Under The Hammer
The Australian fixation with housing costs so much more than the listed price
At any given time, statistically, any given group of Australians is talking about property.
It’s our true national pastime to a level of obsession that makes the AFL, MAFS or even quoting The Simpsons look like a mere sometimes food.
And why not. The median house value has gone from $160,000 in 1996 to $825,000 in 2020 — an increase of over 5x, while the median wage has risen 2.5x in the same period. You do the maths — it’s bad.
While the causes of this hike are inevitably multi-faceted, a large element is controllable. But instead of seeking to reasonably address a culture out of control, we are led by a political class and Reserve Bank determined to pour more fuel onto the fire, endlessly inflating house prices to the applause of the large and influential constituency of beneficiaries.
But these benefits aren’t as mighty as they might first appear, and while the costs of increasingly insane prices may seem broadly obvious* and well-discussed, I believe that they are even steeper than the common discourse seems to allow.
Those familiar with the concept of silent evidence will know that by choosing to place so much of our collective wealth and energy into one part of society, we are severely robbing ourselves elsewhere.
An afternoon spent scrolling through listings is an afternoon that could be spent doing something more edifying, like drinking seawater. Even discounting the time and cultural anxiety however, what of all the money?
Australia’s residential properties are collectively worth $7466.5 billion.
It’s a difficult number to engage with, but might sound like a reasonable price for an impressive housing stock featuring a lot of ocean views. But let’s dig a little.
If you won big on a scratchie and decided to purchase every home in the similarly sized/wealthy nation of Canada, you would be able to buy it all for just 75% of cost that $7466.5 billion .
Not only is that a lot (a lot!) cheaper, but it also accommodates a population of 12 million more people.
And it’s not like Canada is what Trump would call a ‘shithole country’. Or maybe he would. Who cares.
The point is, it’s important to realise that the race to the top of the street is not an immutable natural state, and is instead a result of a culture and economy that we’ve largely created. Given it’s a choice — we have to ask, is it a good one?
The total value of the market is enormous and abstract, but as a thought experiment, even a mild easing would free up massive tranches of wealth to be stored in other, potentially even useful parts of society.
Just a 1–2% ‘loss’ off of everyone’s (artificially-inflated) house values would be enough to fully fund highspeed rail along the east coast, for example. I doubt many would even notice the former, but we’d surely never hear the end of complaining about the latter.
But say don’t like infrastructure, you like military. Well, it’s an amount that could bolster our forces with 10 mighty aircraft carriers (China currently has two).
We could have an extra national public holiday every quarter for the next ten years. We could give a million dollars in seed funding to each of the next 100,000 brilliant industrious types with ideas worth pursuing.
We could all have more fancy dinners, go to weekly foreign film festivals, get more regular haircuts, entirely wipe the national debts of our pacific island neighbours, commission a new series of Kath and Kim, have a reasonable crack at bringing back the thylacine, AND still have change to lower the company tax rate by 5%.
If that’s the collective difference in a valuation of 1–2%, imagine how much collective coin we’d be tossing into the tip if housing were pumped to rise 150%.
Well, you don’t have to imagine hard — because that’s the increase in real terms since the start of this millennium. It’s non-trivial wealth that we are irresponsibly overcommitted to storing in the wrong place.
It goes without saying here that a significant externality of this is that increasing numbers of even ‘productive’ people can’t afford a home to live in, never minding, of course, those who society long left behind.
To a degree I’m being glib, because obviously we can’t simply spontaneously decide to lower the value of our houses in exchange for cash. Not all houses are being exchanged at once, and this is a characterised simplification of how markets work. I hope you can see, however, that I’m trying to use the tool of compelling narrative to illustrate a point that is based on very real consequences.
In my own city of Canberra — in many ways the most progressive jurisdiction in Australia — the leader of that most socialist of parties, The Greens, owns multiple negatively-geared investment properties. And why the hell not. It’s the easiest game in town and, frankly, if you’ve got anything approaching a normal wage, you’d be a mug not to take full advantage of it. Nothing beats good ol’ bricks and mortar. It’s a guaranteed free kick that outsources real risk from the present to a future society that flat out will not be as prosperous, equitable, meritocratic or interesting as it otherwise could be.
In a parallel universe, we might instead foster a culture of inducements for people to invest their money in innovative ideas and people whose contributions to our civilisation may be even more useful than those of real estate agents (hard to imagine).
After all, we straddle a time of great crisis and great opportunity, are we doing enough to prioritise that?
Well, here at the peak of Australian society’s enormous wealth, three of the top five companies are, of course, banks. Number six is a bank too :).
Are we so unambitious? Maybe yes.
Consider that all venture capital firms in Australia will spend significantly less investing in new businesses in 2021 than the government itself will spend subsidising people who own more than one property through negative gearing.
Number ten is also a bank :) :) :)
There is astonishing innovation that has transformed our lives and very little of it comes from here. You truly don’t have to be a tech giant like the US to offer new things onto the world stage.
Stockholm alone has recently given birth to Spotify, Candy Crush, Skype, SoundCloud, MySQL, and who knows what other new ideas are in the pipeline.
Stockholm has about the population of Adelaide, which has recently given birth to … … … I have absolutely no idea.
(It seems to be mostly gas/mining companies there, though the sixth largest SA business is a manufacturer of metal detectors, which seemed funny until I realised that it too is probably a mining thing).
Perhaps most depressingly though, is that all the extra value ‘generated’ by sinking cash into property isn’t even of particular utility to most of us.
Those who own the house they live in typically must buy and sell in the same hyperinflated market. Your house being worth 40% more than when you bought it is pretty immaterial if the one you’re buying also costs 40% more.
A high rate of growth for those wealthy enough to own many properties is however, enormous. But do we really need to gear our entire society to this rapacious minority, yet again?
In a society where the expression of our collective values has migrated from public policy to private capital, this is a problem of consequence broader even than just the millions of poor shlubs who will live their whole lives without secure housing. It is instead, a hefty cultural Polaris.
Because, despite taking the time to discharge these thoughts in writing, I really don’t care for endlessly talking/thinking/hearing about it.
It’s lose-lose and when it all inevitably comes tumbling down, we’ll wish we’d spent our money, breath and years on something more intrinsically edifying for both the individual and the collective, like, well, basically fucking anything.
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*I’ll happily go into it a bit here in case you are reading from a country in which this problem isn’t so noticeably stark.
The main thrust is that property prices have rapidly outgrown people’s capacity to buy them, with the result that home-ownership is increasingly concentrated in the hands of anyone who had the luck of being around to enter the market before now. Particularly those who were around much before now.
Given that ‘being alive in and before the 1980s’ is a key prerequisite to being able to buy property in the 80s, this has led to some healthy inter-generational warfare as the emergent generations can’t help but notice that their parents are in a cohort who own five empty bedrooms in a suburb with trees and knickknacks, while their own peers share five to a bedroom in a suburb characterised by rats and heat-retaining concrete — if they can even afford the rent.
But it’s not fair just to pick on a generation for being lucky, when we can also pick on the younger cohort of property-owners who wind up with a portfolio of 28 properties by the age of 21 from a combination of being frugal and also inheriting 28 properties by the age of 21.
This divide is present across many societies but is particularly intense in Australia where there is both a cultural history of people valuing owning their own house and a series of government incentives to encourage people to purchase more than one property.
Among those who defend this growing gap there is a lazy temptation to buy into the narrative of causality — if only some people would change their lifestyles or work a little harder, they too would have what I have worked so hard for. It’s a line you can see and hear everywhere and there are surely instances where it is an accurate reading. But it isn’t universal, and regardless of how you personally like to simplify things, the raw data stands — the capacity to buy a home is beyond more and more of us here in Australia while those who do everything to own properties in a whitehot market might be wasting their lives skills and energies on a situation that didn’t have to be this way.
This wouldn’t be such a problem if we had the European culture of rental stability, but we’re a long way behind and the growing gap in housing affordability is mostly a punishing phenomenon to those on the outside.
