The Future Of

Home Ownership

Episode Summary

Will the great Australian dream of owning your own home still be realistic in the future? Housing experts Steven Rowley and Amity James discuss the precarious property market and the motivation to own.

Episode Notes

In the past few years, there has been a steady decrease in the percentage of Australians owning their home and an increase in the percentage of those renting. These numbers, coupled with fluctuating property prices, have left the future of home ownership in uncertainty.

In this episode, David is joined by Associate Professor Steven Rowley, the Director of the Australian Housing and Urban Research Institute’s Curtin Research Centre, and Curtin property lecturer Dr Amity James, to discuss whether the great Australian dream of home ownership will still be achievable in the future.

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You can read the full transcript for the episode here.

Episode Transcription

Jess (intro): This is The Future Of, where experts share their vision of the future and how their work is helping shape it for the better.

David: I'm David Blayney. In the past few years, there's been a steady decrease in the percentage of Australians choosing to own their own home and an increase in the percentage of those choosing to rent. Those numbers, coupled with fluctuating property prices, has left the future of home ownership in uncertainty. To discuss this topic further, with me today are two guests: Associate Professor Steven Rowley, who is the Director of the Australian Housing and Urban Research Institute’s Curtin Research Centre, and Dr Amity James, a Lecturer within Curtin’s School of Economics, Finance and Property. Thank you very much both for coming in today.

Associate Professor Steven Rowley: Thank you for having us.

David: The great Australian dream was once to own a quarter acre block. Is this still going to be the dream in the future?

Associate Professor Steven Rowley: Well, I think for young people: the dream is just owning anything. The quarter acre block is long dead, I believe. But for young people that ownership dream is still there, because ownership provides a sense of security and we've got quite an uncertain labor market now. Precarious employment, people doing multiple jobs moving forward. So actually owning a home gives you some stability in your life.

Associate Professor Steven Rowley: We've recently published work on the housing aspirations of young Australians. And that aspiration to own a home is still very much there; the issue of course is being able to afford home ownership with prices becoming increasingly out of reach, because prices have increased much quicker than incomes. It's very tough for young people to get into home ownership and to save that deposit, particularly if you're in an expensive rental market. But I think the desire is still there.

David: And Amity, owning a home can also provide you a bit of security later in life when you retire.

Dr Amity James: Yeah, absolutely. Older people do have a desire for home ownership. So even perhaps those who are looking at downsizing still want to retain ownership. If they own their own home and have done for a number of years, what they want to do is to be able to buy another property. If they are looking to downsize and that's their aspiration, one of the things they would like to do is own their property. Now, it might not be the quarter acre block. They are certainly not looking for small houses, though. So the dwelling size will remain at least around the three-bedroom mark.

Associate Professor Steven Rowley: Ownership is not just about financial gain. People think that property is all about money, but that's not what motivates people: it's to own a place to call 'home'. It's a place to to bring up your children or to have pets. Again, it comes back to safety and security. So, there are a lot of psychological drivers of home ownership, much more so than financial. When we talk about 'financial', that's really one of the main issues why we have an affordability problem, when you've got that investment demand and that's really pushed up prices. If you didn't have that layer of investment demand pushing up demand and so forth, then ownership would be a lot more affordable.

David: And not to mention with respect to security, it's not just about financial security. When you rent a property, you're not afforded the same protections that you do have if you own your own home.

Dr Amity James: Absolutely. Yeah, you're very right there. You're at the whim of the private rental market so you have to go with the ebbs and flows of the private rental market. People are often forced to move. We find private renters are forced to move much more often than homeowners are. So, with the older cohort, we've got a lot of people who are in the private rental market, not by choice, and they're not afforded that security of tenure. So their house prices can increase. The rents that they're paying can increase but perhaps not the same rate as the pension that they're receiving.

Associate Professor Steven Rowley: You mentioned in your introduction that people were choosing to go into the private rental market. It's not a choice for many people: it's because they have absolutely no other option. And so when we've asked renters about their motivations quite often it's, 'I had no other option'. Public housing, social housing, is not available; private home ownership is well out of the reach. So, the private rental market is the only thing that's available. We definitely need some major reform in that private rental market, to get the conditions that they have in other countries that would allow you to stay there for a longer period of time and have that security. And again, have a sustainable alternative to home ownership.

David: Hmm. Because, while on the one hand you have a degree of flexibility when you're renting – it's much easier to move than if you own a house – but you also have no grounds eviction notices, for example. We are one of the few countries that has this.

Associate Professor Steven Rowley: Well one of the few states now. There is ongoing reform to remove no grounds eviction, which on the same surface sounds like a no brainer really. But, from a landlord's point of view, it does reduce your options. So there are two sides to private rental reforms, but we certainly haven't got it right at the moment. And certainly the Victorian government has been through some significant reforms, WA is going through consultation around private rental reform, as well. So I think we will get to a point where the private rental sector is a viable longer-term alternative, but we're quite a way away from that yet.

David: Housing prices have gone up quite a bit over recent years. Can this keep going? Is it going to keep going?

Associate Professor Steven Rowley: Well, it's not quite true. Prices haven't risen in Western Australia for about five years now. Other parts of the country, like Sydney... well prices have come down for a two-year period, but went up very quickly before that and it has started to rise again. So, there's a tremendous amount of variation across the country. But the general trend outside Western Australia over the last 10 years has been significant price rises. And as I mentioned before, if prices rise quicker than income, housing becomes less and less affordable, more and more difficult for people to get into home ownership. So what happened in Sydney and Melbourne in particular, there were changes to rules around lending that made it more difficult for people to borrow money. So demand dropped off and prices started to fall. Those rules have been relaxed somewhat.

Associate Professor Steven Rowley: Now, interest rates have come down even further. Now there's a little bit of a rush back into those markets and prices have studied going up again in Western Australia. So prices are roughly the same level as they were in about 2007, but have come down significantly since about 2013, 14. No real signs of any major shifts in price. And that's been a result of a fairly weak economy. You know, you haven't had that level of demand and we built an awful lot of houses in the 10 years up to about 2016, so we had an awful lot of supply and now demand has dropped off. So, prices have come down. It's made the market much more affordable.

David: Home ownership has dropped in the past 20 years by about four per cent. Is this that significant of a number?

Associate Professor Steven Rowley: Well, I'll give you some figures cause there's a lot of variability around home ownership. You're right, it has trended down over the last period. Home ownership rates are about 80 per cent for those over 55. So very strong ownership rates, the 20 per cent will either be in the private rental market or social housing. It's about 70 per cent for those in the age bracket, 45 to 54, but that's fallen by about 10 per cent in the last 25 years. So we've seen a big drop in that 45 to 54 category. For those 35 to 44 the ownership rates are about 60 per cent and that's down from 75 per cent in from in 1981. So big drop there. For 25 to 34-year-olds it's fallen from 60 to 45 per cent in the last 20, 25 years. So we've seen big drops there. If that trend continues, there'll be less than a third of 25 to 34-year-olds that are owning a home by about 2030.

Associate Professor Steven Rowley: In that younger age category, it's still high by international standards. It's certainly higher than the US, for example, similar to Canada and certainly higher than a lot of Europe. So, home ownership rates are certainly trending down but are still quite high by international standards. But, if we do continue in this current trend, the situation is going to look completely different in 20 years' time.

David: Why is that? Why is it higher in Australia compared to our international peers?

Associate Professor Steven Rowley: Well, I think it's historical. We had a period where people had fairly cheap access to housing. You know, certainly in the last 30 years, the house prices have really taken off in comparison to incomes. And there's always been that sort of culture, a homeowning type of culture. Whereas other parts of Europe don't have that same owning culture; they have a private rental market that allows for longer-term private rental tenancies. And yeah, I'd say people expect it; society expects you to own your home. We've got a whole superannuation system built around owning outright in retirement. It's a cultural norm.

Dr Amity James: And I think that as it starts to fall, it's not necessarily out of choice. There are cohorts that are unable to access that home ownership market or indeed falling out of home ownership as well. So we've got people who are perhaps a couple, who are married, family, household. There's a separation. They have to sell the family home, the asset. And as a result of that, they're unable to access home ownership from the proceeds of the sale of that home. That means that those two new formed households are falling out of home ownership and often females who quite often also look after the children are unable to re-enter that home ownership market. So, we really see that it's trending down, but it's not necessarily by choice, either.

Associate Professor Steven Rowley: That's a really important point. We think people get into home ownership and that's it. They stay there forever. That's not the case at all. We did a bit of research on older renters and found probably about two-thirds of older renters, half to two-thirds, had actually been in home ownership, but had fallen out of home ownership and into the private rental market. So, just cause you get in home ownership doesn't mean that's your tenure for life. There's a lot of churn in and out, and there's not a tremendous amount of support to keep people in homeownership who have no other options. There's not really a safety net. The private rental market is not a very good safety net at all. It's very expensive and we don't have much public housing or community housing. So, if you lose your home for financial reasons, marriage breakup, ill health, there's really not too many options out there. It's a really big problem for government moving forward and one that requires some significant attention.

David: With older Australians being pushed onto the private rental market, what does this mean for the pension system?

Dr Amity James: I think in short, the pension was never designed to be able to cover the housing costs of a household. The assumption is that as you enter retirement, you have paid off your home and those costs no longer exist. The pension just doesn't cover those or doesn't enable those older people in the private rental sector to make ends meet. So, they might be able to access Commonwealth Rent Assistance and that will go towards their rent. But, even then, those two payments combined really don't make ends meet. It's still a real struggle to make those weekly payments.

David: And it bleeds out your superannuation a lot faster than it would otherwise.

Dr Amity James: Absolutely. People are drawing on their savings for all sorts of things, so if there's a health scare or there's a downturn in people's health, we have seen people be forced out of their dwellings into share houses. So at the age of, say, 65, 70, moving into a share house because they simply can't afford to pay for the rent of their own home anymore.

Associate Professor Steven Rowley: A consequence of these declining home ownership rates in the earlier age groups means there'll be a lot less home ownership in, in those older groups in 20, 30, 40 years' time. It's a growing problem. And so, as I said before, government needs to do something or the housing system needs to be reshaped, so there are options for the quite large proportions of people that will not own into retirement moving forward.

David: And the government is certainly trying to intervene. To an extent, we've got the superannuation saving, the First Home Super Saver scheme, where you can add more money to your super, get those tax benefits and use that to save for your first home. Could you tell us more about the First Home Loan Deposit Scheme. This is the new program – I think it guarantees a proportion of your deposit?

Dr Amity James: That's right. This is to come in next year. There are eligibility criteria. So those earning under $125,000 or couples up to $200,000 can apply to the scheme. Under the scheme, the household will have to put forward five per cent of the deposit and the government will guarantee the other 15 per cent. And they won't have to pay mortgage insurance either. But the threshold of the dwellings that they can purchase is around $400,000 in Western Australia. So, in Western Australia you can, you can purchase a dwelling up to $400,000, which really doesn't give you a great deal of choice in the greater Perth area.

David: That's like a two-by-one, isn't it?

Dr Amity James: Yeah, I guess it would depend on where you're purchasing.

Associate Professor Steven Rowley: It's very much a policy designed for the east coast [of Australia]. We've had a similar scheme in Perth for over 20 years – Keystart – which is a two per cent deposit requirement, and that's housed tens of thousands of people over the years. So there's 10,000 of these first home guarantees available. About one in ten first home buyers would get access to it. The vast majority will be on the east coast and it will provide some benefit, but these are people that would have already bought. It will probably bring forward their homeowning decision. But I don't think it will help anybody into homeownership that wouldn't already have been able to to make it at some point over the next few years.

David: Why's that?

Associate Professor Steven Rowley: Well, people that are able to save for a deposit are the ones that are gonna make it into home ownership. So, you still want to have a five per cent deposit. The five per cent of $700,000 is still a fair amount. And so you've got to have that discipline to be able to save or how have the 'Bank of Mum and Dad' to help you. Again, it's not going to allow people on low income with no capacity to save, get into homeownership; it will help people on moderate incomes who have the capacity to save decent incomes. This is all going to be driven by major banks as well, so they'll ultimately make the decision on whether somebody has the capacity to pay back the loan or so forth. So again, I don't think it's going to make a massive difference to first home buyers. You know, everything helps. And maybe at the margin somebody who would've had to wait another five years, will get in earlier, but it's not going to make a massive amount of difference.

David: Could this push housing prices up as some critics have suggested?

Associate Professor Steven Rowley: No. Too small.

David: No? Easy. Is this the right way forward, with these deposit guaranteeing schemes? Or does the government need to intervene more to make housing more affordable?

Associate Professor Steven Rowley: I could argue there needs to be less intervention, particularly on the taxation side of things. The problem we have is of course it's an attractive investment asset. You know, negative gearing. You have capital gains tax discount. It makes it very attractive for people to invest in property. And of course, once you increase the layer of demand, prices will probably go up. So if you didn't have that, if it wasn't such an attractive investment asset, there'd be less demand there. There'd be less competition for ownership. Therefore, it'd be easier for first home buyers to get in. And we've also got an inefficient market with stamp duty and so forth. Meaning people don't want to move, they stay in their house, cause if you gonna move it will cost you an extra $30,000, $40,000, and that makes the market inefficient. You've got people in homes that are perhaps not appropriately sized for them, don't want to move out because of the cost, so you don't get that efficient market process. There are a number of things that government could do, but politically, the last thing government wants to do is create a policy that is going to bring down house prices. All those voters will not be particularly happy with a government or, or a party basing a policy on reducing their wealth.

David: As we learned last election.

Associate Professor Steven Rowley: Yeah. That did not help Labor at all. Unfortunately, I mean, the policy was reasonably sensible. But yeah, I mean people thought, 'Well, this is going to have an impact or could have an impact on my wealth, my wellbeing, so we're not going to vote for Labor'.

David: So Amity, it's been less a matter of perhaps not enough intervention, but the wrong kind of intervention.

Dr Amity James: Yeah, I agree with that completely. I can talk about the downsizing of older Australians. We see the treatment of the family home and also things like stamp duty stopping people deciding to move – perhaps deciding to downsize – and then that affects the the flow of properties onto the market. Again, just a Steven said, it's too much intervention there.

David: Cause if you sell a home that means that you get means tested out of the age pension a bit.

Dr Amity James: That's right. Yes. So particularly for those people who on a part Age Pension or on the borderline, it's going to be a really big part of their decision-making process. And often they decide to stay still, because it's just not financially worthwhile. And although that's not the primary thing that's driving them, it can be enough to just put the brakes on that decision.

David: How are we faring when it comes to social housing? We don't seem to do as well as countries like England, for example, when it comes to housing stock for people who are on low income or on benefits.

Associate Professor Steven Rowley: No, we're hopeless. Our levels of of public housing are around four-and-a-half percent, five per cent, tiny. At one point, I think in Scotland it was 35, 40, 50 per cent. The UK is much, much higher. So we have a dire shortage of public and community housing in this country. It means you do not have that safety net. It means people are forced into an expensive private rental market. Therefore, they're forced into conditions of poverty when they're paying so much of their income in in rent. The government certainly could be directing more funds into delivering more affordable housing products, which includes public housing, but also subsidised rental markets as well. And we don't do very well on that. If the government wanted to ease a housing affordability crisis, it could intervene a lot more in terms of the direct provision of affordable housing. It could also encourage the private sector through incentives or through, quite frankly, taxation of land value uplift to deliver affordable housing as part of market development. So, there are a number of things that could be done, but again, it's very expensive to deliver housing and it's why the state governments and certainly the federal government have always been reluctant to go on mass public housing building programs. It's very expensive to not only build, but the maintenance, the running costs are extremely expensive as well, going forward.

David: Do you see the the future of home ownership itself changing? You mentioned that the acreage is not really realistic anymore. Are we going to be living in smaller houses, more vertical communities, battling with strata, more shared spaces, that sort of thing?

Dr Amity James: I think we will be, but I don't think it'd be battling with shared spaces. I think that in some parts of the community there's quite a demand for new housing types that we don't potentially already have in Western Australia or in Australia. People are looking for spaces where they can potentially be closer to the city, which means that the land size that they're going to be on is going to be smaller. But that's not necessarily such a bad thing. People are happy to be in duplexes in smaller dwellings because they're going to have access to resources, they're going to have access to public open space and other amenities, which is going to offset the fact that they don't have that larger block that has been demanded in the past.

Associate Professor Steven Rowley: It doesn't need to be bad, if it's well designed and several people are happy living there. We've seen a massive change in the aspirations of people. They just want to own something. If it happens to be a smaller dwelling, well, so be it. There has been a shift away from large sprawling dwellings with big backyards towards just something smaller that people can manage, but ultimately allows them into homeownership. So we will see, and population growth is a key driver of this and the lack of land, we will see a big change in the patterns of development. I mean already in Sydney they build more apartments than they do houses. We're sort of 75: 25 here; probably 80: 20. So we've got a big way to go in Perth to change our housing structure and aim to increase housing diversity.

Associate Professor Steven Rowley: But there's a big push from government and from the housing sector to change the way that we deliver housing, change the type of housing we see. Metro hubs, Metronet; we'll see more intense development around there. We will see a shift over time. And I think you'll see in 30, 40 years time, a lot of people in Perth will be living rather differently and getting used to high density living really quite quickly. It's not the bad thing everybody makes out unless it's badly designed and it's cracking and falling down. You can get really high-quality, medium- and high-density solutions. And that's what we need to be pushing forward in Perth and beyond.

Dr Amity James: And I think that until the private rental sector really starts to provide a place that people can call a home of their own and provide them with that security, there'll always be that drive for homeownership and that desire or aspiration for home ownership.

David: So it's not so much younger Australians being less interested in owning a home, it's more that they're sort of being pushed out of the market by just the sheer cost of it. Is this gonna continue for future generations, for the people who are younger than me?

Associate Professor Steven Rowley: Well it will, if we don't have some major changes. If we carry on as we are, housing will get increasingly expensive, because we've got population growth, we've got pressures there. You've got a layer of demand from investors. House prices will still continue to go up quicker than income. So it will become more and more difficult for young people to get in into the market. So unless we see a major shift in the structure of the housing market, things are only gonna get worse. We're not going to see you know, major shifts in government policy around house building, direct provision. We might see a bit of build to rent, so more institutional investment in the rental sector, but it's not going make a, a massive difference. So yeah, unless there is a really significant shift in the way the housing market works and the way that government and industry work, we're going to see problems getting worse and worse.

David: And do you see any, any positive signs for change in the future? Any signs that things will improve that the right policies will be implemented, that the right decisions will be made?

Associate Professor Steven Rowley: I think the housing industry gets a tough ride really. But, but they are very cognisant of the issues around housing affordability and the pressures placed on young people and old people alike. They want to offer solutions. I know people will say, 'Well they're interested in the high-density stuff, cause you make more money out of it'. But they are, as I say, interested in delivering solutions. Government, it depends on the election cycle. Housing affordability is way up the list of priorities. A few years ago, it dropped off again because prices came down in Sydney and Melbourne. It will be back on again soon if prices continue to rise. But, I think once we get a shift in the proportion of owners compared to the proportion of renters, suddenly you're going get housing really high on the political agenda, actually making a shift to try and bring down prices.

Associate Professor Steven Rowley: When you've got more voters that live in rental accommodation than actually own, it becomes politically prudent to do something about house prices. So I think we see a big shift moving forward, but ultimately people will change the way that they live. Young people are already changing the way they live. There'll be more shared ownerships of people buying things together, more shared spaces. You might have a large house but it's split up into multiple occupation. The market is clever and the market adapts. Certainly, the sharing economy will come to housing. It already has to a certain extent. People will get together and, and do developments. So yeah, people will find a way. But the traditional form of ownership I think will look rather different in 50 years time for the people who are born in the next 30 years or so.

Dr Amity James: I think we have to be open to this innovation in terms of tenure and diversity of dwelling types. The demand is certainly out there at the moment. People are coming up with new ideas and looking at ways to implement them. So, the scenario will definitely change. But, being open to that innovation is part of seeing that exciting future in.

David: Okay. Well, I think we'll wrap things up there. Thank you very much, Stephen and Amity, for joining us and for sharing your knowledge on this topic.

Dr Amity James: Thanks for having us.

David: You’ve been listening to The Future Of, a podcast powered by Curtin University. If you have questions about today’s topic, please feel free to get in touch, by following the links in the show notes. Bye for now.