Our series of posts on the Runstad Fellows trip to Australia continues today from the Shannon Loew.
March 15, 2017
[Update to my previous post re: Millers Point social housing evictions. After speaking with planners at the city, I learned that the state of NSW had reinvested much of the proceeds from selling off those properties back into affordable housing, delivering three times as many. The heritage nature of Millers Point made them expensive to maintain and difficult to update. Tenants were given with advance warning and all were relocated. My original source was a legit news rag from Sydney which highlights how politicized affordability is here. Clearly there’s an argument to maintain the existing housing but the coverage was oddly one sided.]
Today was the first day of earnest research. The team lands tomorrow and I’m excited to reconvene with them as our schedule only gets more engaging once they land. In the morning, I met with two professors at Macquarie University, one focused on affordable housing and one on community engagement, particularly involving Aboriginal peoples. In the afternoon, I attended an affordable housing symposium held by the Federation of NSW, where former Runstad Affiliate Fellow Jason Twill was speaking. The symposium was both inspiring and deflating. There is enormous energy from a diverse range of minds on the problems which only highlights just how prevalent and challenging the issue is globally. As expected no one has a silver bullet but there are some innovative practices which we’ll learn more about in the coming week and report back on.
Meanwhile, there are some important contextual forces at play here that are worth noting as background to this market. These are all generalizations of course, and mostly Sydney focused. But unlike the US, the vast majority of the population of the country lives in a small handful of cities. Nearly 20% of the country lives in Sydney, for example.
Buy, buy, buy
This is a land of homeownership. In recent years, Australia had a homeownership of more than 70%, about 10 points higher even than the US. This is a result of policy and culture. The federal government here has historically stimulated banks to lend easily with the goal of spurring home ownership, much in the way the US fed did following WWII. Over time that has grown into an ethos by which each subsequent generation and immigrant family could create long-term wealth and security through buying a home. It’s what you strive for here, just as with our American Dream. And that was easily done with low interest rates and plentiful, cheap land. Additionally, tax incentives allow owners to write-off mortgage and expenses of investment properties. And there is no capital gains or excise tax on appreciation or sale of a primary residence. Combine all these factors and you get a country is obsessed with real estate.
Multifamily development barely exists. There are few rental developers and as a result, a limited supply of rental apartments. As housing prices have escalated, that has created an intense pinch on those who do not yet own including young professionals, key workers (their term for middle class workforce) and moderate or low income immigrants. (BTW, purchasing a home here requires not only the downpayment but also a lump sum of taxes all up front. There is no annual property tax, just a single levy at acquisition.) Consider also that one in ten properties as of last year was purchased by a foreign investor, further reducing supply. But if everyone is buying investment properties, surely they need to turn around and rent them, right? With a influx of people (domestic and foreign) at a rate of approximately 2,000 people per week here in Sydney alone (Melbourne is higher), the market simply can’t keep up. Plus many foreign investment properties are reported to sit idle and a handful still held off in the AirBnB short term market. Our AirBnB here in Sydney, for example, is one of 25 properties owned by three friends who run them as a business.
Clearly this is an exploding market and many regulators and analysts inside country and out are warning of overvaluation. As of last month, the average home in Sydney cost just over one million dollars. Interestingly, one issue I haven’t heard much of is fear of density. With so many people owning investment properties, upzoning just means instant increase in net worth and the opportunity to build or sell and buy some more.