Tuesday, June 9, 2015

A good job that pays good money...

We've been holding our tongues a little through all the recent froth and bubble about house prices... but after Treasurer Hockey's comments today it's time to join the fracas.

Before we look at those comments in particular, it's worth taking a little tour of some key moments in the conversation so far:

Over the weekend, the Australian Greens released modelling showing the abolition of negative gearing could save $3 billion in foregone tax revenue over four years, and improve housing affordability. They've drawn the correct conclusion that when housing is unaffordable for first home buyers it puts pressure on rents, but they seem to have really missed a key point there: unaffordable housing-to-buy equals unaffordable housing-to-rent, and it's the private rental market where the real pain of an unaffordable housing market is felt.

The ALP has remained cautious in its response. They've said abolishing negative gearing would be tricky as it is not just wealthy people making off with your taxes... and cited the many "mum and dad investors" who could lose out. Mum and dad investors, of course, are those small time land holders who have an interest in only one or two properties. They're not especially interested in promoting housing affordability, because they're banking on prices going up to offset the losses they're making in the meantime. The same losses our tax system encourages them to make by allowing them to negatively gear...

But "mum and dad" landlords are not especially interested in tenancy management, either. They tend not to worry too much about improving their skills in that area. They're amateurs, in the true sense of the word. Of course, Australian renting laws don't really require them to become skilled in tenancy management - landlords can simply bail out of a tenancy as soon as it all gets too hard, without even needing a reason. Unaffordable housing is most painfully felt in the private rental market because the tenants of amateur landlords live there, knowing they can never be sure of anything.

Then today we hear the Treasurer has suggested that if housing was not affordable, nobody would be buying it. First home buyers just need to get a good job that pays good money, he says...! Well - news flash, Mr Hockey: most would-be home owners do have good jobs that pay good money. They need to, so they can manage the rent!

But without the backing of the kind of money you can only really get by having access to property wealth in the first place, that doesn't get them closer to owning a home. What it does is improve the prospects for anyone who is able to buy property - they'll have no trouble finding a suitable tenant who can meet their terms. Because true to Mr Hockey's word, people do continue to buy property. But it's mostly amateurs with a bit of equity to spare, borrowing up big on the promises of tax breaks and never ending price rises.

On the flip-side, all these cashed-up tenants - who would love to move into home ownership if only they could - make it especially hard for lower income earners to compete in the private rental market. And that, of course, is where the real pain of unaffordable housing is felt.


  1. A good, well written article. Thanks Ned, your clarity is appreciated.

  2. Those who have "good, well paying" jobs, are also paying out rather "good" rent and are therefore not able to save much, especially in this climate of low interest rates.


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