The HILDA Survey is a nationally representative study of Australian households. For the study, the authors have been interviewing the same 17,000 people every year since 2001, so as to up a picture of how people’s lives change over time. The latest report says that fewer than half of all Australian adults are going to own a home by next year. We catch up with the author, Professor Roger Wilkins to get a good insight into its findings.
The master of questions – Ken Raiss from Chan & Naylor answers a two part question from Daryl about vacant land, GST and subdivision.
This week as our feature guest we talk to Michael Yardney. This time it’s not to get advice but we want to know about his personal portfolio, who inspires him, how he got started and if and how his strategy has changed. Quite revealing!
Downsizing is what happens when the kids have moved out and, hopefully, taking the pets they grew up with, leaving you free to travel and do all the things you couldn’t do because you had kids. But downsizing comes with a whole set of new challenges. We look at those with Jodie Walker from Secret Agent.
Over the next few weeks we will follow the journey of successful property investor Nhan Nguyen as he attempts to buy and sell a property in only 30 days for a gross profit of $50,000. We start the story today with week 1 – finding and securing the property.
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When to subdivide and the costs – Ken Raiss
Kevin: Joining us once again to answer your questions, Ken Raiss from Chan & Naylor.
Good day, Ken. How are you doing?
Ken: I’m well, thanks, Kevin. And yourself?
Kevin: Mate, I’m fantastic, thank you. Always good to hear from you. And these are always questions that I can’t answer, Ken. That’s why we come to you because you’re our expert on these ones.
Keep the questions coming in, too, for any of our experts. We’d love to answer your questions. Just do them through the website. Ask a question. Tell us what that question is and we’ll get an answer for you.
This one comes from Daryl. It’s in two parts. I’ll read it in two parts, Ken. The first one – and Daryl does point out that he’s not referring here to a principal place of residence – the first part of the question is “Is GST payable if you are buying a block of land that already has two lots on one title? Split the block and sell them individually? If you’re not registered for GST and bought under personal names or trust structure, I know that tax will be payable, either GST or income tax, but I’m not sure if GST is payable because the lots already exist.”
So here we have a situation, Ken, I guess, one title but two lots. I would have thought two lots would require two different titles.
Ken: It depends what they’re doing. You can actually have the ability to have two lots on one title, and then you just complete the subdivision, of course. Unless, of course, sometimes you can have two buildings and have dual occupancy, and then you have the one title.
GST is a funny creature because it depends on two things: your intent and also the transaction itself. Let’s have a look at intent to start off with. But before I talk about intent, I’ll just preface by the fact that GST is not normally payable on residential property – unless it is new.
So if you buy a property with the intention to build, subdivide, and then sell or any of that, then you’re effectively in business and you would have normally had to register for GST, and then there’s a GST implication.
If, however, you are an investor and you purchase something with the intention to keep and use to generate taxable income and then you subsequently sell the residential property, then you didn’t have to register for GST, and as such, on the sale, you didn’t have to pay GST.
It’s fairly complicated, and I would certainly seek very specific advice on a transaction-by-transaction basis. It really doesn’t make any difference what the structure is, whether it was your personal name, a company, or a trust. There’s obviously capital gains tax implications and income tax, and if your intention was to buy and sell, then you would not have capital gains tax; it would just be normal income tax at your marginal tax rate. If you bought something with the intention to keep and then you subsequently sell, then it’s a capital gains tax.
A number of parts to that question. I appreciate it’s probably a complicated scenario. Hopefully I’ve answered it, but please, on any GST, I would get independent, specific advice because there are many nuances to this.
Kevin: Daryl goes on to then ask the question about if he owned the house for three plus years then decided to split the block, is GST payable then?
Ken: Again, it comes back to intent. If you had secured that property, built that property, with the intention to keep it, then you wouldn’t have registered for GST and GST would not normally be applicable on the sale. If you did that transaction with the intention to sell, then obviously you would have had to register for GST and GST is payable. The issue then becomes if you change your intent and you needed to then register for GST, you have to be careful there.
An area that is normally overlooked is what is a new residential property? It is not just a brand new building that you built from the ground up. A substantially improved residential property becomes new because it’s nothing like what it was before the improvement. Again, get specific advice to see whether the renovation you’re doing turns it into a new property or it maintains its existing status.
Kevin: Very good. Daryl, there’s a great answer to your questions. Ken, I want to thank you once again for giving me some time.
Ken Raiss, of course, is from Chan & Naylor. Thanks for your time, Ken.
Ken: Thank you very much, and thank you, listeners.
Making $50K in 30 days – Nhan Nguyen
Kevin: House flipping is one of those subjects that fascinates me, and I’ve always thought that you have to get the right time of the market to do it. I wonder if that’s actually the case. Nhan Nguyen from Advanced Property Strategies is undergoing a really interesting exercise that we’re going to follow over the next few weeks. We’ll call it house flipping.
Is that what you call, it, Nhan?
Nhan: I’m not sure what you want to call it. Buy and sell, flipping, whatever you want to call it. Making money, that’s what I’m into.
Kevin: Pretty much, it’s securing a property with the intent to sell it and make a profit out of it. Call it flipping, call it turning over property, whatever you want to do. In this exercise, you’re going to do this in a 30-day period. Is that right?
Nhan: Well, that’s the aim. My aim is to make over $50,000, yes.
Kevin: How far are you into the process now? You’ve just started this?
Nhan: Yes, I’ve just started it. I came back from holiday recently. I was overseas. When I came back, there was this property in my inbox. Basically, I have a guy who’s out there looking for property for me. He said, “Nhan, there’s a seller, and he’s keen to sell the property for $320,000. I think you should buy it. He’s giving you 24 hours to do that.”
That’s what happened. I came back. The e-mail was in my inbox. I did have a look at that property before I went overseas on holidays, but it hadn’t been on the market. While I was overseas, I did receive an e-mail saying the property was on, but I thought that the property had actually been listed with an agent, so I didn’t even bother to look at it. When I got back, I met with the owner’s family, and yes, we signed off on a contract within one or two days.
Yes, we’re having fun. My plan is to basically buy it for $320,000. The median price in the area is $384,000. The most comparable property that I’ve seen is going to be somewhere in the $400,000s. A really rundown property sold recently in that area, on the south side, for $388,000. This is zoned low-to-medium residential, which means that you can put townhouses on it. So it’s going to be somewhere between $390,000 and $410,000 is my projection to sell the property.
Kevin: Let me ask you, then, in terms of transparency, the owners of the property are aware of the fact that you’re going to turn this over and make a profit?
Nhan: No, not necessarily. On the contract, we did put a clause on the contract that basically gave us the right to renovate the property after it went unconditional, and at the same time, they’ve given us the right to show valuers, surveyors, engineers, town planners, or prospective occupants through.
I wasn’t really sure that I was going to sell it, but basically, once I’d signed the contract, after I’d looked at a few options – should we develop it, should we renovate it? – I thought, “Okay, here’s an opportunity for some quick cash. Let’s play and let’s put it on the market and see what happens.”
Kevin: Are you planning to do any renovation to it?
Nhan: As little as possible. In fact, my backup plan is if we can’t sell it, yes, we’ll renovate it and probably rent it out and land bank it or develop it, depending on what the town planners say.
Kevin: How did you find the property?
Nhan: I have what we call a property researcher who works with me, under my training and my systems. He’s out there 5 or 10 hours a week, sending out letters, flyers, business cards in mailboxes. We have a certain area on the south side, about 15 K’s out, housing commission. We’re out there marketing. He got a phone call a few weeks ago, and it’s been bubbling away for a few weeks now.
Kevin: I have to be a bit careful about how I ask this question. The people you’re purchasing it from, is it just that they’re not aware of the values in the area?
Nhan: Let’s just say they live out of town – about two hours out of town. They bought it for $310,000 in 2007, and they’re just wanting to get out of the property. They’re really, really motivated to sell. I think they have some other court issues that are pending that I found on Google.
They’re just motivated sellers, and they want to get out. I think a few days after we signed the contract, they did get an appraisal. I found out through another agent that, yes, they are aware of the value of the property currently.
Kevin: Excellent. We’re going to follow this journey with you. This is week one. You’ve actually secured the property. It’s now under contract?
Kevin: All right. I’d love to come back next week and talk to you about what’s happened between now and then, just to see how it’s progressing, because 30 days to actually find, secure, turn over a property, and do that in 30 days is very, very quick. So, I’ll be keen to follow this journey with you, Nhan.
Nhan: Yes. Me, too.
Kevin: Yes, I’m sure you will be.
Nhan: Thanks, Kevin.
Kevin: We’ll catch you again next week. Thanks, mate.
Nhan: Cheers, mate.
Downsizing pros and cons – Jodie Walker
Kevin: We have an aging population, and of course, with more people choosing to live in units, downsizing becomes a bit of a reality. Sounds like a great idea, doesn’t it? The kids are off your hands, they’ve moved out, they’re making their own lives, and now it’s time for you to live. One of those choices is getting rid of the big house and maybe moving to an apartment. But downsizing isn’t as easy as it sounds. There are a number of challenges.
Jodie Walker joins me from Secret Agent.
Jodie, you’ve prepared a report on this. Tell us about some of the things that people are going to face when they make this decision to downsize.
Jodie: Downsizing itself seems like a simple task, but it’s actually quite complicated. There are a lot of hurdles that they’re going to face. I think one of the biggest hurdles is being able to fully commit to the idea and let go of any emotional attachments that you may have to the memories that you’ve created over the years.
If you’ve raised a family in there, you may be very attached to the residence, and you’re probably also quite attached to the friends, family, and networks that you’ve built up in the area. Letting go of all of this can be quite difficult.
Kevin: Yes, that final one you mentioned there about family and friends in the area, you could always choose to live in the same area and still keep those connections, though, couldn’t you?
Jodie: You could, but I guess I’m speaking about people who are moving from the outer suburbs on a large block of land and they’re moving into the inner city, which is a trend that happens alongside downsizing. People want to live where the amenity is and where there’s good access to transport and cafés, and that tends to be in the inner city.
Kevin: I always think it’s a good idea if you decide to downsize to maybe go and rent somewhere first to see if you really like it before you commit to buying something. I’ve seen a lot of people, Jodie, over the years sell that big house on the big block of land, move to an apartment, and then find six months down the track that they really need that bit more space and they weren’t quite ready for it.
Jodie: Yes, exactly. We highly recommend the same thing – spending a few weekends in the suburb that you’re thinking about renting in, because each suburb has its own culture and own demographics, so you really want to make sure that it suits your personality and what you value and the lifestyle that you want to create for yourself. So if you can’t rent, then stay in the suburb in a hotel for a few days to just really experience it.
Kevin: Yes, you could have a holiday there. Let’s talk about some of the things we can do while we’re still living at home in the home that we choose to, to prepare ourselves – like making a list about the things that I like and even doing a bit of de-cluttering. Tell us about some of the things we can do there.
Jodie: De-cluttering is super important. Obviously, storage space is one of the biggest things you’re going to lose when you downsize. With de-cluttering, I would highly recommend to be analytical and not emotional. Ask yourself “Do I use this?” not “Will I use it?” because as soon as you ask “Will I use it?” it’s easy to start imagining when you’re likely to use it in the future, but the truth is if you haven’t used it in the last month, you’re probably not going to. It’s just about being organized, starting early, and tackling one room at a time so that it’s not so daunting.
Kevin: It’s just occurred to me, Jodie, that a good exercise would be if you decide to downsize – you don’t make that decision overnight; you might do, but most people don’t – you could prepare yourself for it by doing a little bit of de-cluttering and starting to get rid of some of that stuff, but do it over a long period of time.
Jodie: Yes, exactly. So just prepare yourself mentally and physically, as well, over a longer period so that it’s a lot easier when you actually do move.
Kevin: I was interested to read in your article, too, that you highlighted the need to make sure that you buy quality. Tell me about that and why is that so important?
Jodie: One of the benefits to downsizing is having less space to clean and maintain. If you buy something that’s low quality, it’s more likely that you’re forever going to be needing to repair or replace things, and that negates the initial benefit. You’re already getting used to less space; you don’t really want to have to get used to a lower quality house, as well.
Kevin: Yes. When we’re downsizing, what are some of the important things to bear in mind – like car parking, maybe the second bedroom or even a big balcony? I mentioned the big balcony, Jodie, because I think a lot of people like to continue to maybe get their hands in a bit of dirt, so you could do a little bit of indoor gardening, couldn’t you?
Jodie: Yes. Outdoor space is very important. I think you definitely want to make sure it has outdoor space, a good outlook if it is an apartment, and natural light, obviously. And you want to be really careful with the car parking because I think a lot of people get shocked by that. They’re used to having excess car space available and it’s especially important not just for yourself but your friends and family who come and visit you to be able to find a park close by as well.
Kevin: Another frustration, I think, for people moving is to make sure that you have plenty of storage in that garage, and it just occurred to me then when you’re looking at your car park, see if you can get an area to put a little bit of storage – whether that’s bikes or maybe some exercise gear that you might not be able to fit into your apartment. Those things are pretty important, too, Jodie, aren’t they?
Jodie: Yes. A lot of apartments nowadays come with a car space and a storage cage, or they might come with two car spaces. But you want to also be careful then about the owners corp rules because usually they govern what you can do with the car space. We’ve had a few people who have purchased an apartment with two car spaces and then were not allowed to put a storage cage into that. So you just want to be really careful.
Kevin: Yes, body corporates are a whole different frustration that we don’t have time to talk about today. Jodie, it’s been great catching up with you. Thank you for your time.
Jodie Walker is from Secret Agent, and some of the secrets there of downsizing. Thanks for your time, Jodie.
Jodie: Thanks, Kevin.
Michael Yardney’s journey into property success – Michael Yardney
Kevin: Tell me how you got involved with property investment.
Michael: When I was young, my parents were immigrants. They were both working, and I saw that they used to struggle at the end of the month. The money never lasted the whole month, and they used to argue.
On the other hand, I saw that my friends’ parents seemed to manage to go away on holidays. They had cars, when my parents didn’t have a car. They were able to live in nicer houses. I realized that a lot of them invested in properties.
It was a little bit like “Rich Dad, Poor Dad.” I learned things my parents didn’t realize. That’s not the way I wanted to be. I saw how my friends’ parents managed to not fight as hard and as much about money. They didn’t struggle, and it was because many of them seemed to invest in property. That’s what I wanted to do.
Kevin: I want to ask you a number of questions about your personal portfolio and how you got into that, but just before we leave that point, could I just ask you: do you find that the people you talk to come from similar backgrounds? In other words, did they learn those lessons from their parents?
Michael: I think most of us learned about how to handle money, finance, investing, and much of the way we live from our parents. The apple doesn’t fall far from the tree. That’s why many of us walk around with blinkers on with the wrong programming – things we learned as a child that are probably not relevant today.
Kevin: Has property investing changed a lot from your parents’ day to now?
Michael: The biggest change I can see is the amount of information that potential property investors have. That’s good and bad. On the one hand, when I first started investing there was no such thing as median prices being regularly circulated. There were no auction clearance rate results. You found out a little bit about increasing property values a year or two after they all occurred.
One had to do much more local homework to understand the market, but it was really hard to get data. Today there’s a wealth of data that makes informed decisions easier. It also makes us easier to get stuck in the analysis paralysis where you have so much data and no perspective.
Kevin: It’s an interesting point you make. Looking back, you talked about the lessons you learned from your parents. Now that there’s so much more information available to us, we don’t have to rely on that source. Because there is so much information, we need to decipher it a bit. Is that where the mentor role has come in nowadays?
Michael: We need to have somebody to follow, somebody who’s already achieved what you want to achieve. One of the biggest changes to my investment career was when I realized I didn’t have to be the smartest person on my team. I didn’t have to know it all. In fact, I didn’t have to do it all. I had to find somebody who knew it, or a group of people who knew it and, in some cases, pay them for the advice. I was then able to stand on the shoulders of my mentors and see a lot further forward.
Kevin: You’re one of the most successful property investors in Australia. Who’s on your team?
Michael: I have a number of mastermind groups and mentors that I continuously use to keep growing. They include property tax, finance, marketing, and business people. For the last ten years, I’ve also had coaches and mentors that I’ve been prepared to pay.
Kevin: That’s still the case today? You still have coaches and mentors?
Michael: Very much so. I learned many years ago of the concept of tithing – giving 10% of your earnings to other people or charities. It’s something that I’ve followed. I took it one level further. I reinvest 10% of my income in myself and my personal development.
Interestingly, it’s one of the best investments I make because if invest in property, I sometimes make a 10, 12, or 14% return. If I invest $10,000 in myself, I often make $30,000 or $40,000 in return.
The trouble is, as you earn more income, it’s harder to keep reinvesting ten percent. That’s why, over the years, my annual reinvestment in business coaches is a six-figure number. That’s why you find Tiger Woods and the best sports and business people having the best coaches in the world they can. The dividend that they get back is very strong.
Kevin: I’m going to test your memory now. Take us back to your first property deal. What was it?
Michael: My first property deal was one where I went halves with my parents. Neither of us could afford the whole deposit or the serviceability of the property, so I took a $2,000 personal loan from the bank, and my parents had some savings. We bought a property on Larch Street in South Caulfield. We paid $18,000 for it. We got $12 a week in rent, and we were really excited. We took a 30-year loan. We had no idea how we were going to repay that $18,000, and that was in the very early 1970s.
Kevin: Do you still own that property?
Michael: I sold my half-share of the property to my parents a few years later to get a half-share of $30,000 back. I used that to buy my first family home when I got married.
Interestingly, in 2001, my wife Pam and I bought that property on Larch Street back off my mother for $250,000. We’ve since built two townhouses on it that we still own as an investment. They’re probably worth about $900,000 each.
My first property cost $18,000 around 40 years ago. Today it’s worth about $1.8 million.
Kevin: What are the lessons you’ve learned from that experience?
Michael: One of the good lessons was don’t sell property. Save it for the long term. The other is to select the right location. I was very lucky because, as I said earlier on, there wasn’t the research information. I bought a property close to where I lived, two streets away from the school I went to, in my comfort zone. It was pure luck that I chose a good area and a good location. That gave me strong capital growth.
Kevin: Is holding property your strategy now? Tell us about how you built your property strategy over the years.
Michael: Initially, I thought I had to buy, sell, and trade property to make profit. It took me a while to learn that, in fact, most profit is made by allowing compounding leverage and time to increase the value of your property, and then just to refinance.
I also learned the concept of “value add” in the 1970s when I started doing renovations, and in the 1980s when I started to get involved in property development. That hasn’t changed over the last 20 years. I still like buying properties to which I can add value, either through renovations or more regularly through redevelopment of properties.
I use a top-down approach. I have a look at how the economy is going, and is it the right time to invest? Sometimes the right thing to do is nothing – it’s just the wrong time in the cycle. Then I look at which states in Australia are in the right state of their property cycle. I like buying in a state that’s in the upturn stage of the property cycle. Within those states, I choose areas that are going to outperform the long-term averages in regards to capital growth. Within those areas, I look for the right streets and then the right properties.
So I use a top-down approach. While price is important, it’s probably the least important of all the factors. I very rarely, over the years, have ever bought a property that I thought was a bargain. I make my money when I buy property by buying the right property, not by buying it cheaply.
Kevin: I’ve heard you say that you’ve made money over the years from the properties you didn’t buy. Tell me about that.
Michael: I’ve become much more selective in what I buy. I decided I want to get to where I want to get to, using the correct vehicle. I want to get there in a Mercedes or BMW, not in a Commodore. I only select the best properties because, as a property investor, most people can only own a certain number of properties. You want the best ones, the ones that are going to outperform, so you’ve got to say no to the mediocre deals so you have money left for the good deals.
There’s more opportunities than any of us will ever have money available for, so you’ve got to keep your money available for those better deals.
Kevin: What was the best property deal you’ve ever done?
Michael: Interestingly, it was that first deal, I believe. It was pure dumb luck finding a property that increased in value that much, that gave me the confidence to move further forward and gave me the equity to be able to move forward.
While it was really only $10,000 extra I made, in those days it was a big amount of money. As I said, it gave me the confidence to try again. I think some investors, unfortunately, buy a dud property first up. That puts them out of the market for the rest of their lives because either they don’t have the equity to move forward, or they lose confidence and say, “Hey, this property thing doesn’t work.”
Kevin: When it comes to the type of property that you’d buy, what do you think is best? Should you invest in apartments or houses?
Michael: When I first started investing, I bought houses because that was the sort of property the widest demographic of people wanted. I bought houses in areas that were growing, which were, in general, where the baby boomers were moving in those days.
Over the years, how we lived has changed. I don’t own any houses anymore. I only own blocks of apartments or groups of townhouses that I’ve built. To me, in the future, medium-density housing – apartments and townhouses – is where a very wide demographic is going to want to live.
Kevin: Would you would buy a property if you had the ability to add to it, and then turn it into another development, like apartments?
Michael: My strategy is a four-stranded approach. I like buying properties below intrinsic value. That’s one of the reasons I don’t buy new or off-the-plan properties. I like buying properties in areas that are always going to outperform the average. I choose areas where the demographics are going to be able to afford to push property values up.
The third strand to my approach is finding properties with a twist – something a bit unique, special, and with something different about them. The fourth strand is what you just mentioned: the ability to add value, whether it’s through refurbishment of an existing block of apartments, or total rebuilding and building a new group of townhouses.
Kevin: You mentioned that part of your strategy is where you buy, what suburbs you buy in. Tell me exactly how you pick those suburbs. What data do you look into?
Michael: I like finding areas that are going to outperform the averages. One of the things I look for is long-term capital growth. One of the indications of future capital growth is past performance.
To me, a more important factor is the demographics – the people who are going to live in that area. Over the last census period of five years, the average wages of Australian’s grew 20%. If you dig down deeper into the census, you’ll find certain municipalities where wages grew 40%. In other words, more than double the average.
If you look at that, those are most likely areas where people have more disposable income, and the ability to add value to their houses and improve their houses. Interestingly, they tend to be more affluent areas, as well.
I like finding areas which are more affluent; where people have disposable income plus the inclination to spend their money on housing. I like areas going through gentrification, where new people are moving in and are going to increase the value of housing in that location.
Kevin: It’s been great talking with you. Thank you very much for giving us your time.
Michael: My pleasure.
Fewer Aussies want home ownership – Roger Wilkins
Kevin: Last week in the show, I mentioned to you about the HILDA report and how fewer than half of Australian adults will own a home by next year, as skyrocketing property prices lock younger generations out of the Australian Dream. That’s in the HILDA report, which is from the Melbourne Institute – Household, Income, and Labor Dynamics in Australia, abbreviated to HILDA. The author of that report is Professor Roger Wilkins, who joins me.
Professor, thank you for your time.
Roger: You’re welcome.
Kevin: Firstly, could you tell us, for those who are unfamiliar with the HILDA report, a little bit about what it is, what it looks at, and who is surveyed?
Roger: Sure. The HILDA Survey is a nationally representative study of Australian households. It started in 2001. I guess the key distinguishing feature of the study is that it’s longitudinal, which means that we’ve been interviewing the same people every year since 2001, so it really builds up a picture of how people’s lives change over time and really gives you the life course.
The other key feature of the study is that it’s very broad ranging. It gets a lot of information on all aspects, really, of life in Australia. It has about 17,000 people in the study, from right across Australia, so it provides a really unique source of information about just what is going on in Australia.
Kevin: As I said in the introduction, the report says that fewer than half of all Australian adults are going to own a home by next year. Has that been worsening since the study started?
Roger: Yes. In some respects, that was quite a surprising finding. Typically, you see statistics around 63% to 65% of households being owner-occupied, but what we’re able to do with the HILDA data, because we actually identify who are the legal owners of the homes, we can actually identify just what proportion of adults actually own the home they live in.
We get this lower number in 2014 of just under 52% of people owning their home, and as you mentioned, on that trajectory, we would be below 50% by next year. At the beginning of the century – 2002, to be precise – we were up around 57%, so it’s quite a marked decline over a 12-year period.
Kevin: Have you been able to determine the reasons behind that?
Roger: I think the main driver is the house price growth that we’ve seen over the last 15 or so years. To give you an example, since 2001, house prices have increased in real terms – that’s ahead of inflation – by over 90%. That’s well in excess of what incomes have grown by. So it would have to be the leading candidate for explaining that decline in access to the housing market.
Kevin: Professor, do you think it’s a reflection of maybe people’s attitudes changing to how they want to live? In other words, maybe purchasing a home isn’t as important now as it used to be a couple of generations ago?
Roger: That may be a part of it, but I think it’s a very small part. A major reason for that is that renting in the Australian rental market is quite a poor substitute for homeownership. You have less security of tenure. You don’t have the ability to improve your home. It can be hard even getting permission to put a hook in the wall.
I think in that context, most people still regard renting as an inferior form of housing. Of course, many people have been renters all their lives. But I think this increase in the proportion of people who face that prospect of not being able to get into the housing market, I don’t think it’s predominantly reflecting a change in attitudes.
Kevin: That’s a very good point you make. Overseas, it’s quite common for people to go through their entire life and just be happy to rent. I’ve never heard anyone express how poor it was in Australia to be a renter – poor conditions. Do you think that could foreshadow a number of changes in that area to make it better for tenants?
Roger: It’s certainly possible. You could imagine that as the proportion of the population that is renting grows, that would create more political momentum, if you like, for policy changes that create a greater security of tenure and the like. I could certainly conceive of that happening.
Kevin: Of course, property ownership is all about basic wealth, isn’t it? Were you able to identify any groups of people that were substantially wealthier or poorer than average?
Roger: A longstanding feature of the wealth distribution is that older people tend to be wealthier than younger people, and that just reflects the fact that wealth tends to accumulate as you age.
Traditionally, for example, you bought a house with a big mortgage at the start, and you gradually paid off the mortgage so that over time, you own more and more of the home. So your household wealth was growing.
That’s a feature that we see in the HILDA data, from the beginning until the most recent year we have data for. But what we have seen is that relationship between age and wealth has become steeper, if you like. The gap in wealth between the elderly and the young has widened a lot.
For example, among those aged 65 and over, wealth grew by around 60% in real terms between 2002 and 2014, whereas it basically didn’t increase at all for those aged 25 to 34. So the gap has really widened there.
Kevin: There’s a lot of talk at present about younger people being forced out of the property market by those you’re referring to, who’ve built wealth through property. Negative gearing has driven that, I guess, in a way.
Do you see as the younger generation comes through, their attitude will follow through as they grow in terms of number of people who will be voting, that the government will be forced at some stage to dramatically change negative gearing?
Roger: I think we’ve witnessed, even in recent years, a lot stronger calls for changes to negative gearing. Whether they actually translate into a policy change, I don’t know. Certainly, one response to this issue is to try to do things to dampen investor demand for housing, which is clearly acting to price first-home buyers out of the market.
You could imagine steps like removing the capacity for people to negatively gear and, perhaps more importantly, tackling the 50% capital gains discount. We’ll be more likely to see those policies perhaps introduced. In fact, at the last election, we had the Labor opposition proposing to do just that, to make those sorts of changes.
Kevin: There were some pretty stark realities in there, too, in terms of welfare, weren’t there? The number of people who are finding it difficult to exist now: I think the report said something like nearly 70% of all Australian households received some form of welfare benefit between 2001 and 2014. Is that growing?
Roger: No. That’s the interesting feature of the economic slowdown that we’ve experienced. Since around 2009, household incomes have not been growing on average. We might have expected in that climate of an economic slowdown, for welfare receipt to actually have been going up. But it hasn’t gone up much at all, and that was after coming down quite a lot in the years up to 2009. That’s been quite a remarkable finding from the study.
The figure you quote there of 70% is also, I think, quite a startling finding. It shows, I think, the important safety net feature of the welfare system – that at any one point in time, fewer than 18% of people are receiving welfare. This is working-age people, by the way, so I’m excluding retirees. But over a 14-year period, nearly 70% of people at some stage had someone in their household receiving welfare. For most people, it’s a temporary support, which I think speaks well of the system, actually, as a whole.
Kevin: Professor, we’re out of time, but I’d love to be able to talk to you for a lot longer. Thank you for spending some time with us, and thank you very much for your insights into that report. Thanks for your time.
Roger: Thank you. Thank you.