21 May Buying property in 1990 – Peter Koulizos
Australia’s leading real estate investment advisory board has released analysis proving mortgages are more affordable now than they were in 1990. The Property Investment Professionals of Australia – otherwise known as PIPA – said those arguing properties lack of affordability haven’t studied the numbers properly. PIPA’s chairman, Peter Koulizos, joins me to explain the findings.
Kevin: Australia’s leading real estate investment advisory board has released analysis proving mortgages are more affordable now than they were in 1990. The Property Investment Professionals of Australia – otherwise known as PIPA – said those arguing properties lack of affordability haven’t studied the numbers properly. PIPA’s chairman, Peter Koulizos, joins me.
Peter, where did they get it wrong?
Peter: The big mistake people make is that they don’t look at the mortgage repayment component. There’s no doubt that housing in Australia is expensive and there are reasons for that. But when we’re talking about affordability, you must include the mortgage repayment, which is based on people’s capacity to hold onto a property.
Kevin: Refresh my memory for a moment. What was it like to fund a property back in 1990?
Peter: So, 1990 – if we cut to the chase – you needed 48% of the annual average salary to pay off the mortgage on the average loan size. But you fast-forward to today and it’s 41%. And the big difference is even though property prices have gone up markedly in that time, wages have gone up. The main reason it is more affordable today than it is was in 1990 is because interest rates have dropped from 17% to below 5%.
Kevin: So, how does Australia stack up with the rest of the world, Peter?
Peter: Well, we sit at the top end, and that’s mainly because we have the second-largest sized houses in the whole world. Most of us live in cities rather than rural areas, and city property is more expensive than rural property, and most of our cities are based around the coast, and coastal property is more expensive than property away from the coast. So, there are reasons for that.
But, I was in Hong Kong last week, and if we think housing is expensive here, that’s nothing compared to what people have to pay for smaller homes – and these are not houses; these are units and flats and apartments and possibly, on the 30th or 40th floor – and paying much than people in Sydney or Melbourne would pay.
And that’s the same case in parts of the U.S. and many parts of the U.K. So, we’re certainly not the least affordable country in the world; we are up there, but there are much more less affordable places in the world.
Kevin: I want to ask your opinion in just a moment about what we can do to make it more affordable. It’s great to compare the countries and look at others that aren’t as affordable, but we can always do a better job. But, let me ask you this question before we do that, Peter. And that is about the deposit.
Is it because of the deposit that many people struggle to get a start? Is that what holds them back?
Peter: Yes, and that’s a different component of the subject, which I call housing attainability – the ability for people to actually get into the property market to attain the house. And even though back in 1990… Or, let’s go back to when we bought out our first home in 1984. You needed a deposit of 25% of the purchase price, but today you only need 5% if you’re a home buyer. Even though there were first-home owner grants back then and there still are now, there is a big difference with them.
When we bought our first home – just over 30 years ago – the first-home owners grant was $5000. Now that may not sound much, but back then, Adelaide median house price was $50,000. So, the first-home owners grant was the equivalent to 10% of the purchase price, and on top of that, that was applicable to all homes, not just new homes.
Fast track to today, 2018, the first-home owners grant, I think one of the best first-home owners grants you can get is $15,000, but it only applies to new homes. And $15,000 for the median price in Adelaide – if just keep the example the same – is 3% of the purchase price. So, the missing link here is the first-home owner’s assistance.
Now, I’m not saying that the federal government needs to come in and start splashing out money. Because if you do that without thinking, all you’re going to do is increase property prices again. But the big difficulty today is that the first-home owners grant is not as generous as it has been in the past, but it only applies to new homes, and new homes are generally only at 2% of the property market.
Kevin: So, let me round this out, then. What do you think is the answer? How can we make it easier for people to get a home?
Peter: A lot of these solutions or part solutions have been implemented around the world, or even if we look in the past, we can see what’s happened. So again, when we got our loan just over 30 years ago, the loan period was 20 years but now it’s 30 years.
So, one way that you can make housing affordable is that you increase the loan period. Yes, you’ll pay more over the period of time, but there will be less of your wage that goes towards that mortgage repayment every month. That’s probably one of the big ones.
Yes, you can drop interest rates, but that’s a lot easier said than done.
Kevin: They’re not going to get much lower than what they are now, in reality, are they?
Peter: No, they’re not.
Peter: Well, interestingly Kevin, when I was in Hong Kong I did meet up with some German tourists, and the first-home buyers assistance in Germany is no deposit, no interest because they are trying to kick-start their economy.
Kevin: Wow. So, there are ways for us to do a better job, but it seems like an easy answer.
Peter: Yeah, well look. The reality is there is no doubt that housing in Australia is expensive, and that’s because of the income that we earn and the sort of houses that we want to live in, but there are things that people can do. Even go and get some professional property investment advice, so you at least get the right loan – the lowest interest rate with the best terms to make it more affordable to you.
Kevin: Well said. Peter Koulizos, thank you so much for your time. Peter is from PIPA, the Property Investment Professionals of Australia. We are supporters of that. We are also members of PIPA. You can join PIPA and get more great advice on investing in property just by using one of the buttons on the homepage here. Look for it, it’s right down the bottom. It’s under “PIPA.”
Good on you, Peter. Thanks for your time, mate, and we’ll talk to you again soon.
Peter: Thank you very much, Kevin. Pleasure.