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Debunking Australia's housing crisis myth, with Cameron Murray
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Australiana is now Fire at Will - your safe space for dangerous conversations.
There’s a common refrain when it comes to housing in Australia today: ‘it’s never been harder to enter the housing market’. Housing affordability has been labelled by politicians, the media, and aspiring homeowners as a historic crisis.
What if that’s just not the case? What if we’ve seen the same story countless times before? What the markets are doing what they have always done, and what they should be doing? Perhaps, as Cameron Murray suggests, the market isn’t the answer? Cameron is an economist and Australia’s leading expert on housing. His new book is titled, ‘The Great Housing Hijack: The Hoaxes and Myths Keeping Prices High for Renter and Buyers in Australia’.
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Subscribe to Cameron’s Substack here.
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Transcript
Introduction to Australiana Podcast
00:00:14
Speaker
G'day and welcome to Australiana from The Spectator Australia. I'm Will Kingston. Charles Darwin visited Sydney on the HMS Beagle in 1836. It must have been an extraordinary experience for the father of evolutionary theory. The coastline would have been awe-inspiring. On entering Sydney Harbour, he would have spotted flora and fauna unlike anything he had encountered before.
00:00:40
Speaker
But it's not seemingly what was on his mind. No, in fact, the diary entry on his very first day in Sydney didn't cover gangaroos or gum trees.
Historical Context: Australia's Housing Market, Norm or Crisis?
00:00:50
Speaker
Instead, Darwin immediately adopted the national pastime of commenting on the housing market.
00:00:56
Speaker
He noted, the number of large houses just finished and others building is truly surprising. Nevertheless, everyone complains of the high rents and difficulty in procuring a house. The more things change, the more they stay the same.
00:01:13
Speaker
What if Australia's housing crisis today isn't really a crisis, but instead a return to the historical norm? My guest today, Cameron Murray, would suggest that is the case.
Cameron Murray on 'The Great Housing Hijack'
00:01:23
Speaker
Cameron is an economist and Australia's leading expert commentator on housing. His new book is titled The Great Housing Hijack, The Hoaxes and Myths, Keeping Prices High for Renters and Buyers in Australia. Cameron, welcome back to Australiana.
00:01:40
Speaker
Thanks for having me back, Will. Episode 61 and you are our first returning guest. So an august position. Oh, thank you. Oh, I'm honored. I didn't realise. Either that or we're getting desperate for guests. One of the two.
Cultural Significance of Home Ownership
00:01:58
Speaker
We'll get to the economics shortly, but I want to start by zooming in on that little line there, which I did steal from your book, the great Australian pastime of commenting on the housing market. Why do you think home ownership has such a cultural significance in Australia? And do you think that's actually unique to us when you think about us in the context of the rest of the world? That's a good question.
00:02:25
Speaker
Will? No, not really. We talk about the great Australian dream of home ownership, but the Americans have the American dream and the Canadians have the Canadian dream and the British have the British dream. So, no, it's not totally unique. I think it's a real post-war Western ideal.
00:02:44
Speaker
that we orchestrated with our post-war policies of boosting home ownership in many countries. We have to keep that in mind in today's debate because when we think about housing today, we always compare with this golden age, right? The post-war golden age where home ownership was rising. But if you go back further than that, back to when Darwin came in 1836 or the
00:03:08
Speaker
you know, the land booms of the 1880s in Victoria or the 1910s booms in Sydney and Melbourne. It was very, very different and it wasn't about high home ownership. It was about a huge class of renters getting squeezed by slumlords in the cities. You know, the 1930s was a huge problem with slums and disease in the cities.
00:03:32
Speaker
So, yeah, it's not a uniquely Australian thing. The history is actually much more common than we think in many countries in the modern dream and the troubles with homeownership are also not common to Australia, which is always good to keep in mind because we like to get caught up in our own debates and our own arguments with our local political enemies. But if we're arguing about global trends, that seems a little bit strange to
Historical Comparisons and Property Debates
00:03:56
Speaker
me. You go even further back then.
00:03:58
Speaker
the 1930s in Australia, you go back to ancient Mesopotamia to make your point. What's funny about that, I had to mention it in the book because a few years ago, I think it was 2017, I was having an academic argument this time with Peter Chulip. I'm not sure if you know Peter. He's at the Center for Independent Studies now, former Reserve Bank, and he did this research
00:04:21
Speaker
And the method he used, he said, oh, that's because of modern town planning rules. That's why these price patterns look like the way they do. And I went and I found some archaeological records from stone tablets that had been transcribed. And those records were of property sales.
00:04:38
Speaker
And I did the same method on those. And I said, hey, if modern town planning is the problem causing these prices, why is the same pattern in the stone tablets from ancient Mesopotamia? Perhaps they also were arguing about property and homeownership.
00:04:54
Speaker
many thousands of years ago so no properties is ancient you know the most popular book of the end of the eighteen hundreds was progress and poverty by henry george which is all about the unequal access to land and housing and how during rapid booms we have this perverse progress and poverty at the same time.
Economic Paradox: Progress and Homelessness
00:05:15
Speaker
Right. We have all this economic progress and then all these homeless people and this class of people missing out. And I do see parallels today with the rise in homelessness during the post COVID boom in Australia and globally. So no, it's not a new thing. And you know, it's super interesting.
00:05:33
Speaker
And I quote him in the book, Lars Doucet is a game designer, makes online video games. And he also explains how when you replicate property systems in online video game worlds, you get housing crisis, recessions, all the same patterns we see in real life. So I think it's really good to zoom out and have that perspective rather than focus on what's on the news cycle with housing this year, this month, and think about it in that context.
00:06:03
Speaker
What you're effectively saying is that housing markets are doing what housing markets have always done and what housing markets should do. The follow on question to that is, give me the four dummies explanation of what is it that housing markets have always done and why do they do it?
Housing Market Cycles Explained
00:06:20
Speaker
Housing markets, what have they always done? They always, the way I write in the books or in the great housing hijack,
00:06:28
Speaker
As an economist, I really feel the urge to teach economics at every chance. And so what I do is I lay out in the book what I call the five equilibria. Basically, these are the five big forces in housing markets that keep rents up where they are. So rents were 20% of
00:06:48
Speaker
rent a household incomes in 2021 in the census and in the survey of income and housing. They were also 20% in 2011 and in 2001 and back in 1991 in the earliest of those surveys. So actually the rents have risen in line with incomes and that's what you would expect with housing markets. And they've done that for hundreds of years. In fact, the 1911 New South Wales rents inquiry, so we're talking 113 years ago,
00:07:17
Speaker
also found that rents were roughly 20% of household income then. Of course, nothing changed. We had a 1919 Pittington inquiry into rents and the cost of living. And we had many more during the Great Depression. So that's one of those features of housing markets. It's one of those five economic forces. The rental equilibrium is that rents stay at that share of income. And they have for hundreds of years. And of course, the problem we face periodically, because
00:07:46
Speaker
property markets go in cycles is that during boom periods, not everyone's income rises equally. And so yes, across the market, the rent will be 20%, but if other people's income are rising at 15 or 20% per year, as many did after COVID, incomes really did increase for many households and your income doesn't increase, well, all of a sudden you can't live in the place where you are used to living.
00:08:13
Speaker
because a lot of people with higher incomes are like, oh, I'm gonna upgrade to your suburb now. Oh, I'm gonna do this. And so you will feel that pressure of getting squeezed. And so the property market is essentially mirroring the inequality of income growth that is happening during those boom periods. And that's what's always happened. That's why every cycle we have a new inquiry into the rental crisis. And we've had dozens in the last 20 years. In terms of home ownership, typically markets aren't great.
00:08:43
Speaker
at this unless you really squeeze the investment returns on housing. So prior to the Second World War, home ownership in Australian cities was something like 43%. The numbers in the book, it's the low 40s, which is pretty low, right? That's not the home ownership society. That's not the great Australian dream. If most people living in cities were renters prior to the Second World War,
00:09:10
Speaker
It was actually after the war this concerted effort to reduce returns to investors through rent controls and subsidize people into home ownership that got that up.
00:09:21
Speaker
to 71 point something percent by the early 1970s. And so I think again, property markets are doing what they always do. Property markets didn't get high home ownership, right? We had to orchestrate that. And so when we feel like there's a lot of pressure or difficulty today, that's quite normal.
Challenging the Crisis Narrative
00:09:39
Speaker
That's kind of what it's been for at least 100 years. And of course, if we trust Charles Darwin's diaries from 1836 for 200 years in Australia.
00:09:49
Speaker
So the oft repeated line, it's never been more difficult to enter the housing market. You would take issue with that. Yeah, look, the book is called The Great Housing Hijack because our debate is completely unhinged. It's hijacked. It's completely off course. Every day I see in the media some story about buying a home's harder than ever. And then I go to the data and I see first home buyer mortgages sitting at above average levels relative to other buyers in the market.
00:10:19
Speaker
During COVID, we had record-high first-home buying because of the grants and the low interest rates. We had essentially three years of first-home buying in two years. It was $90,000 per year prior to 2019. It was $167,000 in 2020-2021 financial year.
00:10:36
Speaker
And so we had all this talk of how difficult it is to buy a house. But the reason prices were going up is because first home buyers during that period, not investors, had crashed the market, so to speak, right? They're taking advantage of that opportunity. So no, I wouldn't say it's an abnormal crisis. Yes, it's definitely a rapid adjustment period. So if we look at the speed at which rents are adjusting, it's growing very fast. But of course, it's coming off.
00:11:06
Speaker
five years of nominal rent declines, for example, even in Sydney. I don't know if you remember back in 2016, but rents were terribly high and there were news stories about international students hot bedding, you know, someone taking the day shift in a bed, someone taking the night shift, tents in living rooms and all those sorts of crazy things. And then rents fell for three years. Then we had COVID and they fell for two more years.
00:11:31
Speaker
And so, of course, they have to adjust quickly. And it's this adjustment process that is the real disruptive part of the housing market. In fact, nominal rents in Sydney in 2022 were lower than they were in 2015. So, you know, this is nominal. And we had a lot of inflation in those six, seven years, and then we've had a bit of inflation since. So, of course, they have to rise. And it's expected that the next survey of income and housing rents will be
00:11:58
Speaker
perhaps a touch lower than twenty percent of income so not an abnormally high period but of course it's the adjustment process that is so disruptive because people have moved to the city during covid and said oh great rents five hundred bucks a week we can live here.
00:12:15
Speaker
but that was like a temporary situation and now it's $700 a week and you're like, oh, rents are going up. Well, are they, or did you take advantage of a temporary situation, move to a better place in the city, not understanding these bigger market forces? So, so there's a lot of perception versus reality, I think. And it's, yeah, it's very hard unless you zoom out and try and ignore the news cycle and just look at the data in the longterm trends.
00:12:45
Speaker
It's actually quite a nice segue. Different groups have different ways of distorting this
Political Influence on Housing Policies
00:12:51
Speaker
debate. And the first one is politicians. Talk me through the attitude that politicians take to the housing debate and why you think it's, to use that awful word, problematic.
00:13:02
Speaker
Okay, well, let's get to the heart of housing, right? If you own a property asset, you want the best returns on that. You want prices to go up and you want rents to go up. If you don't own a property asset, you want rents to go down and prices to go down until such time as you own one.
00:13:18
Speaker
And then you completely switch sides, right? Let's not forget that. And so politicians are torn for multiple reasons, right? They sit in this dilemma and I call it the symmetry of property markets where every winner of a lower price or a lower rent has an equal and opposite loser. So every time a renter saves 50 bucks a week, there's a landlord missing out on 50 bucks a week, dollar for dollar, right?
00:13:42
Speaker
And politicians sit in the middle of this dilemma for a few reasons. Electrally, there are 66.4% according to the 2021 census homeowners who own their own home. And they don't want their biggest asset to go down in value. And especially those mortgaged homeowners don't want their property price to go down while their mortgage doesn't. So there's some simple electoral calculus. There are also 18% of households who are landlords.
00:14:09
Speaker
And those are typically the more politically important groups. You would say they're socially connected to the political class. There are the home, there are the property portfolios of politicians themselves, right? The typical politician, I think there's only one renter in federal parliament. Every other politician is a homeowner. And those homeowners in parliament actually own 2.5 dwellings on average.
00:14:37
Speaker
If those dwellings are worth a million dollars, which they would be if they're in Sydney, but let's just say the average politician has a higher than average value of housing in their portfolio, then we've got $2.5 million per politician.
00:14:52
Speaker
And if the state and local politicians have similar portfolios, there's over 6,000 elected officials. It's council state and federal. And so we're talking something like $13 billion worth of assets directly owned by these elected officials. That's excluding their family and friends, just directly owned. And so I just don't see, you know, that underlying motive.
00:15:18
Speaker
or incentive to orchestrate some kind of big change in the housing market in terms of asset prices and rental prices, even if they could. And I would question how much power they have over that. So there's this huge dilemma there, right? I think John Howard was reported to have said, no one comes up to me in the street and complains that their house price is going up.
00:15:42
Speaker
They love it. So that makes a lot of sense to me. And I think you need to acknowledge that reality if you want to make sense of all the theater that we see in the media and the theater that we see when politicians say, we're standing up for renters, we're here for this, the little guy, we're here for this. I'm like, how can that be possible?
00:16:05
Speaker
How can it be possible? How can you stay elected? And how can your friends not disown you if you're trying to orchestrate a massive crash in the value of their balance sheets? Like there's just no mechanism for what you're saying or what you're promising in that theatrical television display to be true. And not only that, if you really made houses 20, 30% cheaper, you would crash the economy.
00:16:30
Speaker
Are you telling me I'm here for the little guy? And by the way, I'm going to crash the economy with the biggest housing correction in the history of the country. Like piece that together for me. Make it make sense. Right.
Media Narratives and Public Perception
00:16:41
Speaker
And so, yeah, of course they're squeezed. And the way I explain it in the book is that they have to walk on both sides of the fence. They have to, on the one hand, promise homeowners that they're going to not intervene in the market too much. And they promise landlords and they're
00:16:55
Speaker
friends and families. And on the other, they have to promise renters they're doing everything in their power. And of course, if the market is symmetrical, as I say, then doing one, you can't do the other. And so you can understand why we've had inquiry after inquiry after inquiry for 100 years, almost every year without fail, one state or the federal government is doing some kind of inquiry into housing. And yet,
00:17:19
Speaker
The only change happened during a small period during the crisis of an actual major world war. What we're having now is not a real crisis. It's a media crisis. It's a headline crisis. But home ownership is still plodding along like first-home buying. Prices are expensive because we made them expensive with high interest rates. We put the interest rate up with COVID to make it difficult to build and buy homes.
00:17:45
Speaker
We forget that and we plot along with this political theatrics. It's very, very hard to zoom out and see that for what it is and not get caught up in it.
00:18:00
Speaker
It gets me thinking that interesting that 66 odd percent of Australians are home owners. The majority of people who buy newspapers, who go on to the SMH, who watch the news every night are homeowners. And yet the overwhelming majority of the media coverage seems to be around housing affordability and how difficult it is to enter the housing market. When for the majority of people, rising house prices are a good thing. Why does the media frame it that way?
00:18:29
Speaker
You got me, Will. A lot of the media I read certainly tells, certainly reports, where's the next suburb to boom? Where should you put your money in housing? There's plenty of those too. Honestly, I feel like this is a bit of a social, social trend. It's the fad, it's like the bell bottoms or the yo-yos. It's just a thing that we're on. It gets clicks. There are, like there are.
00:18:55
Speaker
Real issues in rental markets right now because we have this rapid price adjustment going on, right? So so there are cues at rental listings. Oh, that's and because we love housing. I think the audience of investors is as much an audience for the affordability articles as anyone else because they want to know where the cues for for rentals because I'll go and buy a house there.
00:19:18
Speaker
Right. So I don't think it's as one sided. And to be clear, any article about property gets clicks in Australia. It's an obsession. It's a social obsession. So there's partly just that. But it is true. Right. Cues outside rental inspections make news. And whether you're an investor or a renter, that's completely good clickbait in my view.
00:19:47
Speaker
which just came to mind for me and it's a slight detour, but I think back to our first conversation, which was on your previous book, Game of Mates, and that looked as well at incentives and particularly incentives that lead to dodgy behavior.
Economics of Incentives in Housing
00:20:02
Speaker
It seems to be a theme across your work. What actually appeals to you about incentives and particularly those types of incentives that may lead to particular behaviors which are unappealing?
00:20:13
Speaker
Well, I think the short answer is I'm an economist and we don't really trust people to just do things because they're good. We trust people to respond to incentives, whether that is for tax evasion, whether that's for investing in housing, whether that's for starting a coal mine or closing a coal mine. We sort of take seriously that money talks and other things walk, right?
00:20:41
Speaker
So yeah, I don't think it's anything more than that, but I'm much more strict about thinking about that in those social and political situations.
00:20:50
Speaker
where we often can put those monetary and social incentives to one side and think we're having a principled debate. And I don't put them aside. I just say, well, are we having a principled debate? Or are principles emerging from our social incentives? Because if you look, you can look historically. So in politics, one of my favorite lines is if the Liberal Party started superannuation, Labour would hate it.
00:21:17
Speaker
It would be the biggest enemy, but because they started it, it's because it's privatized retirement, right? So it's just purely ad hoc. So the incentive, of course, is to converge with your tribe, not to have a principled argument. And so, yeah, I think it's important.
00:21:33
Speaker
I think it's the job of public intellectuals and academics to say those things and train themselves and do their best to not get swept up in those incentives and try and in an arm's length way reveal information about this behavior. That's what I try to do. Of course, I have my own incentives.
00:21:52
Speaker
I'm not pretending I don't. But yeah, that's, I think, a traditional economic way of looking at things. And I get a good reception on the left and the right for that approach. And I think that shows its value.
00:22:06
Speaker
you've kept your power dry so far on what your proposed solution is. And that is the last section of your book. We will get there, but before we do a couple of other strands to this conversation, one is around immigration.
Immigration and Housing Market Pressures
00:22:19
Speaker
So, and this obviously has very much political overtones.
00:22:22
Speaker
We are currently experiencing record net overseas migration. How big a factor is that in housing process? In the short term, it can be quite a substantial factor. And I think we've got a, it's another one of those topics that is hard to comprehend completely via the media headlines. So let's just do that now. We've got the time and I love the long form podcast for this reason. If I went back a hundred years in my time machine to 1924,
00:22:52
Speaker
and said to the 6 million people there, it's going to be 26, maybe 27 million of us in 100 years. Are we going to be able to cope? Are we going to have enough houses? They'll be like, oh, wow, I don't know if that's possible, 20 extra million. I mean, that's enormous. Yet here we are, 2024, we've got more bigger, better houses per capita than any point in history, right? Actually, we don't in 2024, but we did in 2023, and I'll get back to that.
00:23:19
Speaker
It wasn't how far we went. It's how quickly we get there. And it's a little bit like driving. It's not if I drive a long way, it's dangerous. It's the speed at which I go. And the immigration debate is a strange one because people confuse distance with speed.
00:23:37
Speaker
They confused, do I want a big Australia or how quickly do I need to get a big Australia? And we also confused after Covid, we had closed borders. We're saying, no, don't worry, that's just catch up population growth. Well, are you allowed to catch up speed if you had got held up when you're driving? No, because it's also dangerous if it's catch up speed.
00:23:56
Speaker
or normal speed, doesn't matter. That's the same with population. It's the speed of this immigration wave that is very disruptive to housing markets and many other investments that we need to make to accommodate rapid population change.
00:24:10
Speaker
Right? Everyone needs roads, schools, hospitals, public services. Everything has to expand to keep up with this population. All those historical investments we've made in buildings and infrastructure have to also expand. And so it's the speed that's the problem. And people go, well, historically, we had rapid periods of population growth. What about, I think, in the early 70s, we had a big wave. And I said, well, go and read about the policy debate we had then.
00:24:37
Speaker
Right. We were arguing that we're doing new housing estates with no stormwater, no gutters, no schools, people doing schools in church on weekdays or under trees. Right. We were having the same problems then that we're having now because the speed was too high. But we will adjust. Right.
00:24:55
Speaker
When population growth goes down i think the rate of immigration peaked about six months ago and i think it's gonna come down and i think politically they'll be screws tightened on various visa schemes because of the public backlash.
00:25:08
Speaker
So in the long term, it's not a huge deal. We do catch up and accommodate, but in the short term, it can be very disruptive. And I kind of like to focus on the rental market because that's where the current crisis is, the big price adjustment. Every new immigrant has to go through this little doorway in housing, which is the currently advertised rental homes. There's only about 60,000 of them a year.
00:25:34
Speaker
And so, you know, if you have an extra 60,000 immigrants, you need about 25,000 extra households and they have to squeeze through that little doorway. Sorry, it's 60,000 a month. 60,000 a month. That makes sense. Yeah. 60,000 a month rental advertisements, right? So we had what? 500,000. So we needed an extra 200,000 households. So an extra 200,000, you know, 15,000.
00:26:00
Speaker
per month, households squeeze through into these 60,000 rental dwellings that all the current rental households want to move into. So you can see, like squeezing in that doorway of the rental market, you get a big long queue and prices go up. But over time, when that rate goes down and we can widen the doorway because we build more homes and people reshuffle into different sized households, then we'll get that through over time. And the example I use in the book is natural disasters are equivalent
00:26:28
Speaker
When we get rid of a lot of houses all of a sudden, it's the same as adding a lot of people all of a sudden. And what you find is it takes two to three years. Rents increase 20 something percent in the neighboring cities because everyone wants to squeeze into those dwellings. But then things adjust, right? People relocate, they move into different sized households. We start building again and we adjust.
00:26:50
Speaker
And if we look at the 2010s, that's also what happened. So we had a big spike in population growth and immigration from 2006-07. And then it came off again, but it was quite high all the way through the 2010s. But we also then had the biggest construction boom in history and rents fell for five years in a row in the second half of that decade.
00:27:10
Speaker
So we do adjust. And if you're patient enough, then, you know, in five years, we can say, hey, there's no effect of that immigration spike anymore. But while we're in it, there is an effect, right? There's this temporary squeeze while we're adjusting. And I just do find it odd. There are these groups and I have a chapter in the book called Yimbies. Yes, in my backyard.
00:27:33
Speaker
And they're all about upzoning and building more housing, which is great. I'm a fan of more houses. I just not sure that people are going to automatically do it just because they're allowed to, because while you're allowed to build a lot of houses now, there's a huge decline in new dwelling approvals. They're an odd bunch because they want more houses, but they also want lots more people open borders. And I'm like, how are you having trying to have this both ways? Do you not understand that opening the floodgates makes it more difficult?
00:28:01
Speaker
To get more homes, surely you want to keep a moderate level of inflation.
00:28:05
Speaker
that is relatively easy to adjust to without these huge spikes that disrupt the millions of households, right? There's 3 million rental households facing rents going up down every which way right now. It's very disruptive. So yeah, that's sort of a zoomed out picture. It's not that it's good or bad, it's just high rates are very difficult to adjust to in the short run and it takes many years to get through those periods.
00:28:32
Speaker
theme that I've noticed that runs through your answers, which is go back and look at the history. Things are working as they have done. It raises the question, are we perhaps not as observant or as understanding of history as a society as perhaps we once were? Or ironically, is that me not understanding history?
00:28:53
Speaker
I wish I knew. I think humans are very short-sighted at all points in time. I'm sure in the 1880s land boom in Victoria, they were saying, oh, this is a uniquely special property market here. It's not like those other things. This is a special, unique one today.
00:29:15
Speaker
I'm sure that was the case. I can't imagine it being otherwise, honestly. Just on my personal experience, having lived through two property booms now as an adult, all I can say is, yeah, the short term view, which is so pervasive and it makes sense to me. I'm not saying it's bad. You want to solve your immediate problems.
00:29:35
Speaker
I think that's a natural thing to do, but as I say in the book, there's a property cycle and we follow the property cycle with an inquiry cycle and then we follow that with a policy cycle and we're always behind the market because we're not looking at history.
00:29:51
Speaker
and proactively saying, oh, the market is likely to do this in the future again. What can we do today so that when that happens, we don't have to have, you know, 30% of renters move house because the rents are adjusting rapidly. Yeah, that forward thinking is not a feature, let's say, of anything I've read historically or today.
00:30:14
Speaker
What happens, what tends to happen in the property cycle is when prices come down, the biggest problem is the prices are coming down. That becomes the problem. We just switch 180 degrees and we forget about, oh, maybe we need public housing. Maybe we need these other options. Maybe when the prices are down and the construction sector is low, maybe that's when we should invest in those things.
Addressing Market Suboptimal Outcomes
00:30:34
Speaker
so that next time we have this buffer stock. Yeah, I don't think human nature has changed. I don't think we're more ignorant of history. I think that's just the way things go, unfortunately. So to summarize, the market is working as it should and as it always has, but that doesn't necessarily mean that the market leads to optimal outcomes. In fact, that could just mean that the market has led to suboptimal outcomes this entire time.
00:31:04
Speaker
Correct. And I think that was what the debate was like during the depression era. Actually, it was what's wrong with why is the market so bad? What can we do to fix it? How do we clear the slums? How do we give people houses? How do we fund that? Who should do it? Yeah, that that's definitely where you get to at certain points. So we're entering uncomfortable territory for me as a free market aficionado. But let's go there. What's your solution?
00:31:32
Speaker
Right. I'll probably package it a little differently to the book. I think there's a few immediate things. One is the immigration, I think, can be immediately reduced. I don't think there's an issue with that. That takes a little bit of immediate pressure off the rent control. I know rent control has a halo of imposed meanings for a lot of people. It's like a taboo word. So I'll just call it tenancy rules about how quickly you can increase the rent. I think those work.
00:32:02
Speaker
and a common feature of many rental markets. And the way I sort of justify the reasonableness of limiting rent increases to say CPI plus 3% is firstly, it wouldn't have had any effect for 10 years during the 2010s in most places. It only has an effect during those adjustment periods.
00:32:22
Speaker
And in Queensland and New South Wales, landlords also get their land tax smoothed out in a similar way. So if your land value doubles in a year, you don't get double land tax. You actually only get a third extra land tax because we average out those land values over three years to smooth any sudden changes in your land value. That partially solves the winners and losers problem that a lot of interventions into the housing market have.
00:32:48
Speaker
by smoothing out landlords expenses as well as tenants. Yeah, I think there's a symmetry there that I think satisfies this tension. That's right. It already happens in New South Wales and Victoria. And that's why I say, well, hey, guys, if you want to put the rent up 25%, can you do it over two years or three instead of one year?
00:33:06
Speaker
And it's just this one time out of the last 15 years, but otherwise you're just forcing people to move unnecessarily. And there's huge costs involved in forcing 3 million households to move unnecessarily. So yeah, I think there are reasonable things to do and have a direct benefit and relatively minor costs. I don't think capping rents and fixing them for all time. I think that's not
00:33:30
Speaker
the sort of, it doesn't get you the objective you want. You just want to smooth out these spikes because that's what's disruptive. And the third thing is long term. And that's thinking about the next time when we come back in 18 years and I talk about the 18 year cycle and we know property goes in cycle, cycles, when the next time we come back, instead of having three and a half million renter households, maybe we've only got one and a half million renter households so that when rents suddenly adjust quickly,
00:34:00
Speaker
it's disruptive to 50% as many people, half as many. That's a half, half solved. And when I look abroad at cities that have made housing accessible and affordable to low income households in major cities, those cities have large subsidized public and social housing sectors. And there really isn't,
00:34:27
Speaker
If I could find examples where I just said, oh, get rid of taxes and regulation, let the market rip, everything's solved, I would be lobbying for that. I would have written it up in my book, but I didn't find any, unfortunately. And we know if we go historically, before there were substantial taxes and regulations on housing, it was much more unequal the access to housing and the renters had a much harder time.
00:34:50
Speaker
And so I would say, well, we need to build up some kind of subsidized housing system in parallel with the existing 11 million homes in the private market.
Singapore's Public Housing Model for Australia
00:35:00
Speaker
And my idea is called housemate because you need a name and job seeker, Medicare housemate. And it is essentially ripping off Singapore's public home ownership scheme. Now it's economic design, not it's physical design. We're not going to have.
00:35:17
Speaker
heaps of massive towers, except in a few inner city suburbs of the major cities. It's mostly gonna be townhouses and detached homes in the suburbs of the major towns and cities. And essentially you let people purchase it for a discounted price. In Singapore, it's usually a third of the price. So you can buy a one bedroom, brand new apartment for something like $90,000 in Singapore.
00:35:44
Speaker
So they have a combination of low prices and income subsidies so that every household after age 21 can apply to purchase what's called their housing development board home. And the interesting part about Singapore is they got home ownership up from 20% in 1965 when the HDBs first started selling homes to 88% by the end of the 1980s by subsidizing people into homes.
00:36:07
Speaker
To clarify the word purchase, when someone purchases this, does the government retain ownership or do you actually own the property yourself? I don't get that deep into it, but ownership is just a sort of, it's not an absolute thing. We kind of make it up, right? Property rights are a human invention.
00:36:25
Speaker
And I do have a chapter on that, but the way I explain it is you own it, you can renovate, you can paint, you can sell it after what we call a mandatory occupation period, which is what Singapore has, so people don't just go in and buy it and then move overseas and rent it out. So it's like a parallel system and it's parallel and the break between that system and the private market
00:36:48
Speaker
is that only qualifying non-property owning Australians can buy in the parallel housemate system. So if I own two properties, I can't just go and buy a subsidised home and rent it out. It's only for home ownership and everyone who can buy into it can't own other property, has to qualify for a new one as well. And so you can freely trade in the secondhand market there at a negotiated price.
00:37:15
Speaker
The problem is all your buyers also have the option of buying a brand new one at a subsidized price. So all those prices are anchored by that subsidy and no one's just going to pay the same as the free market price because every buyer has that option. And so that price anchor is a little bit like how monetary policy works.
00:37:36
Speaker
We set the overnight cash rate that anchors all the other interest rates in the economy because every, every investor in the economy has the option of converting that money to cash and getting the overnight cash rate. So interest rates can't just go up to 20% because the cash rate is anchoring it. And that would be the same in the parallel house make market is the subsidize new homes would anchor the price because I would go, Oh, I could buy Will's house in this old subdivision from 10 years ago. He wants half a million, but I can buy a new one for 350,000.
00:38:06
Speaker
A private market one costs a million, what should I pay? Well, maybe I'll pay half a million, but I'm not going to pay him a million because I can buy a new one here for 350,000. So that sort of anchors the price. And so you've got your private market and you've got this sort of anchored parallel market where people are buying and trading, but you're anchoring it by offering those new discounted homes into the system.
00:38:29
Speaker
And it's worked well for, you know, 60 years in Singapore. And it's, you know, it really changes the social expectation. We talked earlier about, you know, it doesn't matter if the media articles about rents being affordable or unaffordable, prices going up or down. Everyone loves it in Australia because we're so obsessed with housing. My friends in Singapore say the opposite. It's just a complete non-issue. It'd be like talking about gutters, street gutters. Well, they're really important for stormwater.
00:38:58
Speaker
If you don't have them, you'll notice every time it rains. But no one talks about it because it's just a boring thing that we do. And for them, housing is just a boring thing that they do. Yeah, sometimes it's controversial. Sometimes there's a resale that's quite an abnormally high price and people think, oh, no, that's not that great. But mostly it's boring. And one of my friends said to me, if people win the lotto in Singapore,
00:39:23
Speaker
They don't go and buy a house. It's the last thing anyone would do. They go and start a business because they want to be the next, you know, the next titan of industry, right? Because it's such a non-issue. Yeah, a lot of foreigners want to buy, but they're not allowed to buy into HDP. And they're actually punished even in the small private market they have with stamp duties of 20 and 30 and 60 percent.
00:39:48
Speaker
If you're a Chinese company, you want to buy a building in Singapore, you got to buy it 1.6 times over. You got to pay the seller, and then you got to pay the government 60%. It completely changes a lot. But my reason for proposing the home ownership option, where you can trade in this parallel market, you can renovate and do whatever, is purely administratively, because there is this gap between owners and occupiers.
00:40:15
Speaker
If I'm a renter, I can't choose whether to get things painted or get the kitchen fixed or when it happens. But if I'm the occupier, well, maybe I'll wait and do it in a few years because I can't afford it. Or maybe I'll do it now because I've got kids and it's convenient for me. And so you align those incentives really well. And yeah, it's just unnecessary to add that administrative burden. So I think then long term,
00:40:38
Speaker
Let's just say we're back here in 15 or 18 years. We might have a million, maybe a little over a million. And so in the rental markets, maybe 3 million. We've got this extra million here. We've got a heap more people in the private market. Well, I think that minimizes the cost of the next property adjustment. And secondly, every rental household.
00:40:58
Speaker
during that next period has the option to get out of the rental market into a subsidised home if they want. And that option, I think it's like a relief valve that I think makes a big difference.
00:41:09
Speaker
That's the big picture view. I'm sort of open to any advice on practicalities of implementation. I think the good part is that it exists and it works and we can literally hire people from Singapore to help get things going if we want. I've spoken to people there and they said, yeah, we actually are doing pilot trials in Brunei, Malaysia, and India of similar public schemes. And we've sort of corporatized our
00:41:37
Speaker
our skills and we're selling them abroad. Anyway, that's where
Successful Past Strategies and Government's Role
00:41:41
Speaker
I get to. Look, if the market could just get home ownership up to 80 plus 90 percent and keep rents down, that's what I would argue for. But the housing question has been a dilemma for hundreds of years in economics.
00:41:56
Speaker
and the periods of time where we've solved it have just been subsidizing people into homes, whether that's soldiers, especially soldiers, after wars, or whether it's Singapore, your newly independent countries, trying to boost their political credibility with programs like this. That's what's worked. Well, as I read this proposal and as I've heard you explain this in other areas, it's been a journey because instinctively I, and I imagine like a lot of other Australians,
00:42:25
Speaker
hear the government coming in and buying up homes and then taking ownership of a big scheme worrying. But then we do analogous or somewhat analogous things in education and in healthcare. And we don't think of those things in the same way that we think about housing. And that's why I think it is a mindset shift, isn't it? And how we think about housing in Australia.
00:42:47
Speaker
Yeah, if you go back pre-public education, similar thing, right? It's impossible for the government to build a school in every suburb of the country and just subsidize people's education. I mean, it's childish. It's student politics. Well, we did it. Everyone does it. It's completely uncontroversial. And in fact, now we expect more from that system. You know, we lobbied it.
00:43:06
Speaker
improve the facilities and spend more on it. The same with public health. We look at the US debate on healthcare and think, oh, they're crazy. Just do what we did. And the Europeans think the same. Now, of course, that doesn't mean the system's perfect. Every system needs... I'm all about the incentives, right? As soon as you set up a system, there's an incentive to game it. So it's like this cat and mouse game that you got to keep going. Yeah, you're right. It's true. And we do it for roads.
00:43:32
Speaker
like roads are completely uncontroversial to have governments just acquire bulldoze suburbs and build new highways and stuff. I mean, it's controversial if it's your suburb, but in principle, the idea of governments doing that is not controversial, even though that's a much, much difficult task than just doing a few housing subdivisions, right? Much, much more difficult to plan a road network and acquire homes and contract huge contracts for multi-billion dollar construction works. Very, very difficult. Yeah, that's what we expect to happen.
00:44:01
Speaker
So, yeah, look, it's not that difficult. We do it for defence. We have a special thing called defence housing where we make sure we have subsidised housing for everyone in the military, regardless of where they have to live. We do it for the Prime Minister. He gets two public housing dwellings, grew up in one. Now we give him two. And, you know, we spent 17 million or something renovating one of his public housing dwellings. Now, maybe that's an example of the financial waste
00:44:25
Speaker
But it was relatively uncontroversial, right? And we do actually have a lot of hidden public involvement in housing. And let me give you an example that I think drives home how they can be a bit more modern about our thinking. In the Gold Coast, there's a thing called the Smith Collective, which is a build to rent project, 1251 dwellings. It was the Commonwealth Games athletes village in 2018. Now, the Queensland government
00:44:50
Speaker
They had a piece of land and they're like, oh, we need an athletes' village, right? We've committed to this thing. We'll plan it all up, the road network, what's going to go where, what the requirements are. And then we'll take that package and we'll sell those rights and that land to a private company. And they can just put the money in and pay the builder, basically. And the Queensland government said, oh, look at that. Aren't we great? We just had to organize this and someone else is going to pay for it. Good on us. Well, another government,
00:45:20
Speaker
the Abu Dhabi Investment Council, they said, you know, I think houses in Australia are a good investment. Isn't it great? The Queensland government has this project that they've packaged up ready to go. All we've got to do is put our money there and get these things built and we'll get free money back. Free money. We'll get our investment return from the renters.
00:45:39
Speaker
the next many decades and so our government's like oh we can organize this housing thing but we don't want to pay for it's bad and another government said oh isn't it great we don't have to organize this we just pay for it and get our investment return and I'm just thinking now which is it you know is it a bad investment or a good investment because it can't be both and we've got a government on each side doing it so that's that's another example of just you know the sort of
00:46:02
Speaker
thinking about what governments do already do with housing. We have, for example, in Melton in Victoria, there's a plot of land that the Whitlam government had acquired in the 70s for their suburban expansions and the council didn't know what to do with it. So they did a joint venture with Lend Lease at the end of the 1990s.
00:46:20
Speaker
And so since then, the council have been a profit sharing partner in a massive 5,000 to 7,000 dwelling estate, and they can direct, oh, we need these public services here. I'll give up my profit share if you guys organize the school, the pool, the park. That's the standard we need here.
00:46:38
Speaker
And so they're getting all these great outcomes by being actively involved as a profit sharing joint venture partner in in that. And at the same time, they're telling their ratepayers, hey, guys, don't worry about rates. We've got this great income stream coming in here. So, you know, relax on the rates. So, yeah, I think there are more commercial ways to think about
00:46:58
Speaker
housing. Obviously, I'm not sure how much I wrote in the book, but when I've written in the past, I've written, go and hire those real hard nuts from mining, agriculture, all those big infrastructure projects and go and hire them and put them on this.
00:47:15
Speaker
you want those hard nuts in here, managing those contracts and squeezing them down. You don't want to just like, oh no, this department's doing this. And I think I've, don't know how much I've written in the book, but I've said, you know, a much more commercial mindset could go a long way because building houses is often a very good investment as well. And so you've got to sort of have that in the back of your mind as you're doing this.
00:47:37
Speaker
With that commercial mindset as a caveat, Cameron, you have achieved the impossible. You have got me to agree with the proposal for a large-scale government program. It is an estimate to your intellect and your persuasiveness. You are, in my opinion, Australia's preeminent economist, let alone Australia's preeminent expert on housing.
00:47:57
Speaker
Your sub-stack, fresh economic thinking is a must read. There's a link to that in the show notes. And of course it goes without saying to everyone listening, go out and buy the Great Housing Hijack. It is the single best explanation you will have on what is a topic which is near and dear to many Australians' hearts. Government, you are about to head off on holiday. You've earned it. Thank you for coming on, Australiana. Thanks for having me back, Will.
00:48:21
Speaker
Thank you very much for listening to this episode of Australiana. If you enjoyed the show, please leave us a rating and a review. And if you really enjoyed the show, head to spectator.com.au forward slash join. Sign up for a digital subscription today and you'll get your first month absolutely free.