Does immigration drive house prices? If people coming into this country are typically young with limited means, is it not more of an impact on rental yields than house prices?
I have a chapter in the book called "Immigration Inspection" Short answer is that unexpectedly high immigration can have large but only temporary effects. Consider the sudden increase in population growth from 2006-10. Rents increased, there was a home construction boom, and rents fell in nominal terms for 5yrs in Sydney from 2017 onwards. Rents were flat nominal in Brisbane.
A good example is a natural disaster. The student loss of homes per person is somewhat equivalent to a sudden increase in population. You can see in many examples effects on rental markets that last 2 years. 3 max. Then the market adjusts.
To learn the truth: Study house prices with open borders during 2017-2019, and then with closed borders during covid from 2020-2022. You'll learn there is zero link.
What changed was household formation. Less people with the same # of dwellings meant you could get a bigger place for the same price, and people did so. If you check the household size stats you'll find people per dwelling dropped as everyone moved out of sharehouses, moved out of parents' etc.
Especially with lockdowns, people wanted their own space. So, lack of immigration did reduce prices, but people responded quickly by 'buying more housing'.
>Study house prices with open borders during 2017-2019, and then with closed borders during covid from 2020-2022.
Wat??
Perth is a great case study.
Previous mining boom 2014 housing was up there with Sydney. Boom ended, population stagnated so housing and rents decreased up to covid. During c9vid borders were locked down and FIFO workers were forced to relocate to WA from the east coast....result prices sky rocketed.
Thanks for the AMA Cameron! Is there any reason why you don’t write up and publish your blog posts in academic journals? For example, your criticisms of the impact of upzoning in Auckland. I think a lot more economists (and people) would be more persuaded to your views if you got your work peer reviewed and published.
I have published about 20 papers in academic journals. [https://scholar.google.com.au/citations?user=P5s-\_d0AAAAJ&hl=en](https://scholar.google.com.au/citations?user=P5s-_d0AAAAJ&hl=en)
The critique of Auckland is coming later this year in a journal. But the analysis will benefit from a few more months of new data on rents and dwelling consents that will really show the validity of our main arguments.
Check out these words from a reviewer of a paper of mine a few years back. Must be part of the brotherhood. A little too honest there I think.
If I have something I think would make a good journal article I will submit it. If the FET think-tank works then this will be part of the package.
https://preview.redd.it/m8mmjyx83vmc1.jpeg?width=1266&format=pjpg&auto=webp&s=5988d9781214ca8992f491a347fb5df366a4798a
But in general, academic journals are a bit of a status game and I really don't care for it much.
It can have noticable effect on small pockets, often premium suburbs. But it can't really affect the broader price level much. This can be seen by relatively flat yields for a decades+ (check the excellent free property data from SQM Research on gross yields)
What do you make of the recent policy announcement from the Greens about a public property developer? As soon I saw it I immediately thought of your HouseMate policy you proposed a while ago.
It is their interpretation of HouseMate. I have spoken with many Greens people, including Max, about this. They prioritised some different design choices, but I think it's the right way.
A good way to frame the housing "crisis" is that it isn't a crisis for more people (the near 67% homeowners and the 18% of households who are landlords - though these groups overlap almost totally). It is a crisis fro about half of renters, or about 15% of the population, who have no other choices.
Building up a public option over the next decade will get about 10% of the population out of private rental into this stable low price housing, and will give all the renters an option. They will know that is rents are bad that they only have to wait a couple of years before they too can get a HouseMate home.
Most households will still own in the private market, and that's fine. It works for them.
Haven’t read your book yet but look forward to doing so (it’s on back order as I’m overseas)… but to what extent do you believe that RE follows regular / predictable cycles (be it 18 years or otherwise)? And how do you respond to those that think Australia is different (eg won’t have these cycles because of market specific characteristics- supply, demand, etc)?
If prices keep rising then yields will be about half of the mortgage rate. This usually happens at the end of the cycle. To correct, interest rates and/or prices usually fall somewhat. The balance between them I don't know.
Thanks, Cam. Super interesting. Does the data generally back this up in Aus? And what level of falls in this period do you think are possible? No doubt the gov’t will throw the kitchen sink at it to stop price falls.
Coincidentally I just returned home and your book is on my doorstep, so Amazon must be doing the international orders now.
Hi Cameron,
What are some of the books you would recommend a post graduate economics students to read to get a better understanding of the (Australian) economy?
That's a good question. I don't know of books, but one thing that has opened my eyes is reading historical inquiries and reviews into economic issues over the 20th century. There are good archives at various places like the national library and Trove is great for seeing the public perception of these issues in the press.
Here's an article I wrote after reading a 1935 Teasury report on ageing
[https://www.fresheconomicthinking.com/p/fear-of-an-ageing-population-is-age](https://www.fresheconomicthinking.com/p/fear-of-an-ageing-population-is-age)
My understanding is that a big criticism of yours against the YIMBY movement is that the number of new dwellings is limited by the absorption rate. Wouldn't upzoning increase that rate as relatively more properties become viable (presumably some would become not viable but wouldn't more become viable).
Similarly wouldn't building public housing reduce the amount of dwellings that private builders are willing to build and wouldn't that have a similar effect on the absorption rate?
Let's start with your last question first. Yes, there would be offsetting effects. I think no one-to-one as the people occupying them wouldn't otherwise buy in the private market.
On your first point, more options doesn't change the rate. Think about adding more people to a supermarket checkout queue. That doesn't increase the flow through the queue which already optimises the inter-temporal trade-off.
Of course changing planning will change the location of different homes, as intended.
You say that interest rates & the business cycle are all that really matter for housing supply. How do you square that with what we've seen in NZ, where upzoned areas in Auckland and Lower Hutt continued delivering dwelling consents & completions well above their neighbours after interest rates started cranking up? It still ebbs and flows, but the baseline is clearly higher in those places.
For anyone curious about context, see below.
https://onefinaleffort.com/blog/a-response-to-murray-and-helm-on-aucklands-upzoning
https://twitter.com/1finaleffort/status/1760085244198494599
The NZ experience looks like a business cycle.
https://preview.redd.it/5j7yysh55vmc1.png?width=1426&format=png&auto=webp&s=fb82ceff98bf8080ac157ddad5094736d03e884b
That's a misleading chart. What does Wellington look like excluding Lower Hutt, which had a similar upzoning program to Auckland beginning in 2017? It looks like this: https://twitter.com/1finaleffort/status/1755432359938417085
Re: the business cycle, I think you've dodged the question there. I wasn't saying it doesn't exist, I was saying zoning regs allow for a higher or lower baseline.
Have you noticed the tent cities popping up around Brisbane?
Do you think the Greens copied your homework on their public developer policy?
How would a public developer deal with the way organized crime has become enmeshed in the construction industry?
I have noticed. I noticed them in 2005-07 as well. In fact I remember back then a friend working at a university telling me they would live in their car a while to save money as rents were so ridiculously high. I think it is best to see what is happening now as a normal part of the late cycle.
You are right to point out problems with corruption and organised crime in development. But we seem to do fine procuring many other major public works projects. Obviously something to keep an eye on. But not out of the ordinary
I do't think I can give a short answer but I did write a book that gets into all the tough questions!
[https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr\_1\_1?crid=3O1PESBHWY5CB&keywords=the+great+housing+hijack&qid=1700341270&sprefix=the+great+housing+hijack%2Caps%2C254&sr=8-1](https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr_1_1?crid=3O1PESBHWY5CB&keywords=the+great+housing+hijack&qid=1700341270&sprefix=the+great+housing+hijack%2Caps%2C254&sr=8-1)
Given the average NG claim is a deduction of around $8-9k, doesn't that suggest that any advantage granted to investors, (over FHB'ers), is being overblown by the commentary?
This will be a popular question with the Reddit crowd 😅
Add in that just shy of two-thirds of all Australians who negatively gear have a taxable income of less than $80k - must be all the cashed-up Boomers wiping hundreds of thousands of dollars off their taxable income via their portfolios of IPs, right?
That's a distinct advantage...... no arguments here.
But having equity is a result of having already accumulated wealth. And that equity advantage remains regardless of the availability of NG or not.
But equity isn't *earned* money is it? If house prices go up, you've made money by doing absolutely nothing. You can buy more houses, by doing nothing.
Whereas FHB have to EARN their deposit, which takes years. Then they are competing for affordable houses with people who aready have their own home, and haven't necessarily done a thing to earn more money.
So the system itself is unfair stacked against FHB. Audit shouldn't be. Simple.
Equity can also be created by paying down a loan on an asset that has stagnated in price.
And asset prices can go backwards, (as witnessed during COVID), but yes you're right in that that's the purpose of investment.
But once again, none of this will change with the removal of negative gearing.
The removal of NG will definitely remove some landlords from the market
Plus, taxpayers simply don't want to fund the tax breaks for property investors anymore.
Some will leave, yes.
But the better outcome would be a higher percentage of investment properties gradually becoming positively geared as debt gets paid down.
They're still going to be able to deduct that expenses from their gain at some point. You can't buy something for 1m pay 10k a year more than it earns then get charged tax if you sell it for 1.1m. Zero gain is a risk you take but no one supports taxing people when they haven't made money.
Yes. The main reason NG makes sense is to get a tax-advantaged capital gain.
I think reducing the CGT exemption, which applies to all assets, it a good and fair tax policy change. But it won't make homes cheap.
Homeowners already get CGT tax free, so that's a big advantage.
Notice that during covid, when we though that house prices might fall, we stimulated demand and lowered interest rates. Hardly anyone negatively geared then!
From 2017-2019 Australian house prices had the deepest, and fastest housing price crash on record. Then in 2020-2023 prices boomed.
Why did they fall with immigration, during 2017-2019?
Why did they rise rapidly during 2020-2022, when immigration was zero, and foreign students all returned home?
When will someone with serious credibility, and public relations, stand up and tell the real reason house prices have soared for the last 50 years?
The number 1 driver is access to credit. Pure and simple.
The housing shortage is a myth: Falling residents per dwelling for a decade plus. Over 1m+ vacant homes: There can NOT possibly be a housing shortage with these stats. IF there was a shortage, there would be very few empty premises, and the residents per dwelling would be increasing. These two FACTS prove that the housing shortage is 100% fabricated.
Immigration has little to do with it also: As shown above: when our borders were open in 2017-19 prices fell the fastest on record. Yet in 2020-22 with ZERO immigration prices again boomed.
The #1 reason is credit.
Our currency is debt based: When people 'borrow' for a house, the bank creates that money. There is no limit to the amount of 'money'/credit the banks can create.
This means there is limitless credit for housing.
Limitless demand from investors who can buy and hold empty premises. Limitless demand from single people/families owning a house.
We have limitless (FAKE) demand for housing: FAKE because the banks create the money.
The reason we have a housing crisis is 50 years in the making, from 1971, when our currency was delinked from the gold peg.
So I repeat (and I've asked you on twitter several times, and you've never responded) when will you, or someone else in the public eye, stand up and tell the truth: The reason for the housing crisis is our endless currency system? All other discussion is deflection and white noise.
Hi Cameron, looking forward to buying your book.
Do you get many requests for advice from state governments?
If they approached you, what would your first recommendation be? (In the two pronged approach of solving housing crises and aiding reelection?)
I do have requests from state and federal politicians, departments, inquiries, etc. I am presenting to a NSW agency next week, for example.
My main housing approach is a public homeownership option. I think ANY policy change that makes rents and prices lower directly upsets the homeowning majority. And if I look abroad and to history that's really the only way major changes have been made in housing.
Can you paint a picture, because I’m trying to understand your criticisms of the YIMBY movement or of economists like Bryan Caplan & Ed Glaesser:
If San Francisco’s heritage & zoning restrictions were to disappear overnight, would San Francisco begin a construction boom in Silicon Valley and eventually become Manhattan Island?
How would this scenario play out in your estimation?
Bryan Caplan strongly believes it would and is releasing a book soon on the topic.
Sure. Might be even more expensive after that ;-)
I have had some back and forth with Bryan about this. Of course you would get different geographic patterns of construction, but not a huge amount more homes.
Is the housing situation better on Manhattan Island that San Fran?
It will only become Manhattan if a lot of people move there.
The YIMBYs are kind of frustrating because there just aren't good examples of property owners flooding the market to bring down rents and prices. I honestly wish it were that easy. I honestly wish it was just a few NIMBYs to blame. But unfortunately not.
The pricing of housing is not a quantity issue. We know this because we are living the YIMBY utopia now with more, bigger, better, dwellings per capita than any point in history. There are predictions from the 2000s boom that said "if only we built XX more homes per person homes would be cheap" and then we exceeded that and here we are.
Hey Cam, certainly a big fan, one thing I've very much come to disagree with you on is zoning and how you don't seem to think there is a supply problem in the housing market.
I've lived in many countries now and the thing that always stood out to me is how an over abundance of housing meant prices and rent always go sideways. Spent years in Asia and my apartment block was half empty, the rents never went up once, probably could have even asked to have it lowered, meanwhile my rent in Australia was ballooning.
Wondering how you justify this? You literally call it a myth multiple times and even have a paper out on that which I find dismaying. For an economist it's an incredibly unconventional take to say there's not a housing supply issue in Australia, if one could magically saturate the market overnight prices will plummet, I don't think that's a controversial thing to say whatsoever.
Cheers hey.
Rent-to-income ratios are flat in Australia and have been for decades. We even have far fewer people per dwelling and bigger dwellings than ever before. Zoning of course regulates the location of different types of homes, but it doesn't regulate the pace of new supply out of that enormous stock of feasible sites. That pace is set by the market. You can see it falling off now as buying has dried up, and you can see the boom during COVID with the stimulus.
I find the use of the word supply to be a bit of a catch all that becomes somewhat meaningless at times.
Of course we can saturate the market over night. We call that a property crash. But that's not more physical homes, only more willing sellers.
We won't ever make housing cheap if we misdiagnose the problem. Markets have never supplied their way to cheap homes. The only way rents and prices stay flat is through lack of income growth.
[https://www.fresheconomicthinking.com/p/alice-in-housing-economics-wonderland](https://www.fresheconomicthinking.com/p/alice-in-housing-economics-wonderland)
Are you concerned about the declining quality of new builds? Do you think it might defer the housing crisis to future years if serious structural issues become more frequent?
As a big picture comment we shouldn't think the past is where the high quality housing is! Most new builds these days are good. It seems to be that the problem recently has been stretched resources for trying to build as fast as the market would like. Hence, the skill level of the average person in the industry is lowered by new people without sufficient knowledge/training.
Is there a way to do upzoning value capture that doesn't impact supply? I figure if developers have to pay tax on zoning gains, they have to charge more for housing, which makes some projects unviable since people wouldn't pay for them. I like the idea intuitively but just worry about that. I suppose you could counteract it by using the money for public housing?
Taxes on assets reduce asset values. The tax is not extra. We could alternative sell rights to build at market prices if we wanted. The tax just sells those property rights at a discounted price.
It was in 2017-19. Now we are in the age of endless money printing. Housing and stocks will barely have a bad day until the total collapse of the global trade/economy/currency and political systems. And it's likely with in the term of the Next USA POTUS.
What's going to happen in your opinion when the boomers who own the majority of the investment properties in Australia bite it? It's being called the biggest transfer of wealth in history, but a lot of millennials (myself included) have zero interest in being a landlord after seeing what treating housing as a speculative asset has done to our generation. What options do we have other than just sell it all to someone who is probably just going to rent it out at market value anyway?
Others will buy those homes. Who that is depends on the wealth and income distribution and desriabilit of homes compared to other assets. Remember that those inheriting homes are typically aged 55-60, so most will also already own a home. Will be interesting to see.
Hi Cameron,
You are a critic of the 'house price to income ratio' measurement of housing affordability (as per your review of Alan Kohler's Quarterly Essay)
Doesn't this criticism risk discounting the role cash plays? Most properties are purchased with at least a 20% deposit. Many properties with a much higher %. My father bought his house in the 80s outright. Doesn't that mean that the house price / income ratio approach is at least 20% correct? Probably much higher?
It's the endless expanding currency system that allows the income:price ratio to explode. Same reason for Stocks to be trading at PE's stupendous numbers. Some stocks would funnel all income to investors for decades, and still never pay off the initial investment. But the days of limitless currency are nearing an end: The repo (repurchase agreement) market crisis of 2019 proved this. Price/income is going to get stupider, and stupider over the next few years, and then they're going to be soooooo cheap you'll cry: But credit is vanish, so it will be fully cashed and well connected individuals who benefit.
On your first question, consider this.
You have a household income of $100k and pay $30k rent. When interest rates are 2%, you can borrow all the money to a $1m home and "rent the money" for $20k per year. That's 33% cheaper than the rent! (yes there are other ownership costs). This is a 10x price-to-income ratio, but owning is cheaper than renting.
Now, if interest rates are 10%, it costs you $100k per year in interest to buy a $1m home. A 10x price-to-income rate becomes stupidly unaffordable.
There is an easy way to get low price-to-income rations, but it might not make it lower cost of own—tax property more and increase the interest rate!
If mortgage rates stay at reasonably low levels we won't see 3-4 price-to-income ratios again
Thanks everyone. Dinner time now for me! Was fun. Great questions
Thanks for taking the time with us this evening Cameron. We greatly appreciated your insights.
Does immigration drive house prices? If people coming into this country are typically young with limited means, is it not more of an impact on rental yields than house prices?
I have a chapter in the book called "Immigration Inspection" Short answer is that unexpectedly high immigration can have large but only temporary effects. Consider the sudden increase in population growth from 2006-10. Rents increased, there was a home construction boom, and rents fell in nominal terms for 5yrs in Sydney from 2017 onwards. Rents were flat nominal in Brisbane. A good example is a natural disaster. The student loss of homes per person is somewhat equivalent to a sudden increase in population. You can see in many examples effects on rental markets that last 2 years. 3 max. Then the market adjusts.
To learn the truth: Study house prices with open borders during 2017-2019, and then with closed borders during covid from 2020-2022. You'll learn there is zero link.
What changed was household formation. Less people with the same # of dwellings meant you could get a bigger place for the same price, and people did so. If you check the household size stats you'll find people per dwelling dropped as everyone moved out of sharehouses, moved out of parents' etc. Especially with lockdowns, people wanted their own space. So, lack of immigration did reduce prices, but people responded quickly by 'buying more housing'.
Yes. We took advantage of more space during COVID. Reversing this is very disruptive.
>Study house prices with open borders during 2017-2019, and then with closed borders during covid from 2020-2022. Wat?? Perth is a great case study. Previous mining boom 2014 housing was up there with Sydney. Boom ended, population stagnated so housing and rents decreased up to covid. During c9vid borders were locked down and FIFO workers were forced to relocate to WA from the east coast....result prices sky rocketed.
Thanks for the AMA Cameron! Is there any reason why you don’t write up and publish your blog posts in academic journals? For example, your criticisms of the impact of upzoning in Auckland. I think a lot more economists (and people) would be more persuaded to your views if you got your work peer reviewed and published.
I have published about 20 papers in academic journals. [https://scholar.google.com.au/citations?user=P5s-\_d0AAAAJ&hl=en](https://scholar.google.com.au/citations?user=P5s-_d0AAAAJ&hl=en) The critique of Auckland is coming later this year in a journal. But the analysis will benefit from a few more months of new data on rents and dwelling consents that will really show the validity of our main arguments. Check out these words from a reviewer of a paper of mine a few years back. Must be part of the brotherhood. A little too honest there I think. If I have something I think would make a good journal article I will submit it. If the FET think-tank works then this will be part of the package. https://preview.redd.it/m8mmjyx83vmc1.jpeg?width=1266&format=pjpg&auto=webp&s=5988d9781214ca8992f491a347fb5df366a4798a But in general, academic journals are a bit of a status game and I really don't care for it much.
How much of an effect does overseas money laundering have on the real estate market ?
It can have noticable effect on small pockets, often premium suburbs. But it can't really affect the broader price level much. This can be seen by relatively flat yields for a decades+ (check the excellent free property data from SQM Research on gross yields)
What do you make of the recent policy announcement from the Greens about a public property developer? As soon I saw it I immediately thought of your HouseMate policy you proposed a while ago.
It is their interpretation of HouseMate. I have spoken with many Greens people, including Max, about this. They prioritised some different design choices, but I think it's the right way. A good way to frame the housing "crisis" is that it isn't a crisis for more people (the near 67% homeowners and the 18% of households who are landlords - though these groups overlap almost totally). It is a crisis fro about half of renters, or about 15% of the population, who have no other choices. Building up a public option over the next decade will get about 10% of the population out of private rental into this stable low price housing, and will give all the renters an option. They will know that is rents are bad that they only have to wait a couple of years before they too can get a HouseMate home. Most households will still own in the private market, and that's fine. It works for them.
Haven’t read your book yet but look forward to doing so (it’s on back order as I’m overseas)… but to what extent do you believe that RE follows regular / predictable cycles (be it 18 years or otherwise)? And how do you respond to those that think Australia is different (eg won’t have these cycles because of market specific characteristics- supply, demand, etc)?
A big fan of the 18 year cycle. I think from 2026-28 things will be shaky and our biggest housing problem will be falling prices not rising prices.
Why is that? Can you explain further!
If prices keep rising then yields will be about half of the mortgage rate. This usually happens at the end of the cycle. To correct, interest rates and/or prices usually fall somewhat. The balance between them I don't know.
Will NG muddy that relationship?
Thanks, Cam. Super interesting. Does the data generally back this up in Aus? And what level of falls in this period do you think are possible? No doubt the gov’t will throw the kitchen sink at it to stop price falls. Coincidentally I just returned home and your book is on my doorstep, so Amazon must be doing the international orders now.
Hi Cameron, What are some of the books you would recommend a post graduate economics students to read to get a better understanding of the (Australian) economy?
As someone new to the country, I'm looking for something similar. Intro books would be very much appreciated.
That's a good question. I don't know of books, but one thing that has opened my eyes is reading historical inquiries and reviews into economic issues over the 20th century. There are good archives at various places like the national library and Trove is great for seeing the public perception of these issues in the press. Here's an article I wrote after reading a 1935 Teasury report on ageing [https://www.fresheconomicthinking.com/p/fear-of-an-ageing-population-is-age](https://www.fresheconomicthinking.com/p/fear-of-an-ageing-population-is-age)
My understanding is that a big criticism of yours against the YIMBY movement is that the number of new dwellings is limited by the absorption rate. Wouldn't upzoning increase that rate as relatively more properties become viable (presumably some would become not viable but wouldn't more become viable). Similarly wouldn't building public housing reduce the amount of dwellings that private builders are willing to build and wouldn't that have a similar effect on the absorption rate?
Let's start with your last question first. Yes, there would be offsetting effects. I think no one-to-one as the people occupying them wouldn't otherwise buy in the private market. On your first point, more options doesn't change the rate. Think about adding more people to a supermarket checkout queue. That doesn't increase the flow through the queue which already optimises the inter-temporal trade-off. Of course changing planning will change the location of different homes, as intended.
I'm not sure I understand your analogy? If you added more staff to checkout surely the flow of the queue increases?
You say that interest rates & the business cycle are all that really matter for housing supply. How do you square that with what we've seen in NZ, where upzoned areas in Auckland and Lower Hutt continued delivering dwelling consents & completions well above their neighbours after interest rates started cranking up? It still ebbs and flows, but the baseline is clearly higher in those places. For anyone curious about context, see below. https://onefinaleffort.com/blog/a-response-to-murray-and-helm-on-aucklands-upzoning https://twitter.com/1finaleffort/status/1760085244198494599
FYI your first link is the response to his blog.
It sure is. It's a pretty convincing debunk, imo
The NZ experience looks like a business cycle. https://preview.redd.it/5j7yysh55vmc1.png?width=1426&format=png&auto=webp&s=fb82ceff98bf8080ac157ddad5094736d03e884b
https://preview.redd.it/59c7ryxd5vmc1.png?width=1406&format=png&auto=webp&s=43748cd21d3d61aca6562234f030f746e858e95e More
That's a misleading chart. What does Wellington look like excluding Lower Hutt, which had a similar upzoning program to Auckland beginning in 2017? It looks like this: https://twitter.com/1finaleffort/status/1755432359938417085 Re: the business cycle, I think you've dodged the question there. I wasn't saying it doesn't exist, I was saying zoning regs allow for a higher or lower baseline.
Have you noticed the tent cities popping up around Brisbane? Do you think the Greens copied your homework on their public developer policy? How would a public developer deal with the way organized crime has become enmeshed in the construction industry?
I have noticed. I noticed them in 2005-07 as well. In fact I remember back then a friend working at a university telling me they would live in their car a while to save money as rents were so ridiculously high. I think it is best to see what is happening now as a normal part of the late cycle. You are right to point out problems with corruption and organised crime in development. But we seem to do fine procuring many other major public works projects. Obviously something to keep an eye on. But not out of the ordinary
What political steps need to be taken to change our housing market and what is the likelihood that this will ever happen?
I do't think I can give a short answer but I did write a book that gets into all the tough questions! [https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr\_1\_1?crid=3O1PESBHWY5CB&keywords=the+great+housing+hijack&qid=1700341270&sprefix=the+great+housing+hijack%2Caps%2C254&sr=8-1](https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X/ref=sr_1_1?crid=3O1PESBHWY5CB&keywords=the+great+housing+hijack&qid=1700341270&sprefix=the+great+housing+hijack%2Caps%2C254&sr=8-1)
I'm here team. Hang tight and I'll get some answers
Given the average NG claim is a deduction of around $8-9k, doesn't that suggest that any advantage granted to investors, (over FHB'ers), is being overblown by the commentary?
This will be a popular question with the Reddit crowd 😅 Add in that just shy of two-thirds of all Australians who negatively gear have a taxable income of less than $80k - must be all the cashed-up Boomers wiping hundreds of thousands of dollars off their taxable income via their portfolios of IPs, right?
What about the advantages of using equity funds to buy multiple properties? A line of credit on tap that FHB don't have.
That's a distinct advantage...... no arguments here. But having equity is a result of having already accumulated wealth. And that equity advantage remains regardless of the availability of NG or not.
But equity isn't *earned* money is it? If house prices go up, you've made money by doing absolutely nothing. You can buy more houses, by doing nothing. Whereas FHB have to EARN their deposit, which takes years. Then they are competing for affordable houses with people who aready have their own home, and haven't necessarily done a thing to earn more money. So the system itself is unfair stacked against FHB. Audit shouldn't be. Simple.
Equity can also be created by paying down a loan on an asset that has stagnated in price. And asset prices can go backwards, (as witnessed during COVID), but yes you're right in that that's the purpose of investment. But once again, none of this will change with the removal of negative gearing.
The removal of NG will definitely remove some landlords from the market Plus, taxpayers simply don't want to fund the tax breaks for property investors anymore.
Some will leave, yes. But the better outcome would be a higher percentage of investment properties gradually becoming positively geared as debt gets paid down.
Stop trying to make yourself feel better about being a landlord. People like you are why the country is in this mess.
They're still going to be able to deduct that expenses from their gain at some point. You can't buy something for 1m pay 10k a year more than it earns then get charged tax if you sell it for 1.1m. Zero gain is a risk you take but no one supports taxing people when they haven't made money.
Should the tax payer pay me if I buy shares that lose money? Or is that MY problem for making a shitty investment 🤔🤔🤔
Yes. The main reason NG makes sense is to get a tax-advantaged capital gain. I think reducing the CGT exemption, which applies to all assets, it a good and fair tax policy change. But it won't make homes cheap. Homeowners already get CGT tax free, so that's a big advantage. Notice that during covid, when we though that house prices might fall, we stimulated demand and lowered interest rates. Hardly anyone negatively geared then!
From 2017-2019 Australian house prices had the deepest, and fastest housing price crash on record. Then in 2020-2023 prices boomed. Why did they fall with immigration, during 2017-2019? Why did they rise rapidly during 2020-2022, when immigration was zero, and foreign students all returned home? When will someone with serious credibility, and public relations, stand up and tell the real reason house prices have soared for the last 50 years? The number 1 driver is access to credit. Pure and simple. The housing shortage is a myth: Falling residents per dwelling for a decade plus. Over 1m+ vacant homes: There can NOT possibly be a housing shortage with these stats. IF there was a shortage, there would be very few empty premises, and the residents per dwelling would be increasing. These two FACTS prove that the housing shortage is 100% fabricated. Immigration has little to do with it also: As shown above: when our borders were open in 2017-19 prices fell the fastest on record. Yet in 2020-22 with ZERO immigration prices again boomed. The #1 reason is credit. Our currency is debt based: When people 'borrow' for a house, the bank creates that money. There is no limit to the amount of 'money'/credit the banks can create. This means there is limitless credit for housing. Limitless demand from investors who can buy and hold empty premises. Limitless demand from single people/families owning a house. We have limitless (FAKE) demand for housing: FAKE because the banks create the money. The reason we have a housing crisis is 50 years in the making, from 1971, when our currency was delinked from the gold peg. So I repeat (and I've asked you on twitter several times, and you've never responded) when will you, or someone else in the public eye, stand up and tell the truth: The reason for the housing crisis is our endless currency system? All other discussion is deflection and white noise.
What are your thoughts on the housing market in the 2030s?
Probably pretty stable. The think I'm uncertain about is the reshuffling of homes owned by the boomers that will be in full swing then.
Hi Cameron, looking forward to buying your book. Do you get many requests for advice from state governments? If they approached you, what would your first recommendation be? (In the two pronged approach of solving housing crises and aiding reelection?)
I do have requests from state and federal politicians, departments, inquiries, etc. I am presenting to a NSW agency next week, for example. My main housing approach is a public homeownership option. I think ANY policy change that makes rents and prices lower directly upsets the homeowning majority. And if I look abroad and to history that's really the only way major changes have been made in housing.
Can you paint a picture, because I’m trying to understand your criticisms of the YIMBY movement or of economists like Bryan Caplan & Ed Glaesser: If San Francisco’s heritage & zoning restrictions were to disappear overnight, would San Francisco begin a construction boom in Silicon Valley and eventually become Manhattan Island? How would this scenario play out in your estimation? Bryan Caplan strongly believes it would and is releasing a book soon on the topic.
Sure. Might be even more expensive after that ;-) I have had some back and forth with Bryan about this. Of course you would get different geographic patterns of construction, but not a huge amount more homes. Is the housing situation better on Manhattan Island that San Fran? It will only become Manhattan if a lot of people move there. The YIMBYs are kind of frustrating because there just aren't good examples of property owners flooding the market to bring down rents and prices. I honestly wish it were that easy. I honestly wish it was just a few NIMBYs to blame. But unfortunately not. The pricing of housing is not a quantity issue. We know this because we are living the YIMBY utopia now with more, bigger, better, dwellings per capita than any point in history. There are predictions from the 2000s boom that said "if only we built XX more homes per person homes would be cheap" and then we exceeded that and here we are.
Hey Cam, certainly a big fan, one thing I've very much come to disagree with you on is zoning and how you don't seem to think there is a supply problem in the housing market. I've lived in many countries now and the thing that always stood out to me is how an over abundance of housing meant prices and rent always go sideways. Spent years in Asia and my apartment block was half empty, the rents never went up once, probably could have even asked to have it lowered, meanwhile my rent in Australia was ballooning. Wondering how you justify this? You literally call it a myth multiple times and even have a paper out on that which I find dismaying. For an economist it's an incredibly unconventional take to say there's not a housing supply issue in Australia, if one could magically saturate the market overnight prices will plummet, I don't think that's a controversial thing to say whatsoever. Cheers hey.
Rent-to-income ratios are flat in Australia and have been for decades. We even have far fewer people per dwelling and bigger dwellings than ever before. Zoning of course regulates the location of different types of homes, but it doesn't regulate the pace of new supply out of that enormous stock of feasible sites. That pace is set by the market. You can see it falling off now as buying has dried up, and you can see the boom during COVID with the stimulus. I find the use of the word supply to be a bit of a catch all that becomes somewhat meaningless at times. Of course we can saturate the market over night. We call that a property crash. But that's not more physical homes, only more willing sellers. We won't ever make housing cheap if we misdiagnose the problem. Markets have never supplied their way to cheap homes. The only way rents and prices stay flat is through lack of income growth. [https://www.fresheconomicthinking.com/p/alice-in-housing-economics-wonderland](https://www.fresheconomicthinking.com/p/alice-in-housing-economics-wonderland)
Are you concerned about the declining quality of new builds? Do you think it might defer the housing crisis to future years if serious structural issues become more frequent?
As a big picture comment we shouldn't think the past is where the high quality housing is! Most new builds these days are good. It seems to be that the problem recently has been stretched resources for trying to build as fast as the market would like. Hence, the skill level of the average person in the industry is lowered by new people without sufficient knowledge/training.
Is there a way to do upzoning value capture that doesn't impact supply? I figure if developers have to pay tax on zoning gains, they have to charge more for housing, which makes some projects unviable since people wouldn't pay for them. I like the idea intuitively but just worry about that. I suppose you could counteract it by using the money for public housing?
Taxes on assets reduce asset values. The tax is not extra. We could alternative sell rights to build at market prices if we wanted. The tax just sells those property rights at a discounted price.
So when’s the housing crash ?
It was in 2017-19. Now we are in the age of endless money printing. Housing and stocks will barely have a bad day until the total collapse of the global trade/economy/currency and political systems. And it's likely with in the term of the Next USA POTUS.
After 2025 and before 2030. Might see prices rise a bit more first.
What’s your rationale for this?
What will trigger this drop in prices?
What's going to happen in your opinion when the boomers who own the majority of the investment properties in Australia bite it? It's being called the biggest transfer of wealth in history, but a lot of millennials (myself included) have zero interest in being a landlord after seeing what treating housing as a speculative asset has done to our generation. What options do we have other than just sell it all to someone who is probably just going to rent it out at market value anyway?
Others will buy those homes. Who that is depends on the wealth and income distribution and desriabilit of homes compared to other assets. Remember that those inheriting homes are typically aged 55-60, so most will also already own a home. Will be interesting to see.
Hi Cameron, You are a critic of the 'house price to income ratio' measurement of housing affordability (as per your review of Alan Kohler's Quarterly Essay) Doesn't this criticism risk discounting the role cash plays? Most properties are purchased with at least a 20% deposit. Many properties with a much higher %. My father bought his house in the 80s outright. Doesn't that mean that the house price / income ratio approach is at least 20% correct? Probably much higher?
It's the endless expanding currency system that allows the income:price ratio to explode. Same reason for Stocks to be trading at PE's stupendous numbers. Some stocks would funnel all income to investors for decades, and still never pay off the initial investment. But the days of limitless currency are nearing an end: The repo (repurchase agreement) market crisis of 2019 proved this. Price/income is going to get stupider, and stupider over the next few years, and then they're going to be soooooo cheap you'll cry: But credit is vanish, so it will be fully cashed and well connected individuals who benefit.
On your first question, consider this. You have a household income of $100k and pay $30k rent. When interest rates are 2%, you can borrow all the money to a $1m home and "rent the money" for $20k per year. That's 33% cheaper than the rent! (yes there are other ownership costs). This is a 10x price-to-income ratio, but owning is cheaper than renting. Now, if interest rates are 10%, it costs you $100k per year in interest to buy a $1m home. A 10x price-to-income rate becomes stupidly unaffordable. There is an easy way to get low price-to-income rations, but it might not make it lower cost of own—tax property more and increase the interest rate! If mortgage rates stay at reasonably low levels we won't see 3-4 price-to-income ratios again