We talk affordability with the Victorian Chief Executive Officer of the Urban Development Institute of Australia, Danni Addison who says “the government needs to have a courageous conversation with the community about this burning issue”.
Kevin: My next guest is Danni Addison. Danni is the Victorian Chief Executive Officer of the Urban Development Institute of Australia. We’re talking about affordability – seems to be something we’re talking a lot about.
Danni, welcome to the show.
Danni: Hi. How are you, Kevin?
Kevin: Good. Thank you. Now, in response to Treasurer Scott Morrison’s statements this week about combatting housing affordability issues, you said that the government needs to have a courageous conversation with the community. What do you mean by that?
Danni: That’s right. I think the most courageous conversation the government does need to have with the community is really the one around density. We see it time and time again, in particular in Melbourne and in Sydney, in our major capital cities, this real fear of density and the real misunderstanding of what a more dense city would look like and would feel like for the people who already live in it.
It’s one that is difficult because there is a lot of community resistance around density but it’s one that is simply inevitable just due to the population growth that we’re experiencing, especially here in Melbourne.
Kevin: To make properties more affordable, we need to make the cities denser. Do you think we run the risk of overcrowding?
Danni: Not if it’s done in the right way. The key to it is really understanding how our city works and where the spine of infrastructure and also jobs are located throughout the city and where those real hubs of activity can be, not just in the central CBD districts but out in the suburbs and on the peripheral to the city.
Planning isn’t about looking at a city in terms of what its CBD can offer, but it’s about looking at where people move, where the jobs are located, and the transport infrastructure that’s needed to support that, and then where is the most appropriate place for the housing that we need to deliver for such a growing population.
Kevin: Danni, we’ve seen a lot of research that said that about 50% of Australians will never own a property. I sometimes wonder whether they actually want to and whether some people are happy to rent for the rest of their lives.
Danni: Kevin, I think it’s all about choice. I rent but I’m also looking to buy my first property at some point in my life. Whether or not I live in that property will be a bit dependent on what kind of property I end up buying. I think we are starting to think differently about the role property plays in our lives, but it is still a real key part of building wealth and building individual and family wealth in Australia.
There’s a study that’s been done, the Household, Income, and Labour Dynamics in Australia study, the HILDA study. In 2016, they found that the least expensive homes in Australia had experienced a price rise of 108% between 2011 and 2014, which tells us that even the most affordable properties have become far less affordable for the average Australian.
It’s about government has got a role to play in advocating that wages keep up, income growth keeps up with the cost of living in this country but also there is enough housing and new stock coming into the market to make sure that home ownership is an attainable dream for Australians as opposed to it just being something that the wealthy few can afford to get into.
Kevin: Of course, a lot of blame for unaffordable prices in Australia has been laid squarely at the feet of foreign buyers or foreign investors. Yet to balance that up, there have been reports that we need foreign investment because it’s foreign investment who are restricted to buying new properties off the plan… I think I saw a report the other day that said that for every foreign buyer who buys a unit, it creates another four units for local buyers to buy.
Danni: That’s right. I believe it’s the Property Council of Australia who’s done that report, which is a very interesting piece of work and a really good one done by them. It comes down to the economics of development as a business and the requirement for many projects or for all projects that have a component of funding that comes from our big four banks in particular to reach a certain high amount of presale before construction funding is granted. You have to essentially presell everything before it come out of the ground.
A lot of the time over recent years, that tipping point between selling enough to selling enough to get funding to go ahead, that little gap there has been met by the overseas investor market, so it has had an impact – the restraint placed on domestic finance from the banks placed on those purchases – on the ability for developers to presell a project and therefore start building.
Kevin: Yes. Do you think the attitudes of Australians need to change when it comes to expectations of owning their own home and even what goes into the home or the size of the home?
Danni: I think it will change inevitably, whether or not it needs to. I think there will be so many different views out there that I’d hate to post that there, but the reality is that it will change because home ownership is increasingly unattainable. The younger generations are looking at property ownership as a wealth-creating sector but not necessarily as the marker of the family status that it used to be – owning your home, having your family, all that sort of stuff.
I think people are more willing to trade-off on location and amenity and other things like that than the backyard, but there is still a huge demand for the Australian dream and the house and the land packages. Melbourne’s green fields in particular really tell that story about how strong the demand is still for that suburban lifestyle.
Kevin: Danni, LJ Hooker CEO Grant Harrod has said that abolishing stamp duty would go a long way to increasingly affordability for Australians. Would you agree to that?
Danni: Yes. Look, I do agree with that but it isn’t a simple solution. A broad-based land tax is definitely a more equitable solution but it would be a difficult transition for the everyday homeowner to make.
What stamp duty does at this point is place a barrier to filling a home or to purchasing a home. We see this is being particularly important in the downsize of market, and it’s the market that we haven’t really seen come through yet. As our baby-boomer section of the population gets older and their kids move out and they want to downsize, a big barrier to doing that is often stamp duty and the price it’ll cost them to simply sell the family home and purchase a new different form of dwelling that better suits their needs.
We find that people stay in their houses a lot longer than maybe they would like to, and this definitely has an impact on the amount of supply that could be available in the boarder suburban areas for families as opposed to older couples or older single people.
It’s intriguing in a demographic sense. It’s definitely a very active barrier, and it could be addressed by state governments. But state governments rely very heavily on their stamp duty revenue, so I don’t anticipate that it will be a quick solution.
Kevin: What’s your view on First-Home Owner’s Grants? Does it actually fuel the growth in properties, or is that actually a genuine way to help young buyers get in?
Danni: I think it is a genuine way to help young buyers get in, especially at that point in their lives. It’s often the difference between someone being able to and not being able to buy their first home. In a market where prices are increasingly so rapidly, the sooner people are able to get into the market, it does have a big impact on what that property could be worth to them down the track.
There are definitely varying views on it from economic point of view but it definitely does have a good impact on the first-home buyer market as it is, and if and when it’s removed, it does have a detrimental impact on the ability of young people to buy into the market.
Kevin: Danni, great sharing your views. Thank you very much for spending some time with us today.
Danni: Good. Thank you.