20
  The Land Boomers, which essentially describes what you said that.
• 34:23
  But who had the ability to do that?
• 34:25
  We're talking about probably 5% of the population who were able to.
• 34:28
  40% own land, you know, in that sort of period.
• 34:30
  So you got the top third of people essentially.
• 34:33
  People were wheeling and dealing on land, subdividing estates, building mansions.
• 34:36
  There's a lot of legacy buildings in Melbourne from that period of flipping houses and
• 34:41
  Oh, you don't know that here?
• 34:42
  Yeah, in Victoria and Melbourne in the 1880s.
• 34:44
  And so there's a book called The Land Boomers, which is basically documents that period
• 34:49
  and the low interest rates and the speculation and the fever and the newspapers, like wall-to-wall
• 34:54
  coverage of whatever one's properties are doing.
• 34:57
  And I'm sitting here.
• 34:58
  So there's this whole idea that oh, yeah, no property used to be this boring thing.
• 35:02
  And no, no, no, this is, again, I guess I was thinking of places where human beings
• 35:05
  actually live.
• 35:06
  Like in the UK in the 1850s, how many, what proportion of the population own land?
• 35:10
  Oh, I have no idea.
• 35:11
  But I'm sure there were speculative favors.
• 35:13
  You know, the biggest economic issue of that.
• 35:15
  Yeah, that's right.
• 35:16
  And now that's two thirds of us, which is why we love talking about real estate.
• 35:19
  I mean, our newspapers are literally real estate advertising businesses with gossip columns
• 35:24
  that are extra.
• 35:25
  Absolutely.
• 35:26
  I remember, you know, before I became a parent and before I owned property, I remember
• 35:31
  vowing to myself in my 20s, do not become the kind of middle-aged class asshole who's
• 35:37
  always talking about nothing apart from real estate and school, so what fucking schools
• 35:42
  your stupid kids are going to go to.
• 35:43
  No one gives a shit about your stupid kid school.
• 35:45
  No one gives a shit about your renovation or your mortgage repayments.
• 35:48
  And now every party I'm at or every barbecue, I'm like, guys, what have we become?
• 35:51
  Look at it.
• 35:52
  This is for the international listeners probably don't realize that Aussies are not like
• 35:57
  the, you know, the Paul Hogan crocodile Dundee, where that we gossip about housing schools
• 36:03
  and where it kind of dippadovers as well.
• 36:05
  Like we're not, we are not, we've sold the world and this is each of us all being
• 36:10
  Steve Irwin, but actually we're cosmopolitan, pussies who walk around with our almond lattes
• 36:16
  and shut them there.
• 36:18
  So I think you, we're getting sort of back to that point of, you know, what do we want
• 36:22
  from housing?
• 36:23
  Like two thirds of people don't mind the speculation and the trading they're in the game.
• 36:28
  They're happy with prices rising.
• 36:30
  They get very unhappy if prices fall.
• 36:31
  And in fact, you know, that pattern there of those long term real house prices pretty
• 36:36
  much exists in most, most countries.
• 36:39
  Yeah.
• 36:40
  And you could, you could mount an argument that this is our macroeconomic regime now
• 36:44
  that when we have a recession or decline in growth or decline in asset prices, we reduce
• 36:50
  interest rates to encourage higher asset prices through housing and, and in general.
• 36:56
  And so if that's your sort of macroeconomic setting, then, then you must have this situation
• 37:00
  and is that a, I mean, ratcheting falling interest rate and then ratcheting up prices?
• 37:06
  Is that a wrong setting?
• 37:10
  That's a good question.
• 37:11
  I think the consequences, the stability has been good, you know, Australia hasn't had
• 37:16
  a deep, prolonged recession since the 90s.
• 37:20
  So it has been reasonably stable.
• 37:22
  We've had a good economic stewardship and we've had, we've got a lot of resource, a
• 37:25
  lot of natural resources and like, yeah, we have, because the end of the reason I'm quibbling
• 37:30
  is because America also had really low interest rates and they did have recessions.
• 37:34
  So you can't think the interest rates, the low interest rates for not having access.
• 37:37
  Well, and it's true now in Canada and New Zealand, right?
• 37:39
  That their house prices are falling, they're having a recession and they're dropping interest
• 37:43
  rates because they're like, oh, house prices are falling.
• 37:45
  We actually don't like this.
• 37:46
  I forgot.
• 37:47
  Yeah.
• 37:48
  Let's get them up again.
• 37:49
  Let's bail everyone out.
• 37:50
  I mean, I think you're talking, um, the difficulty in having these conversations in public
• 37:55
  and the media is that you're always pissing off one side of the equation or the other,
• 37:58
  right?
• 37:59
  The people who have a vested interest in their property growing in price versus the people
• 38:02
  who aren't in the market and don't want, and what housing to be affordable.
• 38:06
  But we're talking, we're looking at a sort of, a, a, a, quite a small snapshot in this
• 38:10
  is part of the problem.
• 38:11
  It reminds me a bit of the problem of politics, of democratic politics in general.
• 38:15
  Which is politicians have to win you over for what they're going to do next month or next
• 38:20
  year.
• 38:21
  We have problems that require decade or century long solutions, right?
• 38:25
  And similarly, this whole conversation about what a property price is going to do tomorrow.
• 38:31
  And are they going down, are they up or down from the past month is what obsesses us.
• 38:36
  But I think many people, if they were given the opportunity to step back and go, all right,
• 38:42
  a macro time level is the change that has happened since the 1980s or 90s in the ability
• 38:50
  of average people who can't inherit property to acquire property, a good or a bad thing.
• 38:56
  I think a lot of people who are sitting on the two and a half million dollar property
• 39:00
  that they bought for a hundred grand thirty years ago would say, I'd rather it just be
• 39:04
  one point five.
• 39:05
  I'd rather it had never gotten to two.
• 39:07
  I have, because I have nothing to do with that money anyway.
• 39:10
  I don't want to go and move to Estonia and cash out the money.
• 39:15
  I just want to be able to live in the city where my family and my friends live in.
• 39:19
  And this is all academic anyway.
• 39:21
  It's just on paper.
• 39:22
  So I would rather it never had happened.
• 39:24
  Well, yeah.
• 39:25
  Okay.
• 39:26
  Good question.
• 39:27
  Let's, let's try and break it apart a little there.
• 39:30
  So there's a, are you saying there's a concern about not the price of living in a house,
• 39:37
  which is the rent, but the price of being a homeowner correct.
• 39:42
  And it's not the cost per year of repaying the mortgage.
• 39:46
  It's that for some reason, the sticker price, or do you think the cost per, so if this interest
• 39:50
  rates lower and your mortgage repayments are the same, I think it's, but I think the number
• 39:55
  one hurdle is the sticker price is the deposit because it's hard, it's hard to get into.
• 39:59
  And it strikes me that every economic lever that you might be able to use to ameliorate
• 40:03
  that is only going to push prices up more like governments sometimes jump in and say,
• 40:07
  or we'll cover the deposit, but the Australian government currently is, let's just park
• 40:11
  that question for a second, because I might be wrong about that.
• 40:13
  But then I do think that the, that it's just not good enough when you make it, when you're
• 40:18
  entering into a 25 or 30 year agreement with a bank to say, yeah, but right now in those
• 40:24
  repayments are fine, because nobody knows what interest rates are going to be in for
• 40:28
  years.
• 40:29
  Requirement on the interest rate, on the mortgage repayment assessment, right?
• 40:34
  Yeah.
• 40:35
  That's the point, right?
• 40:36
  Typically, what happens though is you get a mortgage and your income rises over time,
• 40:41
  and you pay off your mortgage.
• 40:43
  So even at a high, high loan to value ratio, if your income can serve a bit of a buffer
• 40:50
  on that mortgage, it's not that risky.
• 40:53
  So that's, that's okay.
• 40:55
  So I think I need the risk.
• 40:56
  It's not the risk.
• 40:57
  It's the expense.
• 40:59
  But you were asking me, are we, are we talking about the homeownership of rent?
• 41:02
  Oh, I said homeownership.
• 41:03
  Then you said, you object to the sticker price or the ongoing repayments.
• 41:07
  I'm saying it's partly the sticker price, and it's partly the fact that the ongoing
• 41:10
  repayments are a variable over the course of a, of your rest of your life.
• 41:14
  But so are the rents that you're going to pay if you don't buy, right?
• 41:16
  So what you're doing is you're buying that risk of the repayment flows to avoid the risk
• 41:22
  of the rental flows.
• 41:23
  There's no alternative of just, you know, living in thin air.
• 41:28
  You got to do one of them, right?
• 41:29
  And people will switch when they think that that's better, long term than this.
• 41:33
  If they want, they might have other investment strategies.
• 41:37
  And what you, so to just skip back to that idea that no one can afford houses these days,
• 41:43
  first home buying in the last eight years has been much, much higher than the prior eight
• 41:47
  years.
• 41:48
  So the 2010s was the real lull in first home buying in Australia since, and why was that?
• 41:54
  The fall out from the financial crisis was that, yeah, a little bit.
• 41:58
  I think people were still shocked.
• 41:59
  So what you actually find is when prices are rising, first home buy has jumped in more,
• 42:03
  because they don't want to miss out, right?
• 42:06
  And when prices fall in, 2021, it was like, first home buy, they're going to be able
• 42:09
  to afford to get into this market.
• 42:10
  That's right.
• 42:11
  And when price is falling, first home buy is like, well, why am I rushing you?
• 42:13
  I say it's the first.
• 42:14
  Yeah.
• 42:15
  Right.
• 42:16
  So the whole, there's this weird thing of, oh, if prices come down, people, people
• 42:20
  will be able to afford, but they won't want to afford it, because they're like, why would
• 42:24
  I jump in now and have something that's worth less when I can just rent for another year?
• 42:28
  And this thing's going to be $50,000 cheaper next year.
• 42:31
  So this sort of, it's really hard to create those win-win situations of make it cheap
• 42:37
  to buy without discouraging people from wanting to buy.
• 42:40
  Right.
• 42:41
  Right.
• 42:42
  So, and I think the overall story nationwide is not that people can't afford housing.
• 42:46
  I'm going to make a prediction that when we do the census in August next year, 2026,
• 42:51
  you'll find that the home ownership rate is higher than it was in 2021, which is higher
• 42:55
  than it was in 2016.
• 42:58
  For a few reasons.
• 42:59
  One is that 2021 boom I talked about that's not all in the previous census.
• 43:03
  Another one is in Victoria.
• 43:06
  Land taxes were increased on investor property owners.
• 43:10
  And what happens in that situation is investors say, well, I thought I was getting this return
• 43:15
  on the asset.
• 43:16
  Now I've got this extra tax liability.
• 43:17
  I want to sell that and buy something else.
• 43:20
  And when landlord sell, the net effect must be that first home buyers buy, right, because
• 43:27
  they either sell to another landlord in which case there's no net change or they've sold
• 43:30
  to a first home buyer.
• 43:32
  So what you see in Victoria is actually a decline in the stock of rental housing.
• 43:37
  And people go, oh, this is terrible.
• 43:38
  See how that taxes reduce supply of rental housing.
• 43:41
  I'm like, hang on a minute, the number of homes is still growing.
• 43:45
  It's the stock of rental housing is shrunk.
• 43:47
  So somebody must be living there and owning it instead of renting it now.
• 43:51
  That's an increase in homeownership.
• 43:53
  So if you combine that happening in Victoria, that sort of end of 2021 and 2022 first elevated
• 43:59
  first home buying plus this year, you're going to see a little bit of a sort of bubble with
• 44:05
  the 5% deposit scheme.
• 44:07
  I reckon we'll probably be over 67% homeownership again in August next year.
• 44:12
  So this idea that no one can buy houses, we're only sort of 3% off the peak in the early
• 44:17
  1970s.
• 44:18
  If you go to New Zealand, they're about 10% off the peak.
• 44:22
  So they went from about 75% to 65% from the 80s to about now in terms of homeownership.
• 44:29
  And Australia is doing better than all the places.
• 44:30
  Do we know or care whether or not those people come from families that didn't already own
• 44:35
  property?
• 44:36
  No, we don't know much.
• 44:38
  We don't know much about the Bank of Mum and Dad and any of those.
• 44:41
  Bank of Mum and Dad isn't Australian, they're saying about how your Mum and Dad have to
• 44:45
  lend you hundreds of thousands of dollars to get the deposit to buy your.
• 44:48
  And first home.
• 44:49
  That's a bit of a problem because the Bank of Mum and Dad was around in the 2000s boom
• 44:53
  as well.
• 44:54
  So I've benefited from the Bank of Mum and Dad.
• 44:55
  I know a lot of people who did.
• 44:56
  Yeah, I did.
• 44:57
  There's no way I could have gotten this.
• 44:58
  So it's not like this is a new thing.
• 45:02
  But I think again at this rose tinted glasses of the past where we had sort of state and
• 45:06
  federal programs to do their role of Bank of Mum and Dad that actually boosted home ownership
• 45:11
  quite a lot.
• 45:12
  Just before we leave interest rates and I do because I know not everyone wants to hear
• 45:16
  talk about interest rates for an hour and a half.
• 45:19
  Are you saying that so your argument seems one of your arguments seems to be it doesn't
• 45:24
  really matter what the the ostensible the number of the housey is what matters is whether
• 45:31
  or not the average person in afford the repayments and how they get whether they can get
• 45:35
  all the rent and we're like we're just talking about buying out at the moment though we
• 45:39
  can get to rent.
• 45:41
  Once interest rates are very low if interest rates are very low at some point and prices keep
• 45:47
  going up then does that mean that your argument no longer holds and now we've got a problem
• 45:55
  because interest rates can't go any lower like the the increase in the price of the asset
• 45:59
  is outstripping the capacity of the government to lower interest rates indefinitely.
• 46:04
  You can still get 2% mortgages in some countries in Japan you can go 1.3% mortgage.
• 46:09
  Yeah but that's what I'm not saying right now I'm just saying as a hypothetical like
• 46:13
  a mad think about when we during covid for example once the government has run out of
• 46:19
  ammo and interest rates are basically zero originally or in some European countries they
• 46:23
  were negative then an increase in property prices would be a problem by your theory
• 46:30
  because there's nothing else because they don't just go up for no reason the people
• 46:37
  who pay that money are not idiots right they're like well I've got 2 million dollars should
• 46:42
  I buy a house in Sydney at a 2% yield that won't go up in value or should I just buy an
• 46:46
  index fund that gives me 7 or 8% for now but why would it not go up in value well interest
• 46:50
  rates are zero for the point you said if everyone believed that was going to be the case
• 46:54
  then everyone would internalize that expectation no there's a world in which people don't
• 46:59
  believe that but you believe it okay right so people I mean I don't think that
• 47:03
  well they're just describing what economists are calling rational bubble right like it
• 47:09
  well no we run out of people who believe something that doesn't come true then price
• 47:12
  there might be other reasons why why prices go up I mean you know suppose we had a high
• 47:16
  immigration suppose we were importing half a million people in a year and suppose we had
• 47:21
  no new construction or not enough new construction and interest rates were and interest rates was
• 47:27
  zero then prices could still go up no and you wouldn't be able to say it doesn't matter
• 47:31
  because they don't just go up so this is a funny thing people just go all there's more
• 47:34
  people in less houses that for price goes up no more people won't just buy an asset that's
• 47:40
  not going to make money compared to other things right what if they need a place to live
• 47:43
  they can rent it they can consolidate their housing for people instead of three can live
• 47:47
  in the same place right there's 11 million houses if we had one more person to every 10th house
• 47:52
  it's a million extra people we squeeze in you won't even notice right and that depends who it is
• 47:57
  no it happens like if it's not filled with no gentleman who just comes into my house
• 48:01
  so during covid we actually spread out and filled up all those empty houses and we we got rid of
• 48:05
  we kicked out people from share houses we had home offices we filled them up we can reverse that
• 48:10
  right because we have the fewest people per dwelling at any point in history right now and I
• 48:14
  think people forget that when we talk about the quantity of homes they're like oh there's not
• 48:18
  enough housing and the house is a bigger better there's fewer people in them than ever
• 48:23
  homeownerships near record highs like if I was in a time machine and I came here from you know
• 48:29
  1980 to 20 25 and saw people complaining about housing I'll just be like you guys are idiots
• 48:37
  look at the houses look how rich you are of course it's looking at you're basically unfathomable
• 48:43
  wealthy yes and why are you still complaining and I could do that at any point in history
• 48:49
  so we forget that so I want to pick up that migration thing people think oh yeah but if
• 48:54
  you add the quantity of people well if I had the quantity of people to be Hp shares go on
• 48:59
  no only if it's a good investment that's true of housing right most the housing market's very
• 49:04
  flexible we got 11 million houses people squeeze in they're not everybody needs to own shares
• 49:09
  not everybody no but everybody needs to participate in that market yeah people don't need to
• 49:15
  participate in the share market at all but everybody needs to participate in the property market
• 49:18
  so you can rent a room share rooms live with your parents we do all this sort of stuff you can
• 49:23
  know the opposite depends on you well like there's a lot of what economists okay it say margins
• 49:28
  for for adjustment there so yeah the whole idea of there's a bit of a weird story that you know
• 49:36
  immigration's boosting house prices and I I think that the the result the economics is a lot
• 49:42
  more subtle right because we had an immigration boom from sort of 2006 seven to mid 2010s
• 49:48
  prices didn't really go too crazy for a little while then they did in the early 2010s especially
• 49:54
  in Sydney then we had a construction boom what you find is the second half of the 2020
• 49:59
  2010s rents and prices were pretty much falling all over the country so the headlines in Sydney
• 50:03
  then were things like double whammy for investors rents and prices falling right of course the headlines
• 50:09
  are still about probably doesn't matter this is the thing about property headlines right either way
• 50:13
  if it's booming you go and find the suburb with the highest growth that's your headline if it's
• 50:16
  crashing go and find the suburb with the it's just like yeah you're not going to have and it's a
• 50:21
  calamity it's a calamity either way it's like you know if the prices go up by a lot then it's
• 50:26
  unaffordable for the awesome bath low if they go down by a lot then it's like these people have
• 50:29
  lost their shirts yeah and so so the media reporting housing is so at the extremes and all these
• 50:35
  little things it's very hard to get a good good read so so the immigration point is that we
• 50:41
  adjust to this and and I like this analogy because immigration is just saying the quantity of people
• 50:47
  in houses is wrong and that mismatch will do something right when we had like floods in this more
• 50:53
  right or in in Brisbane what happened to the housing market we had then a mismatch we had fewer
• 50:58
  houses more people it's essentially the same imbalances as well unexpected flood by natural disaster
• 51:03
  correct what happened well we had a sort of temporary increase in rents as people moved in
• 51:07
  as family and rented neighbouring things but we adjusted and within a couple of years there's no
• 51:12
  effect right the market adjusts over time that's true why was it no I think because they rebuilt
• 51:17
  the houses or there's a lot of effects come people relocate they rebuild there's a lot of margins in
• 51:23
  which the the market adjusts right also people are mobile I suppose people know that there's
• 51:30
  with something's priced way out of whack them and so that's super cheap in Lisbon maybe some
• 51:35
  set up by himian community that's true with the current sort of surprise post-COVID
• 51:39
  immigration yes it's going to have rental effects in certain suburbs you know near the
• 51:43
  universities in the capital cities but high rents induce more development of things right and over
• 51:50
  time we adjust to that and so I think this idea that our you know high immigration means this
• 51:55
  well if it's expected and we've adjusted to it it doesn't necessarily make it well it happened
• 52:01
  in just the last decade so immigration was still in 2016-17 pretty much where it was in 2012-13
• 52:07
  but prices were falling and rents were falling but they were rising in 2013-14 I mean it's too
• 52:12
  complicated markets are too complicated for any single factor to be explanatory and on its own
• 52:18
  so yeah I don't know what to make of data that says look this one thing was dialed up at this
• 52:24
  point at which it wasn't you know a single it didn't have an effect I don't know what else
• 52:28
  does it take time for these processes but I do know but just to go back to the data again and my
• 52:34
  little my little sheets here just because I didn't want to be talking totally out my ass for and
• 52:39
  because we're also talking to people who are not Australian and I didn't have these stats at
• 52:42
  hand when I was talking to Dominic Frisbee the other day who we were talking about immigration
• 52:48
  and he was suggesting that the UK had higher immigration per capita than Australia which it doesn't
• 52:53
  absolutely does not because it has something like 800,000 net migration migrants a year in a country
• 53:00
  that's almost that's well over twice if not three times our population so the year to like the year
• 53:07
  to March 2024 and I don't know why we've got the way these are a year old but that you know that's
• 53:12
  the your own statistics for you Australian data 500 and that's the most recent permanent migration
• 53:16
  okay so 500 and two so basically between 2022 and 2024 we were bringing in over a half million
• 53:29
  people net a year right into a country of 25 million people I don't understand like as a layperson
• 53:42
  who was taught in school that if there are 10 blocks selling an orange and there are 10 blocks
• 53:53
  who want an orange then oranges will have a certain price and if there are 10 blocks who want an
• 53:59
  orange and only five blocks selling an orange it'll have a different price and if there are 20
• 54:04
  orange sellers and five you know and 10 orange buyers it'll have a different price so you bring in a
• 54:11
  half million people a year you don't build accommodations for an additional half million people a year
• 54:18
  why does that not put an upward pressure on the price okay so the price will rise if the
• 54:26
  rents rise or the year falls falls or the expectations are growth increase remember the asset price
• 54:31
  doesn't slow that down so if the asset price of housing is you're buying a future stream of income
• 54:37
  right so it's a value depends on that future stream of income like any other asset and yes from
• 54:45
  an economist perspective if you're an investor you are if you're a Chinese person who's just arrived
• 54:49
  with a bucket load of cash and you just don't want the indignity of renting then you just buy
• 54:53
  you're going to buy but remember they can spend that money on a EFT ETF and going at 7% and
• 54:59
  rent a mansion wherever they want as well right so there's an opportunity cost to all that money
• 55:03
  you get exactly perfectly rational market people want to own their own so the market the
• 55:08
  rationality the market is not that individuals are rational but all the buyers who've found sellers
• 55:13
  have have done it and think they're both better off even if they're they're complete wrong it gets
• 55:17
  and lose money all right the rationality is not that everyone's perfect maximizes the rationality
• 55:23
  is that well if they traded they both thought they were better off yes you're right I mean I'm
• 55:27
  misspoke if I said that it's not a rational market I meant that the players in the market aren't
• 55:31
  behaving rationally they're not behaving purely according to their economic interest
• 55:38
  it's like I'm an economist I'm not going to say that people aren't doing that they've got their
• 55:41
  idiosyncratic reasons for putting money wherever right so anyone would agree that some people will
• 55:48
  cop a lower return over the course of their lives for the pride of living in their own home
• 55:54
  uh some people might yeah yeah yeah I would hazard that a lot of people do that including myself
• 56:00
  yeah yeah so that's why I could do a lot there's a lot more that I could do with those assets
• 56:03
  to if I was strictly economically rational and that's that's part of the value right yeah yeah
• 56:07
  that's fine um but your point here is these 500,000 people may you know they're not buyers of
• 56:15
  housing right they are need to participate somewhere in the housing rental market or occupancy market
• 56:21
  right and yes they may buy they might buy an off-the-plan house which triggers an extra project
• 56:28
  to get off the ground that wouldn't have otherwise been there right so off-the-plan new housing
• 56:32
  essentially is built at a rate that meets the demand of buyers who come to buy right so most
• 56:41
  projects have a pre-sale period so if you buy enough you go great well we're meeting the market
• 56:45
  if you don't well we'll wait until the market's ready for us and so the interaction of those
• 56:52
  people whether they rent oh they've increased rents in the inner suburbs of Sydney that's great
• 56:56
  that next build to rent projects going to get off the ground now okay great um maybe they've
• 57:01
  moved in with family temporarily okay there's no issue there maybe they're in uh student accommodation
• 57:06
  great that was empty for three years during COVID and and that industry is still growing as well
• 57:12
  150,000 student rooms in the capital cities right um so the interaction of that with all those parts
• 57:20
  of the market is not instant I'll give you that which is why I say like when there's a natural
• 57:25
  disaster rents go up nearby but as those processes unfold we adjust to it and we get back to the
• 57:31
  normal situation of rents being pretty much the same proportion of income and housing asset prices
• 57:37
  reflecting prevailing returns in the market right so definitely triggers changes and definitely
• 57:43
  the temporary effects are needed to trigger those changes um so you definitely I mean the alternative
• 57:49
  into the alternative explanation which I what I think it would be the what I was kind of describing
• 57:56
  as a conventional economic explanation the one that I hear from a lot of economists is that yeah
• 58:02
  that in principle that's great but those changes are impeded by policies by zoning policies by
• 58:07
  density policies right which brings us to this whole country supply right yeah you know right so
• 58:12
  let's flex those flex those muscles I can see the Clinton your eye as we get into that one that
• 58:16
  that we've got the just increased demand uh and that our politicians and uh wonky bureaucrats are
• 58:24
  not good enough at the we've got a lot of heritage protections that yeah you say well people could
• 58:28
  move into the same house sure I know people who live in a $15 million house through no good
• 58:35
  doing of their own just because they inherited it from their parents and it was not very expensive
• 58:40
  but it's just a gigantic place in Balmain and there should be incentives like now that they're
• 58:49
  retired I think a lot of people would feel that there should be incentives and inducements to get
• 58:55
  them out of that place okay okay and to subdivide it and turn it into a bunch of terraces so that
• 58:59
  you can have medium density housing there instead of a elderly couple living on a massive massive
• 59:03
  block of land even though they're not rich that's just one example of the many right yeah that's
• 59:09
  great so I have an article on this called something like if you go to fresh economic thinking yeah
• 59:14
  my website it's called something like you know kicking pensioners out of their home doesn't really
• 59:19
  solve much in the long run so basically um you know all these all these big houses with
• 59:27
  you know one or two elderly people and um yeah people have a finite geez I'm ruining you yes
• 59:33
  of them to get around okay you haven't actually spilled a glass of water yeah uh all these um
• 59:40
  all people have a finite lifetime right so you can encourage pensioners to move out or down size
• 59:47
  you know let's just say the average person dies at 80 but you encourage them to move out at 75
• 59:52
  so you buy five years what you're doing is just essentially bringing one or two years cohort
• 59:57
  forward like there's a finite flow of these things coming as everyone dies and how's this getting
• 1:00:03
  inherited split up whatever um but it's the same finite flow if it happens at 75 or 80 if you know
• 1:00:10
  what I mean everyone hits 875 or the same flow hits 75 and the same flow hits 80 so yeah you can
• 1:00:16
  temporarily encourage some shifts but yeah I mean assuming that the next generation who buy it are
• 1:00:23
  going to do something with it and not leaving it well I'm what why shouldn't I I mean don't we trust
• 1:00:27
  they may allocate homes like this is the criticism that the market may not be able may not be allowed
• 1:00:32
  to because there might be a heritage listing on the place and so that even if you wait for the
• 1:00:35
  people to die then the kids might not be allowed to turn it into a row of ten hours well I trust
• 1:00:39
  that the market will find other places in the market this is this is politicians settings only rules
• 1:00:44
  about what you can build there that's right and and this is okay so this is funny I was at a
• 1:00:49
  planning event last night and and look I have is I have many frustrations with planners and planning
• 1:00:56
  probably different ones to a lot of people but I think that's true in all sort of sectors but most
• 1:01:01
  people like planning in their city so every city historically currently has evolved some kind of
• 1:01:09
  planning system to protect the public realm heritage whatever coordinating for structure
• 1:01:14
  whatever so there must be some value there if you do a large private master plan subdivision
• 1:01:19
  community what do you do you basically plan it you put strict rules on you put governance so you have
• 1:01:25
  like the private sector plans more than the public sector when they can for property development
• 1:01:30
  if you buy into some larger states they will tell you what material and what color your fence has
• 1:01:34
  to be made out of and how many meters high your hedge has to be and what what pebbles have to go
• 1:01:40
  in your driveway right they think it's great so there's some positive value there and I think
• 1:01:46
  every but the people accept that because it's an optional buy-in whereas I don't get really
• 1:01:50
  too too wise and wise and oh yeah so if you purchase is imposed and there's a just a question there
• 1:01:55
  of I should should governments that impose heritage compensate people or should they be required
• 1:02:01
  to buy the property and and manage it as a heritage property that's a conversation but the point
• 1:02:08
  is there's plenty of noise I just mean there's no there's a I can imagine a libertarian saying like
• 1:02:14
  it's totally fine for a private company for a private developer to boss me around about what I can do
• 1:02:19
  because I didn't need to buy there and I don't need to stay there you don't have to stay in this
• 1:02:22
  but I counsel or city well it's a bit different why if I just do what I want to to my house in
• 1:02:28
  it's a private development they're just going to be like you know you're not allowed to do that
• 1:02:31
  but if I do it to my house in the council and eventually they're going to lock me in a cage
• 1:02:34
  well just think of a council as a suburban body corporate but they're not because they have police
• 1:02:41
  with guns they can lock me in there just private security you know I mean police with guns
• 1:02:45
  ultimately enforce all rules right well not in a private development that's yeah I mean if you
• 1:02:50
  breach the contract they try and get rid of you the ultimate thing is they're not allowed to lock me
• 1:02:54
  in a cage for the rest of my life they were a local police say this guy's not complying you've got
• 1:02:58
  to get rid of him he's trespassing this is our rules so I think it's fine you don't see a difference
• 1:03:03
  between a private company making rules for its employees or you know people who buy into it we
• 1:03:08
  can just incorporate the city of Sydney as a private company and make all ratepayers share holders
• 1:03:13
  I mean it's just arbitrary institutional design in my view and okay I mean that could do that
• 1:03:17
  we'll offend a lot of small little liberal or libertarian people who think that there's
• 1:03:20
  something uniquely problematic about the state I mean the state is the when the state does
• 1:03:25
  something like there's no options this that's the main job of the state is protect your private
• 1:03:30
  libertarian property rights sure they can have no state and I'll just go build a house
• 1:03:36
  like oh yeah my arbitrary set of rules is the proper noble by nature virtuous set of rules
• 1:03:42
  and like come on guys okay I'm happy to get into the details um heritage so I think it's fine
• 1:03:49
  like every time I come to Sydney I think jeez what a beautiful well planned city like this is where
• 1:03:54
  this is rich people in beautiful cities and and if I came from anywhere in the world and and
• 1:04:01
  heard people go oh planning's really bad housing's terrible here look at the city I'd just be
• 1:04:05
  thinking yeah what planet are you on your brain is destroyed this is the most beautiful city in the
• 1:04:09
  world someone who I've lived in I've lived in Los Angeles in New York and I'm a London lover city
• 1:04:15
  so it's pretty good so yeah there's cost and benefits to all these types of rules but I think
• 1:04:19
  the important thing is that you've got to also trust the market there's this weird thing that oh
• 1:04:24
  you know the market's going to solve all our problems but if you just draw a little line around
• 1:04:28
  an old church or this street or these terraces that the market's going to be destroyed in price
• 1:04:33
  prices will be blow up well won't the market just substitute to a different location or change
• 1:04:38
  the design or renovate the use or or densify where the planning system wants you to like why
• 1:04:43
  why doesn't the market adjust spatially and geographically well it does it does yeah so so but it's
• 1:04:49
  should the isn't the isn't the criticism I don't quite understand your point so the point is
• 1:04:56
  yeah people I think people think that the the planning system is like a quota an annual quota
• 1:05:01
  you can't build more than 30,000 houses this year okay it's not a quota it's a spatial set of
• 1:05:07
  rules it's like lane markings on the road drive as many houses you want but if you're driving
• 1:05:12
  this way you're on the left or in the right in Europe or whatever but you've got to follow
• 1:05:16
  our spatial guidelines yes okay but you could you put as many cars as you want I don't think anyone
• 1:05:21
  thinks it's a quota I think they do think it's a quota yeah a lot of people think our plan is
• 1:05:25
  are stopping houses they're not relocating them or telling us what to build where they are putting
• 1:05:31
  in a quota and that's why there's not enough of them because we can only build 20,000 I don't know
• 1:05:36
  if they're using the word quota they're not functionally in a in a neighborhood that already
• 1:05:43
  is that has no free land right in an inner city neighborhood if your policy is that nothing can
• 1:05:50
  be more dense than the properties that are already there because they're all heritage protected
• 1:05:54
  and so you can't go up on them because you're going to ruin the facade yeah then I suppose
• 1:05:59
  that is a quota correct at that location at that location and then we substitute I don't think
• 1:06:04
  I don't think people are under the impression that there's some kind of arbitrary meta quota
• 1:06:08
  where that's the number of people that are allowed to be there or something I think if they're
• 1:06:12
  worried about something that smells like a quota it's because they feel that the sensitivity
• 1:06:18
  of councils to anything that is that does not precisely conform to their own narrow bureaucratic
• 1:06:25
  interpretation of what is heritage are too finely tuned in too many places to allow the market to
• 1:06:32
  function the way that it might in order to incorporate the growth in population so yeah you know
• 1:06:38
  so at a micro level I agree I think a lot of planning rules and heritage is not well tied to some
• 1:06:46
  kind of social aesthetic objective right it's just busy bodies and people scared of change and
• 1:06:52
  that's always been the case I like I used to work for property developers 20 years ago and even in
• 1:06:59
  the you know Gold Coast and Sunshine Coast you know a developers wonderland it was still the case
• 1:07:03
  there everyone was a busy body everyone was scared of change and that's fine we can have a conversation
• 1:07:11
  about that but I think it's important to note that you know we should want councils in the planning
• 1:07:19
  system to reflect the desires of people don't we would depends who the people are well the people
• 1:07:24
  who elect the council the people who may move here in ten years time I don't know I mean we
• 1:07:29
  should read read well those are two very different those are two very different cohorts of people
• 1:07:35
  the people who may move here in ten years time may have different interests then the people who
• 1:07:40
  have been sitting in the same house for the past you know however long 40 years and they they
• 1:07:46
  just like the street the way that it was 40 years ago and then I want it to change their interests
• 1:07:50
  made average from the interests of the country that's fine yeah yeah and I think the role of
• 1:07:55
  play may not be fine because they're the ones who are voting for the people who are you know but it's
• 1:07:58
  it's either allow or not allow more people to move into that so I think if we zoom out this is a
• 1:08:02
  pretty niche rich busy bodies of Sydney problem if you just zoom out and go to any town that
• 1:08:10
  everyone's just begging developers to build houses somewhere okay so like every time I come to Sydney
• 1:08:16
  everyone's like oh yeah houses this and that houses of five million dollars I'm like they're five
• 1:08:21
  million dollars in like ten suburbs of Sydney yeah you know this is a complete bubble no but they're
• 1:08:26
  two million dollars in a lot of suburbs of Sydney or one of our million dollars and a lot of
• 1:08:29
  yeah yeah if you think of all housing not just attached houses and I think that's another thing
• 1:08:33
  people get emotionally attached like oh I'm gonna have my detached houses yeah that means a free
• 1:08:39
  standing house for Americans yeah single family or something yeah but apartments you know there's
• 1:08:46
  lots of reasonably cheap apartments in most places in most yeah yeah but this is actually
• 1:08:52
  something that does come up quite a lot as well which is that we seem to have fallen back on
• 1:08:58
  the only ways of growing a big city like Sydney is either to acquire more land around the
• 1:09:04
  distant periphery and build lots of suburban homes on it yeah or to go up in the middle of the city
• 1:09:10
  and build you know apartments build lots of cheap high-rise polkae apartments um what do you make of
• 1:09:18
  proposals that I've heard from some Europeans about like you know we should have the density
• 1:09:23
  of living over city like Paris for example the missing middle exactly and which is why suburbs
• 1:09:29
  that are like that in Sydney and I'm sure in Melbourne are the most sort after right they've got
• 1:09:35
  their terrace houses they look a little bit like 19th century yeah London sort of um but you
• 1:09:43
  know we're not really in the business of creating more of that medium density no no there's some good
• 1:09:49
  economic reasons for that firstly if it's if it's economical to do terrace housing it's probably
• 1:09:56
  even more economical and more profitable to just do a small tower at the price point
• 1:10:03
  um the the terrace housing or the townhouses or those semi-detached type houses probably more
• 1:10:09
  economical on the city fringe because remember where they are now was the city fringe um yes
• 1:10:15
  and so what you find for example there where I'm from in southeast Queensland a lot of the townhouses
• 1:10:20
  are going up in newer states they're not you know there's a bit of infill of them and that that's
• 1:10:25
  quite common where there's big blocks but in newer states on the fringe you're getting some town
• 1:10:29
  houses as well um because that incremental change from one detached house to three you know
• 1:10:35
  terrace houses is just not worth it economically you sort of bulldozing one perfectly fine house
• 1:10:41
  have to replace it with one only get two extra you may as well build you know 15-20 apartments
• 1:10:47
  if you're allowed to so so that's sort of constraining things now you could use the planning system
• 1:10:54
  to to constrain that taller option in a suburb and get that lower density and that's what it does
• 1:10:59
  in a lot of syndicates is no no no we you can have short towers that are imposing um I mean take
• 1:11:05
  the example of kicking you know nanoron pop out of there $14 million bow and um a house right
• 1:11:11
  you there's no way it just would not be a desirable outcome to have a high rise apartment there
• 1:11:16
  it's not consistent with the history of the place but you could imagine putting five
• 1:11:22
  dwellings on that and I'll be honest people are scared of change until it happens
• 1:11:27
  and I get it so the reason we have a lot of these really sort of frustrating design rules and
• 1:11:33
  things like that is because there was some pretty terrible ugly buildings built that
• 1:11:37
  appeared didn't like and they they're around for a long time and so we respond to that
• 1:11:42
  and so I always encourage my developer mates just just put a little bit of effort in making it
• 1:11:47
  look good before you put this out because if you so the planning system has a lot of flexibility
• 1:11:52
  to exceed all these controls right so the way it typically works is we have these controls if
• 1:11:57
  you comply we'll probably just approve it because we've set these up based on our history of
• 1:12:02
  failure and bad things but if you can think you can achieve what we want with this control this
• 1:12:07
  setback or this design rule in a different way um you can do a different process that you know
• 1:12:13
  the the community gets some feedback on and if you can convince everyone that that is better than
• 1:12:18
  complying with the setback then you can do that as well right so it's it's sort of um there is a
• 1:12:23
  really nice feedback mechanism there are you only want three stories but I've got this six
• 1:12:29
  story design because my site has this particular uniqueness that you guys are going to love
• 1:12:33
  looking at every day look at this and how I've solved this access issue and that happens all the
• 1:12:38
  time in Brisbane where I'm from um people go oh yeah okay well that makes sense oh yeah
• 1:12:43
  like that oh you look what you've done with the footpath and stuff hmm so I always encourage people
• 1:12:47
  you are you are you are you're part of the community when you're going to build something there
• 1:12:51
  you gotta you gotta set you know sell this is a little bit yes don't just all I'm doing the
• 1:12:56
  controls I'm going to build whatever I want um and so people do do that so I think there's some
• 1:13:01
  value from that um as well and part of your argument against the conventional way of looking at
• 1:13:07
  this as a supply and demand issue is not just that the rules and not as strict as people say they
• 1:13:14
  are about um yeah so that's one but also that even if you abolished all the rules yeah correct
• 1:13:19
  would not supply the quantity of is is that I'm getting you right the market just wouldn't supply
• 1:13:24
  the quantity of new housing that would be required to bring prices down this is this is like the
• 1:13:28
  the one intellectual idea I'm actually you know I think I I've contributed so I finally found
• 1:13:35
  my niche so thank you Joe uh nerding out here yeah that's basically right so I think
• 1:13:42
  how do I best explain this people have this idea that houses a built when the price exceeds their
• 1:13:49
  input cost of construction and buying the land right so therefore if we can uh rezone upwards
• 1:13:56
  so that the price is much higher relative to the land and construction that will instantly be built
• 1:14:03
  right because I've just created this profitable opportunity to buy rezone upwards you just mean
• 1:14:07
  allow more yeah allow developers to do what they want so instead of allowing those three terrace
• 1:14:11
  homes on that site where you'd like oh it's not yeah it's not worth as if I had to buy the hot
• 1:14:15
  house plus build the three it's not worth it but now I can build you know 20 20 apartments and five
• 1:14:21
  stories now it's worth it unleash the market up on the it doesn't mean it's going to happen instantly
• 1:14:26
  and the the problem here supply and demand applies I think people the debate gets confused because
• 1:14:32
  there's a lot of concerned people who observe what happens in the market and it's not what some
• 1:14:38
  economists say about supply and demand and therefore they conclude off supply and demand doesn't
• 1:14:42
  apply to housing right they go yeah supply and demand doesn't apply I'm like oh god it must
• 1:14:47
  apply it's literally who says a part of the market planers and social policy people trying to
• 1:14:54
  contribute to the debate and go yep supply and demand doesn't work we need public housing or something
• 1:14:59
  I see that yeah supply and demand it lefty nimbis say that supply and demand yeah that's that's
• 1:15:05
  also them also them but you've got to understand the cost for development is not the cost of land
• 1:15:14
  and the cost of building it's the full opportunity cost so this is where it's economics is different
• 1:15:20
  from accounting and the opportunity cost includes the value of not building and waiting
• 1:15:27
  and building next year or building in 10 years or building 20 stories in 10 years instead of three
• 1:15:33
  stories today and so it's actually a rate of return type calculation so the question why would it
• 1:15:40
  be more lucrative to wait to next year to make you money so let's just say I got a block of land
• 1:15:44
  I paid five million dollars or I can go and build my three terraced houses and I can cream off
• 1:15:51
  a margin there of two million dollars at the end so far I haven't paid the construction cost
• 1:15:57
  rating I've just paid the five million in 10 years time I might be able to build my 20 apartments
• 1:16:04
  and the value of my land in 20 years time to build apartments might be 20 million
• 1:16:09
  so by not building I can also take my five million dollars get the rent of this one house which
• 1:16:14
  might not be much and then sell it in 10 years for 20 million without building because if I've
• 1:16:19
  built those three townhouses those three terraces I can't it's not going to be profitable to knock
• 1:16:24
  them down and build a tower in 10 or 15 years but if I wait and don't build it might be so the trade
• 1:16:31
  off is not the cost of building versus selling it's the cost of waiting or it's actually the benefit
• 1:16:39
  of waiting versus the benefit of going now which is higher right and in the equilibrium so basically
• 1:16:45
  once everyone's traded and have a guess at what the market's going to do it should be that I should
• 1:16:50
  be able to buy a block of land and get the same risk adjusted return as any other asset in the
• 1:16:54
  economy without actually building a house because if I didn't the price would be wrong so I should
• 1:17:00
  make the same compounding 7% return from not building as I get if I build put all that money in
• 1:17:05
  and rent the houses out or sell the houses and what the buy will get so that's this tricky thing
• 1:17:11
  this is why when prices start falling I'm like well I'm going to stop building even though the
• 1:17:16
  price is higher than what I get because if I'm going to be selling in a year when prices are low
• 1:17:20
  that's not a good time to sell I'll try and wait this out for the future you're talking about long
• 1:17:25
  term investment right there may be an incentive to delay because you know you know the rental return
• 1:17:31
  that you might get on the free terraces might be the same as you would get from the stock market
• 1:17:35
  or anywhere else you might park and eat right and all those developers has the alternative
• 1:17:39
  of putting their money in the market right but isn't the business model of most developers that
• 1:17:44
  they flip it that they they buy the thing they build the thing they sell the thing and they
• 1:17:48
  don't and they do it again isn't the idea that they wouldn't be sitting on it for 10 years so
• 1:17:52
  now we're breaking up that into different people doing different parts of this process right
• 1:17:57
  so the developer does the building part right but they only do the building part if the buyer shows up
• 1:18:02
  to buy them yeah right so there's a lot of situations where you'll do a design get your approval
• 1:18:08
  start selling it no one wants to buy them so you don't build it right okay well I'll stop and I'll
• 1:18:14
  wait because change the design go back in five years try different designs if I can sell it
• 1:18:20
  oh buyers aren't there wait change the design go back oh it's it's a boom time everyone's blank
• 1:18:24
  okay now I build so the net effect of all those interactions of people just responding to the
• 1:18:29
  market in front of them is this equilibrium effect as if one right I see so it's the same regardless
• 1:18:35
  of whether it's yeah regardless of how you break up the component parts of the process yeah the
• 1:18:39
  net effect is the same and so that's why for example when the market goes down or people stop
• 1:18:46
  showing up to buy pre-sales so people stop building right and so and when the markets booming all
• 1:18:53
  those pre-sales get taken up so okay they were building houses now yeah right so that's how that
• 1:18:57
  interaction happens and and the economic way of describing that is there's a trade-off between
• 1:19:02
  waiting and going that's the trade-off not between and today is what leads you to believe that
• 1:19:07
  that phenomenon is a large enough phenomenon to negate the benefits of a loose or less restrictive
• 1:19:15
  building because if you look historically and internationally at all points in time with all
• 1:19:21
  different planning rules you find essentially the same patterns and housing concerns but does it
• 1:19:26
  because I mean my my layman's impression from just listening to people who seem to know a lot
• 1:19:30
  about this sort of stuff is that in markets where there's high demand and no increase in supply
• 1:19:36
  or a finite supply like where New York City or something like that it's there's upward pressure
• 1:19:42
  and that's why a lot of people go to Texas where they can just build what you can build whatever
• 1:19:45
  you want wherever you want to buy a five-bedroom home for 300 grand you can I mean if you look at
• 1:19:50
  rent income ratios the pretty high in Texas relative to that's because everyone went but I mean
• 1:19:55
  literally Texas is the perfect example of this phenomenon happening over the past in 10 or 15
• 1:19:59
  years right everyone's fled Los Angeles and it's right but if you make sure that but then park
• 1:20:05
  Texas because it's like it seems the sort of example of the of massive massive rapid change
• 1:20:11
  talking about Milwaukee or some random place you know where people go to I mean to live where it's
• 1:20:16
  easy to get cheap housing if no one wants to live in your city as well right yeah that's another
• 1:20:20
  thing right um but are you saying that there's no because the if you got a booming growing city this
• 1:20:27
  is this is the problem of the whole 1800s we had booming growing cities and prices were just
• 1:20:31
  shoot up and people squeezed out and they'd been living in slums on the of course that's one
• 1:20:35
  phenomenon but we're trying to but there's no town planning right yeah but we're trying to focus
• 1:20:40
  on things that we can on levers that we can move what ones that we go great let's let's talk
• 1:20:45
  about that what people what outcome would you like before we talk about a lever we need to know
• 1:20:49
  what we're trying to achieve so what do you think we should try and achieve I think most what I'm
• 1:20:53
  not speaking for me I think most people would would say that we want property prices to remain
• 1:20:58
  at least flat so that inflation needs them away or maybe to climb very gradually over time
• 1:21:03
  so you can just put the interest rates up if you want that keep keep pushing them on that has
• 1:21:07
  all kinds of other ways in our ideas exactly well this is the thing you can't just make prices be flat
• 1:21:13
  because everyone who buys houses can buy in other asset markets and then the price will be set
• 1:21:19
  as all these trading adjustments happen so that the return returns to the equilibrium so is
• 1:21:25
  it mythology when people sort of talk about like to take another example that there is this
• 1:21:30
  magic we're all rich but houses was really cheap no no no we're not that if you want that if you
• 1:21:37
  were less constipated about exactly how people could develop neighborhoods yeah if you will more
• 1:21:46
  like Florida for example where with the exception of historic districts in Miami you can sort of
• 1:21:51
  go down and you can do whatever you want people make the claim that that leads to a more vibrant
• 1:21:57
  economy more you know cheaper housing and then places that are more uptight like California I mean
• 1:22:04
  it leads to different houses in different locations which is fine and some areas will be growing a
• 1:22:08
  lot a lot of builders will move there and some areas won't like we're just relocating the these
• 1:22:14
  effects in terms of the aggregate I mean you can only suppress prices in an aggregate right because
• 1:22:21
  people move between Sydney and Melbourne I imagine if Sydney prices came down 30% what what would
• 1:22:27
  happen how would they stay there everyone would just move to Sydney yeah or buy houses yeah yeah 30%
• 1:22:33
  decline means my yield has gone up from say 4% to 5 and a half yeah I can now essentially borrow
• 1:22:39
  money and make free money by buying a house in Sydney we're going to pile in and push those prices
• 1:22:44
  no I mean like there's no idea but I mean I also think that Australia is a weird example because
• 1:22:49
  we don't have many cities we've got these gigantic cities yeah I mean I think we've got to get
• 1:22:55
  our minds out of the physical and into the the the economic yeah we don't have many cities okay we
• 1:23:02
  could have five poor declining cities with cheap houses I didn't finish that thought I didn't
• 1:23:07
  finish that thought so there's a there's a lack of opportunity to migrate when there's only so in
• 1:23:14
  in the United States if you're in if you get priced out of San Francisco there are 50 different
• 1:23:18
  medium sized places that aren't super hip that you can go you can go to Milwaukee right in Australia
• 1:23:26
  if you want to live somewhere that's happening there are three maybe four cities five at the most
• 1:23:31
  we don't have anywhere where the prices are the price of a there's no half million that's sorry
• 1:23:37
  there's no city there isn't a belt of cities with populations of a half million people that people
• 1:23:44
  want to live in so I'm not saying that it's not an economic question it is but it's it's all or
• 1:23:49
  nothing's famine or face here either you live in a gigantic fabulous glitz city with a harbour bridge
• 1:23:54
  and the beaches you know whatever or you live in wobblewagger in a country town like there aren't
• 1:24:02
  very many new castles and that's a few so you can you in Brisbane you can go to Ipswich Logan
• 1:24:09
  Gold Coast you know Sunshine Coast Tourmba yeah that's just Brisbane where I'm from you know and
• 1:24:15
  you know second best city those are all basically suburbs of greater Brisbane yeah that's fine
• 1:24:21
  but they're all substitutes I mean you're just saying well what's the right number let's just say
• 1:24:24
  Australia's got three big cities and and each big city has a dozen substitute areas okay adding
• 1:24:31
  another dozen is going to change the price in Sydney how because if it was desirable the price
• 1:24:36
  would be high like the Gold Coast after COVID was kind of cheap before COVID suddenly now I'm
• 1:24:41
  wanting to live in Melbourne it became desirable surprises burned like there's no sort of way to keep
• 1:24:48
  them down if they become desirable as well yeah no but that don't you isn't it if there are 20
• 1:24:54
  places that are desirable to live and I'm not talking about you know names that you can pull out of
• 1:24:59
  your bum that are that are basically the suburbs of Brisbane I'm talking about actual other cities
• 1:25:03
  that don't feel like satellites that a city's like you know Birmingham and Liverpool and you know
• 1:25:09
  Edinburgh in the UK or to lose or Marseille or well we do any other city and we do a little
• 1:25:16
  another economic break okay this is concept called spatial equilibrium right so I've been talking
• 1:25:22
  about the asset prices right that Sydney houses just can't be cheap because we'll trade other assets
• 1:25:26
  for them a bit up until we get to this equilibrium so those trading opportunities sort of constrain
• 1:25:31
  what the price can be that's true geographically or spatially as well right so the the ratio of
• 1:25:39
  prices between the capitals and the regions is what it is because of the quality of life difference
• 1:25:45
  right the regions are cheap because no one wants to go there and if they got cheaper people would
• 1:25:50
  go there but if they got more expensive they'd move to the city because it's all about that
• 1:25:55
  gradient or the relative pricing dictates where people live so now what's happening for example so
• 1:26:01
  during covid people left Victoria world's longest lockdowns etc came to Queensland where I'm from
• 1:26:07
  Queensland property prices and rents you know there's a construction boom because of this because
• 1:26:11
  you know that immigration to Queensland has those ripple effects through the market
• 1:26:16
  but prices are very high we're highest relative to Sydney and Melbourne then we've been
• 1:26:21
  since before the financial crisis so what's happening or people moving back to Melbourne from
• 1:26:25
  Southeast Queensland now because that spatial equilibrium it just can't be the case that they're
• 1:26:30
  the quality of life different the quality of life in each city is is sort of mismatched to the relative
• 1:26:37
  prices so so people relocate and that that returns those relative prices so you don't need many
• 1:26:44
  alternative places for that to happen I mean it happens within cities within suburbs within a street
• 1:26:50
  if you're at a street where there's a view up on a hill and not down the hill of course the
• 1:26:53
  quality of life is going to be better up on the hill with the breeze and the view so I don't think
• 1:26:58
  we can sort of combat that by I mean what would we do creating we had a camera we've tried to build
• 1:27:04
  on this city from this an easy thing to do I'm just saying that it I think it's a reason why
• 1:27:08
  Australians find themselves in something of a pickle because I have this conversation at Barbies
• 1:27:11
  all the time with friends who are like do we go to breezy that's pretty expensive now as well do
• 1:27:16
  we go to Canberra one of my friends did move to Canberra love Canberra that's certainly an option
• 1:27:22
  and if there were a dozen Canberras with various climates and various kind of flavors and various
• 1:27:27
  styles yeah that would open up a lot more opportunities for people who are kind of want to get into
• 1:27:33
  Sydney and Melbourne it wouldn't fundamentally alter the economics but it's I mean it sounds to me like
• 1:27:38
  we're living in a country where there are only Lexices and Toyota Yarruses and I'm saying we
• 1:27:44
  should just have more like Camry's and more like just regular family cars more Subaru's and you're
• 1:27:50
  saying it makes no difference because the economist says that it will always flip either to the Yarrus
• 1:27:55
  or the Lexus and it doesn't matter how many in you have in the middle it's like yeah they're all
• 1:27:59
  supposed to really but there are there are and you know I think Camry and Forrester the two best
• 1:28:04
  selling cars after I know because people like middles people like that's where people want to sit
• 1:28:09
  yeah I think what is what is a medium size you're exaggerating the difference here right
• 1:28:16
  the suburbs are sort of the equivalent right that's right the capital but then you have to
• 1:28:21
  usually endure a long commute and I mean this is a matter of like finite elements of people's
• 1:28:27
  different tastes for city size location climate and whatnot right and if there were people
• 1:28:34
  who wanted to move to to one more camera because it was relatively cheaper than they would
• 1:28:40
  and they don't have something to do in some way the ones who want to do this once we want to do
• 1:28:44
  the ones who want to move the other way and the the relative price constrains those moves so
• 1:28:49
  I guess the endpoint of spatial equilibrium is no one moves because all the prices are like
• 1:28:53
  oh if it was cheaper I'd move there oh if it was cheaper I'd move there yeah this is the best I can
• 1:28:57
  do yeah no I mean I'm not saying that this must happen no matter how many I'm not saying that
• 1:29:02
  this is a cause of I think you're almost understanding me I'm not saying this is a cause of high
• 1:29:05
  prices in Sydney and Melbourne I'm saying it's a cause of Australia's sociological fixation
• 1:29:10
  on partly on property because we're all dumped in the same handful of buckets and there's not a lot
• 1:29:16
  of in in the States you would just go you would just go if you got to the point where you know
• 1:29:20
  a longer wanted to live you got moved to Philly you don't have to be a New York City there's no
• 1:29:25
  Philly here maybe I mean I don't know what we're meant to do about that honestly I'm not saying I'm
• 1:29:31
  not saying like there was some recent research about the you know the relative proportion of
• 1:29:35
  population in the top few cities in Australia versus other countries it's not super abnormal
• 1:29:39
  right because our big cities aren't mega cities right so if you've got a couple of mega cities
• 1:29:43
  that really changes the in terms of relativity is it's the same slope it's just the populations
• 1:29:49
  are bigger right in the US and some other places I don't think it's true that we're even remotely
• 1:29:54
  close to the US in terms of the population in the top two cities yeah we'll have to check this
• 1:30:00
  remind me there's an article I'll be a hundred bucks that the population of greater Sydney and
• 1:30:07
  greater Melbourne combined Australia's population of Australia's population and the population of
• 1:30:14
  Los Angeles I'm sure far away but it's pretty common in a lot of yeah there are some situations
• 1:30:21
  US is a bit of an outlier in actually terms of its geographic distribution yeah yeah a lot of
• 1:30:26
  countries are essentially one or two mega cities and no one else that's pretty common around the
• 1:30:30
  world yeah they're just not as vast as we are as opposed like there's a distance antips of living
• 1:30:35
  in Perth for example in Australia just because we're big like that would factor in it depends if
• 1:30:40
  you want to get on a different time zone and tune out a bit I guess that's also some people might
• 1:30:45
  like that right um so obviously the the ideal uh if we're talking about just options before we
• 1:30:52
  get to solutions of people who have spent a lot who have lots of who are being priced out of
• 1:30:59
  markets where prices are crazy high the other thing I'm surprised that we don't do more of is just
• 1:31:05
  move overseas to where money goes a lot further like if I had bought a $30,000 property in 1982
• 1:31:13
  and it was now worth four million dollars I'd just go and buy a $200,000 property in Thailand
• 1:31:21
  and spend millions and dollars living like a king yeah well I mean people do like I sometimes
• 1:31:29
  because I'm involved in property and I did a podcast recently on um about Australians leaving
• 1:31:36
  for Southeast Asia to make their money go further right like bailing on the cost of living in
• 1:31:40
  Australia as a whole YouTube industry I explaining how to do it right how to get out of Australia
• 1:31:47
  I think the reality of it is though income opportunities here are just so much higher if you don't
• 1:31:53
  have a mobile job or a lump of cash that you've you've got if you're starting out here you can't
• 1:31:58
  afford a house you're no better and can't move your job yeah you're no better off either right
• 1:32:03
  yeah and if you have a house here in a good job well you're opportunity for for growing that job
• 1:32:07
  in person's much higher so it's just a few people with mobile jobs uh who may have a bit of cash
• 1:32:13
  or inherited money or sold a house who like okay now it's time to enjoy life and there's a whole
• 1:32:18
  little cottage industry of it there's also you know retirees cashing in and spending the pension
• 1:32:24
  in another country and there's a discussion about the rules there of how long you can be out of
• 1:32:28
  a country and still get your pension etc oh it's not six months on the day I would have just
• 1:32:32
  guessed you have to be yeah something like that right yeah yeah um these are one of those
• 1:32:37
  niche rules that actually changes you don't hear much about yeah I think it's you have to be here
• 1:32:41
  six months in a day you know kind of off kick them out sell their home periods as well right
• 1:32:46
  build a high rise can't be gone more than 90 days at a time things like that yeah right so it's a
• 1:32:51
  bit cumbersome but that's been around a long time too you remember the movie about the retired
• 1:32:55
  British pensioners moving to India and the guy ran that hotel best exotic marigold hotel all right
• 1:33:01
  yeah yeah no I never saw it oh that was 20 years ago and the film was all about the pensioners in
• 1:33:06
  the UK worried about the cost of moving Spain absolutely yeah a lot of people after Brexit
• 1:33:11
  complaining that they couldn't they didn't really they voted for breakfast and they didn't realise
• 1:33:14
  that meant they couldn't stay in Spain so this is another part of the spatial equilibrium right
• 1:33:18
  but it's just the total quality of life constraints are much more binding on most people because of
• 1:33:24
  working in person family the opportunity for growth the school you know what are the topics
• 1:33:29
  of the barbecue again schooling in housing and then look that may change as we become more mobile
• 1:33:34
  that's right there may be amazing international schools in a lot of cities in
• 1:33:37
  Southeast Asia and people like well that's even better than fancy grammar school in whatever
• 1:33:41
  suburb in Sydney so to wrap us up Cameron and I'm sure that's true there it sounds like you're
• 1:33:49
  saying two things it sounds like you're saying there were lots of great ideas that we could
• 1:33:54
  apply to the housing crisis and also there isn't a housing crisis so I'm saying what is a housing
• 1:34:03
  crisis for a small civil of people and I would say if we lay this out say 70% of people are home
• 1:34:10
  owners 25% of in private rental a bit under and half of them are going to be fine they're just young
• 1:34:17
  they're uni they're whatever they'll be fine so you're now talking about a civil of sort of 10%
• 1:34:21
  of the households in the country who are really feeling squeezed their rents have gone up they
• 1:34:26
  wanted maybe a proportion of them were ready to buy a house it's crisis for them temporarily
• 1:34:32
  in terms of why you assuming that it's not a crisis for any of the 70% who own I mean they obviously
• 1:34:37
  do own so by definition if you're defining crisis as cannot own then they're not a crisis yeah but
• 1:34:42
  if you're defining crisis as are paying way more for an asset that they than they ever would have
• 1:34:49
  wanted to and then seems reasonable to the layperson then they can still be in crisis well if they
• 1:34:55
  have a two percent mortgage for two years have paid down their mortgage that typically their
• 1:34:59
  price has gone up there's just not many people who bought it the wrong time in the last five years
• 1:35:03
  who've been exposed to our interest rates who haven't already sold out and are still in the
• 1:35:07
  market like the last year we had the record number of homes resold within two years of previous
• 1:35:14
  purchase so people who got in at low interest rates interest rates went up they've got out so maybe
• 1:35:19
  they're upset because now they're in the renting pool so there's a small you know a civil of
• 1:35:25
  people and I think that's why the politics of it lends us two things like well let's subsidize
• 1:35:30
  first home buying because that is not going to upset anybody else in the market and that's what we've
• 1:35:35
  done historically for 40 years and we do it in lots of different ways we give stamp duty discounts
• 1:35:40
  so that's a tax on buying your home should we get rid of stamp duty by the way and replace it
• 1:35:46
  with a property tax or something this is a very someone who's currently selling and buying only
• 1:35:50
  three years after having bought it is a bit galling to spend hundreds of thousands of dollars
• 1:35:55
  tax every time I would say in Sydney on New South Wales stamp duties are pretty high relative to
• 1:36:03
  Queensland and say the agency or Western Australia and things like that so you could probably reduce
• 1:36:07
  them a lot but it does raise a lot of money and it is sort of what we call pro cyclical so when
• 1:36:11
  there's a boom you raise more money and when there's a bust you raise less and you want governments
• 1:36:16
  not to raise lots of money when there's an economic downturn you want them to spend more
• 1:36:20
  so the argument with stamp duty this tax on trade is all more trades better people are incentivized
• 1:36:26
  to trade less often because there's a tax on trading if we traded more often it would be better
• 1:36:31
  problem with this is well I think that yeah I would phrase it as the reverse which is that there's
• 1:36:37
  something perverse about penalizing the moment of purchase when what you're trying to do is
• 1:36:45
  well a few things raise revenue off of a valuable asset you we tax it because it's hard to avoid
• 1:36:51
  because we run the titles office we know who owns what and that's how you should tax
• 1:36:56
  the other thing is the price isn't really added to the price so the price gets netted off right so
• 1:37:04
  stamp duties not a surprise to anyone in the market we know we have to pay it and so when I go to
• 1:37:08
  my you think about this right I'm at an auction I'm bidding against you we get to a million dollars
• 1:37:13
  and we've got to pay $50,000 stamp duty and then during the auction we go pause actually the
• 1:37:18
  government's just announced you don't have to pay $50,000 and we go oh sweet I'll pay you
• 1:37:23
  one million and 50,000 now and we bid it up to one million and 50,000 so if we knew that it was
• 1:37:28
  there that it's already comes off the price yeah yeah I was more saying is it is it a good tax
• 1:37:35
  rather than economic question is is it better is it a better way to raise
• 1:37:40
  pro cyclically $8 billion per year in New South Wales is there a better tax than that
• 1:37:45
  that's the question a lot a lot of a lot of the a lot of the people who want to reform it
• 1:37:49
  will say that if the point is to tax property then just tax the property and value the property
• 1:37:52
  and tax that each year yeah loan taxes are great but the the best tax economically and possibly
• 1:37:59
  one of the most difficult politically unfortunately yeah yeah so and I'm stuck in this situation if
• 1:38:04
  that's true I don't want you to reduce stamp duty and not get a property and not a land tax
• 1:38:10
  because you're just not I know yeah it would have to be it would have to be taxable but there's a
• 1:38:14
  so yeah it prohibits trades there's a few forgotten parts of this debate right is more trades better
• 1:38:20
  or does more trades like if there were more share trades you know if we could do microsecond instead
• 1:38:25
  of millisecond trades with that lead to more equal ownership of assets in the share market or more
• 1:38:31
  concentrated ownership because that's more frequent trading right and that's what happens in
• 1:38:36
  the property market if you get rid of stamp duty you get more frequent trading now does that
• 1:38:40
  advantage the already wealthy who are better at timing the market or does it not it's not clear it's
• 1:38:45
  not obvious economically that more trading is better from a social point of view for example New
• 1:38:51
  Zealand hasn't had a stamp duty for 40 years their home ownership rate dropped 10% ours is
• 1:38:57
  less than 2% right why is that is that because of more trading and more benefits to investors
• 1:39:02
  getting ahead and timing the market I don't know so more trading not on its face is not good and
• 1:39:07
  wait I don't want to get too bogged I don't want to lose the last I want to let you out of here
• 1:39:11
  okay and I don't want to get too bogged down on stamp duty because that was on the side I was
• 1:39:14
  just curious and you thought about any thoughts about it but I know I've written many articles
• 1:39:17
  not the name 10 or 20 years this argument is obvious so yeah we could do that yeah I want
• 1:39:23
  I kind of want you to step back and yeah explain it so is there a housing crisis seems to be
• 1:39:30
  no then should we care and change anything well that's the question what do you want to change do
• 1:39:36
  you want people to have a cheaper place that will live in a nice location so the where I get to in
• 1:39:42
  my book is that historically the way we got poor people to stay in desirable locations is we
• 1:39:49
  gave them subsidized housing and if I look historically and I look abroad the cities that have this
• 1:39:55
  have poor people in capital cities in nice areas have some kind of non market housing option
• 1:40:01
  they're just they're just aren't these solutions that solve that problem of that server of people
• 1:40:07
  getting squeezed out so we can do that if that's what we want it's not free or easy either right
• 1:40:16
  you have to work out who qualifies how we allocate it how we build it acquire it manage it
• 1:40:22
  you know the very first public housing schemes after the First World War were essentially
• 1:40:29
  scammed by rent seeking of the relatives of the state governments in New South Wales and Victoria
• 1:40:35
  all right all their relatives had these amazingly overpriced subdivisions for the war homes
• 1:40:41
  war server homes and things so it's not easy but you could sort of build up
• 1:40:46
  non market housing up to five or 10% of the social housing public housing basically either
• 1:40:51
  free housing for the poor or heavily subsidized housing you know my preference is you you offer
• 1:40:56
  a cheap purchase agreement so in Singapore you you buy your public housing on a 99 year lease
• 1:41:01
  right so you get a mortgage you buy it it's owned by the government you pay the rent to the
• 1:41:06
  government but well I got well you get that you're buying out the rent for 99 years yeah right that's
• 1:41:10
  what you buy yeah and but you can resell it so that whole issue of rent control and social housing
• 1:41:15
  of people stuck in a position for their life and not being able to move and make allocations
• 1:41:20
  for the cheap rent you you allow people to re-trade within that system yeah into someone
• 1:41:24
  else who qualifies so you can start with a small place move to a bigger place with a family etc so
• 1:41:30
  if you wanted to do something to solve that you could do that well out the current thing we're
• 1:41:34
  doing is subsidizing first home buyers more with sort of finance subsidies in terms of the mortgage
• 1:41:41
  insurance guarantee stamp duty discounts that kind of works to a degree to on balance shift buyers
• 1:41:47
  from investors to first home buyers by essentially just saying well you're a first home buyer
• 1:41:52
  here's a $50,000 $80,000 head start on this guy right that'll be a slight advantage and stamp
• 1:41:59
  mortgage insurance cheaper interest rate etc and in terms of the so if we use public housing
• 1:42:05
  social housing those kinds of schemes for the poor then are you saying that the because the main
• 1:42:12
  chatter the main when we talk about these predictable middle-aged middle class people at barbecues
• 1:42:17
  yeah yeah and on about their kids what schools that send their kids to and the housing crisis what
• 1:42:23
  they're talking about is the frustration that middle class and working families feel in what seem
• 1:42:31
  like eye-watering prices for property that complaint you're saying is basically illusory right
• 1:42:37
  that it's always that it is always the case that everybody has always felt like why is it so
• 1:42:44
  expensive to buy because we're all trying to live at the edge of our ability in the best suburb
• 1:42:48
  we can for our thing I mean that's spatial equilibrium I we think it's worth the extra few dollars
• 1:42:52
  to move to that bit of suburb and that we always stretch ourselves to that limit so everyone's saying
• 1:42:58
  why am I just short of the place where I belong because they think of the place where they belong
• 1:43:03
  yeah correct and I think you're exactly right and I got a mate who says you know it's the frustration
• 1:43:10
  of seeing you know the mechanic Joe down the street who bought in that suburb you know 50 years
• 1:43:17
  ago and you you know you did all the right things you went to university in this and that you work
• 1:43:21
  your ass off and Joe can live the lifestyle that you can't and that that's sort of the way he describes
• 1:43:26
  this status frustration and yeah it's true but I mean it's life that's that's sort of life in a
• 1:43:34
  growing rich city it's a bit like yeah the person who gets their first wins but if you know you
• 1:43:41
  could have the opposite Sydney could have not grown and been poor and and Joe would have not you know
• 1:43:46
  yeah you don't want that either it reminds me of the old line that how rich you are depends
• 1:43:51
  on how rich your brother-in-law is yeah oh yeah you know it's like that that's sort of the yards
• 1:43:56
  that's the social status yards tick essentially yeah so like a half a million dollars but if
• 1:44:00
  your brother-in-law makes a million so a lot of the chatter I think a lot of people would say well
• 1:44:04
  if you're in a fancy eastern suburb of Sydney comparing private schools and complaining about
• 1:44:08
  housing at barbecues that's sort of your opinion is not valid in this thing that is just a status
• 1:44:15
  game maybe that's true but you know you I've been around property a while this is this has always
• 1:44:21
  been the case the status games in this it's just I think what we've had in the last years is a real
• 1:44:28
  unexpected nominal surge in prices and rents a big post-COVID adjustment not just in Australia
• 1:44:34
  but abroad and that has really amplified all these concerns that exist all the time because we've
• 1:44:39
  just seen sort of a change in fast forward and so sometimes in economists would say a lot of
• 1:44:46
  its money illusion we're seeing inflation but we don't know how to comprehend it because some of
• 1:44:51
  its in prices some of its in rent some of its in our income and what's really funny about that is
• 1:44:56
  when there's inflation and our incomes go up we go yeah that's because me I'm working hard my
• 1:45:01
  income went up the price of milk went up no that's someone else doing that to me but my income no
• 1:45:06
  that was me so I take credit for that blame someone else for that but it's just both all the prices
• 1:45:11
  rising because of inflation so I think we're at this odd point in time where that is happening
• 1:45:17
  as well as the low interest rate period and the housing adjustment all these things at the same
• 1:45:20
  time so we end up with what is the kind of a confusing housing debate and people saying comfortable
• 1:45:26
  things like oh just get rid of heritage and solve planning but if we zoom out look historically
• 1:45:31
  I think we can sort of see these periods have happened many times it will change if we really care
• 1:45:37
  about the sliver of people who we want to live in cities you know I think people resonate with
• 1:45:42
  the nurses police teachers etc who whose incomes are somewhat fixed statewide but we still want
• 1:45:48
  them in nice areas and you can see the logic for having some kind of non market accommodation
• 1:45:54
  programs beginning now um fascinating Karen great to talk to you thanks a lot thanks