Investors Unfairly Blamed on Affordability

Posted on 23/05/2016  
Investors Unfairly Blamed on Affordability

Investors are unfairly targeted in the housing affordability debate - with negative gearing and capital gains tax concessions unduly blamed, according Performance Property Advisory associate director Heath Bedford.

He says government policies which restrict the supply of appropriate housing are the real culprit. Meanwhile, the market sector most responsible for driving up house prices is “next-time buyers” – owner-occupier buyers other than first-home buyers.

Bedford says singling out negatively-geared investors as ‘the root of all evil’ is wrong.

“The problem has more to do with strong population growth, a chronic shortage of appropriate housing, all-time low interest rates and an undue focus on developing our capital cities,” he says.

“Restrictive planning policies have locked up a lot of our inner to middle ring suburbs from medium-density development, skewing our construction pipeline to high-rise development in our CBDs and inner-city suburbs, and to house-and-land packages on the urban fringe.”

Bedford says there is a disconnect in both Sydney and Melbourne between new dwelling supply and the type of products wanted by home-buyers. He says the priority for many ‘next time’ home-buyers is well-located two, three or four-bedroom dwellings on 250-450m2 of land within a short commute of the CBD.

“However there are few suitable options in these established areas, with villas/duplexes/townhouses and small-scale apartment buildings restricted to only small pockets - or not permitted at all. This is resulting in a lack of suitable housing development, with home-buyers having no alternative but to pay inflated prices for existing stock, further reducing affordability.”

Bedford says poor regional development has also played a role in inflating prices in capital cities. Slow land release in regional centres is a significant impediment to the supply of new housing, coupled with the mismatch between buyer demand and the type of land released.

“Governments need to focus on developing our key regional areas which could be greater hubs for employment and education, dispersing demand more evenly,” he says.

Bedford says another issue rarely reported in mainstream media is that owner-occupiers – the ‘next time’ home-buyers - make up the largest proportion (43%) of the established residential market while Australian investors account for just 28% of this market. Foreign investors make up 8% of the established housing market and 15% of the new housing market. The remainder is first-home buyers.

“This clearly demonstrates that current price growth is largely driven by owner-occupiers looking to upgrade the family home or by cashed-up downsizers,” he says. “They are generally financially secure, highly motivated and will often pay whatever it takes to secure the property they want because they have invested in it emotionally. They are the ones driving the market.”

Investors, on the other hand, are motivated by financial returns, he says.

“An investment purchase must make financial sense and be supported by key fundamentals, and if the financial numbers don’t stack up, they walk away and move on to the next opportunity.”



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