There will be more renters

There has been some talk on other threads of the likely effect of abolishing negative gearing and, of affordability issues that may see our housing prices collapse, albeit deferred to the rest of the globe, as that famous economist from the Uni of Western Sydney is now espousing as he prepares for his trek. :rolleyes:

House prices and rental rates are flavour of the month in the media, be it daily press or the investment magazines and associated periodicals.

There seems to be some national conditioning and belief that ancillary to the Aussie dream of owning our own "home", we all "deserve" home ownership as some sort of right or constitutional entitlement.

Shelter is certainly up there after oxygen, water and food and unfortunately there are many homeless that exist in all our cites. Their plight, however significant and troubling, is not what I wish to allude to with this thread.

I wish to challenge the notion that all housing must be affordable for the is not an entitlement that everyone of us must own their own home. The cries in the media that affordability is going down the tube merely feeds the entitlement mentality of those who miss out, or more accurately choose not to entertain alternatives of a lesser quality and/or location for their first home.

Unlike their parents, and their parents before them, settling for homes and locations more in tune with their current financial situation and striving to upgrade as the depth of their pockets allow, significant numbers have the bar set too high and feed their disappointment with an inability to spend less than they earn. :cool:

Now, I could also go on and on about instant gratification and other such notions, however, in order to keep to my contention, I do not believe that housing was ever affordable. People borrowed within their means and servicibility. They didn't graduate from the school of "having it all now".

Further, I contend that we will see more renters becoming the norm. In Australia, home ownership is ostensibly at circa 70 %. This is not so in other parts of the world,as indicated in home ownership ranks below:

Showing latest available data.

# 1 Ireland: 83%
# 2 Italy: 78%
= 3 Australia: 69%
= 3 United Kingdom: 69%
= 5 Canada: 67%
= 5 Finland: 67%
= 7 United States: 65%
= 7 Belgium: 65%
= 9 Japan: 60%
= 9 Sweden: 60%
# 11 France: 54%
# 12 Denmark: 53%
# 13 Netherlands: 49%
# 14 Germany: 43%
Weighted average: 63.0%

DEFINITION: Home ownership as % of all households (Data is for 2000).

SOURCE: Economist, 30 March 2002, and Euromonitor

There are no doubt more specific figures on a micro level with cities within those and other countries and someone may wish to come up with some charts, however on a qualitative (gut instinct) level, I wish to contend that we will (by necessity of the cost of delivering new housing estates and the necessary follow up infrastructure to population pressure) see denser development in a broad sense and more people electing to become renters, and/or deferring home ownership for longer and longer. Some by choice and some by necessity. Certainly urban (revised) planning and some optimisation of current and improved transport links needs to occur, however, I don't see the sprawl as necessarily sustainable nor intelligent as far as amenity and further feeding the reliance upon two car families, etc.

It ain't carved in stone that we all must own our own home and I think we will start to go the way of some European cities particularly in our major capitals, where the percentage of renters is higher than our general 30 % here in Australia.

Good for the landlords me thinks :)
The media will aways make a good story out of home ownership or renting; it all depends on which one has or hasn't been done to death at the time, or which seems relevant to what's happening in the housing market.

I think Australians have always been aware that they've enjoyed a high home ownership rate, and with it comes a level of entitlement, so anything less is going to shake those foundations that they've built their expectations on.

The thing is though, people now want more. They want their first home to be better than their parents, and they often want to live where they can't afford to buy. And there is outcry.

You can make what you like out of the affordability charts, but the fact is a FHB's affordability assessment should be made on homes well below the median.

Unfortunately most of these buyers have not really experienced how others live overseas. Even those that can afford homes in Europe and England live in housing much more cramped than ours, that sometimes makes those living on the cheaper outskirts here in Australia look very fortunate.
I've been suggesting for some time that I think Australia will become more like Europe over time, in that the majority of homes in larger cities are owned by a small number of people and most people rent.

Of course, this brings with it additional rules and controls aroudn how leases will be structured, and I expect to see longer term leases become more common over time.

I wouldn't be surprised if we end up seeing 10 year leases with all the rental increases agreed in the lease up front. Not sure what it will mean when houses are sold, though.
It's partly uncertainty that drives people to want to own a home, though. In Europe, the much more secure pension system means workers have much more certainty about their retirement incomes. Part of the drive to own your own home is the idea that 'I'll have a place to live even if my retirement income is low'. In Europe, retirement incomes tend to be higher and more secure, so it's easier for people to plan their retirements. Of course, when it reverses people scream, such as the case at the moment in Greece.

However, the secure, European style pensions require lots of young people and high taxation. The trend in Oz is for lower taxes.

In other words, I see property sizes shrinking and people moving further and further out. I still see a desire to own, though.
There will be more renters
Good for the landlords me thinks :)

I agree, and the more renters the better :D .
I wonder though where are the extra rental properties going to come from?
If people are not buying then developers won't be building.

I think this is a weakness in our system which has not been addressed yet.
We need a different strategy and better housing incentives for investors.

Here are some ideas for the government to take onboard and solve the housing crisis :D
30 year low interest loans to investors who reached their serviceability level.
Loans at the RBA's cash rate to investors who have more than 1 IP in metro areas.
Stamp duty exemption and land tax exemption on additional properties if we are already paying land tax and reached a certain $ level?
How about CGT and stamp duty exemption for any IP's we transfer to super?
I think this is a weakness in our system which has not been addressed yet.
We need a different strategy and better housing incentives for investors.

In other countries, either subsidies are given to developers for low rent housing, or there's some form of rent control.

How about CGT and stamp duty exemption for any IP's we transfer to super?

You can't transfer resi IPs into a super fund from your own name.
Somehow I don't think any new future schemes would translate to more profits in the pockets of IP investors.

Government incentives would probably be along similar lines to the Rental Housing Incentive Scheme Rudd introduced, to assist those on low incomes and unable to find suitable accommodation.

Less homeownership would be a progressive thing, however I don't see it dropping too drastically in the medium or long term.

If investors can afford to buy, so can FHB.
If investors can afford to buy, so can FHB.

They can but many won't.
At the moment its cheaper to rent so why buy?
IMO to restore the balance they'll need to introduce gov subsidised loans
How about 30 year loans with 3.75% interest?
i am agreeing with Alexlee on this one.
I think the culture in australia is to look towards property as a wealth storage vehicle, and a means to a more comfortable retirement (IE, own your own home outright come retirement time).

I do think a few more people will be forced to rent than there has been in the past - since living closer to the city will be too expensive for most people to own there - but I still think that the majority will want to own.

Perhaps we will see a growing culture of people buying where they can afford to buy (outer suburbs) and renting that out, and renting where they want to live (inner suburbs)..... to be able to eventually buy something small where they want to live.

I still think people will be driven to get onto the property ladder, but they will find new ways to get onto the ladder by creating a new lower rung to step onto :)
I agree with the overall point that universal home ownership is a diminishing trend. For lots of people owning in not optimal since it ties up their finances, their time and chains them to a specific location. However long-term secure tenancy is required more like a Comm-lease. e.g. long-term with 5 year options, can't get kicked out if owner sells, tenant is responsible for more but can customize interior more.

Remember with the UK that home ownership jumped in the early 80s because the government basically gave long-term public housing tenants the flats they lived in.

In Oz I don't think there is much in the way of Res Property Trusts that own a large portfolio of Res rental property. This is probably because most housing is detached an one of a kind, unlike in many big cities elsewhere.
They can but many won't.
At the moment its cheaper to rent so why buy?
IMO to restore the balance they'll need to introduce gov subsidised loans
How about 30 year loans with 3.75% interest?

The media has drummed into the heads of many renters that they've been priced out of the market, but I think many of those with the ingrained belief they'll one day be homeowners, will eventually buy.

Because we don't have a system in place where you will be housed for life, after they've experienced their rents going up a few times, or want some permanency, they will sacrifice to buy,imo. They'll resort to what most people buying a house do and have done for many years :rolleyes:.

The only ones that are likely to be priced out are the single income families, those on welfare or with social issues, single workers on low incomes and those that are financially illiterate. Nothing new there though.

Reduced homeownership make take some years and a generational mindshift for the %rate to remain down. How we decide to live is not only determined by availability and cost of housing, but how we percieve we should live too.
I think that there are a lot of factors at play in home ownership versus rental rates. Here are a few points from a European perspective.

The Low Countries:
  • The Netherlands and Belgium together are smaller than Tasmania, yet have distinct cultural traditions. The northern region of Belgium is Flemish (basically Dutch), whereas the South is French. So bear in mind that national identities change within a short distance.
  • Belgium's rate of owner occupation is higher than France and the Netherlands, yet property prices are certainly lower than in the Netherlands. (Not sure about France.)
  • Dutch prices rose sharply in the late nineties, perhaps a bit earlier than other countries, and have been slowly dropping recently.
  • Property is very cheap in Germany, and has been slowly declining in real terms for years. Buying there would be a very sensible option versus renting.
  • I've heard that there are strong rent controls in Germany, and more rights for tenants. For example, they can redecorate their property.
  • Rentals tend to be much longer term.
  • I've heard that Germans will typically rent in their youth, and then buy a house as they get older.
  • Sweden and Denmark both had housing booms. I've got a feeling that Sweden's is continuing, whereas Denmark is falling back.
  • There's a trend in Sweden for families to own a holiday home outside of the cities, and rent an apartment in town.
The UK:
  • House prices peaked in 2007, fell sharply in 2008 and rose again in 2009.
  • Mortgages remain in short supply, the job market is tight, wages are down, and few properties are selling. These things should point at price falls, so I'm deeply confused by recent rises!
  • The average first time buyer (without support from their parents) is now 37 or 38.
  • The owner occupier rate peaked at somewhere just over 73%, and has been falling back since then. This is probably down to affordability constraints, and difficulty getting a mortgage.
  • British houses are amongst the smallest in Europe.
The point that I'm trying to make above is that there isn't a homogenous European culture, nor can you make sweeping generalisations about it.

I'm wondering if there's a correlation between high home ownership rates and rapid price rises, but there are some notable exceptions (the Netherlands) that disprove the rule.

European cities tend to be higher density than in Australia and US. Properties are often smaller, or on smaller plots. Rows of terraced houses are common in the UK, whereas apartment blocks are more prevalent on the Continent.

Australian cities (to my eyes) have larger, more sprawling suburbs. That's probably a function of having more unsettled space when they were formed. But it does mean more car usage, and poorer public transport links.

As for investors versus FHBs, investors do get a few tax breaks that owner occupiers don't. (For example, negative gearing and depreciation.) An investor who's been in the game for a while probably has more equity to use as a deposit, giving them greater buying power.

In the UK there's been a collapse of first time buyers who've been unable to compete with investors for these reasons. The result is that investors have been propping up the bottom end of the property market, but it's unfortunately become far more difficult for buyers to enter it.
Graemsay thanks for that perspective, particularly on Germany which is a wealthy country, but has lower ownership rates. I think a lot of it is down to the difference in tenancy laws and practices.

Another thing to remember in Australia is that we have a relatively high fraction of new "greenfield" housing being built since the population is growing rapidly by westerner standards. In many parts of Europe the urban growth boundaries are immovable and strictly enforced.
Hi ya Graemsay,

thanks for those informative insights. Handy when you are at the coal face of Europe's happenings. Interesting perspectives.

That's what is great about this forum.....sharing and learning.
Glad to help. :)

I don't know why Germany has so many tenants either. I'd guess that it's a cultural thing, but with house prices being relatively low compared to rents (at least, according to the Economist's figures), I'm surprised that more aren't looking at buying. I would be if I was out there for a prolonged period.

The Germans take a hardline on inflation in all forms, largely because they had strong inflation during the Weimar Republic, which led to Hitler's mob. That includes house price inflation, which they see as a bad thing.

I'd agree with Neophyte about the relative lack of greenfield development in Europe too, though this is driven by green belt policies in the UK.
I still think the renting vs home ownership percentages will be greatly influenced by our ability to discover a new relatively inexpensive sustainable method of fueling private transport.