Property Hub - Investment Insights & Inspiration - Realty Talk: Housing Affordability Myths Exposed

Episode Date: July 9, 2022

On the back of the second most significant housing boom in Australia’s history, the old chestnut of housing unaffordability has dominated media headlines. First home buyers, in particular, have all but given up on their Australian Dream of home ownership given the plethora of new stories that have been full of the 10-15 years needed to save the massive deposits and make the increasingly huge repayments required to buy capital city homes. But do the scare campaigns match reality, and where can first home buyers afford to secure their first home? Given the myths that continue to be perpetrated on housing affordability, we’ve decided to dedicate a special show to put this issue to bed once and for all, by doing a deep dive on the recent Bright Starters Report, where Canstar has partnered with Hotspotting to reveal the reality versus the rhetoric. And co-author Terry Ryder joins us to break it all down and bring an eye-opening balance to the argument.     RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT, a company that helps property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more. See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Greetings and welcome to Realty Talk, your trusted voice for all things property. I'm Bushy Martin from Know How Property Finance and we've got another special feature show if you do enjoy this week. On the back of the second biggest housing boom in Australia's history, the old chestnut of housing unaffordability has been yet again dominating

media headlines. First home buyers in particular have all but given up on their Australian dream of home ownership, given the plethora of news stories that have been full of the 10 to 15 years needed to save the massive deposits and make the increasingly huge repayments required to buy capital city homes. But do the scare campaigns actually match reality and where can first home buyers afford to secure their first home? Well, given the myths that continue to be perpetrated on housing affordability, we've decided to dedicate a special show to put this issue to bed once and for all by doing a deep dive on the recent Bright Starters report where CanStar have partnered with hotspotting to reveal the reality versus the rhetoric. And co-author and show favourite

Terry Ryder joins us to break it all down and bring eye-opening balance to the argument. So you're going to be pleasantly surprised and quite excited about what he's got to share with us today. And before we get into it, to make sure you stay at the leading edge of property opportunities, jump on channels.realty.com.au forward slash Realty Talk and hit the subscribe now button so that you don't miss another episode by getting every show in your inbox every week. And for taking the time, I'll give you a free copy of my award-winning book, Get Invested. We've got a lot to share, so let's get underway. Successful property investment is a game of finance. Do you have the right team and the

right game plan? Realty Talk is brought to you by Know How Property. More than mortgage brokers, Bushy Martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs, tax, risk and stress while increasing your capacity for growth. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au. Hi and welcome. Now, following the second biggest housing boom in Australia's history occurring over the last couple of years, thanks to good old COVID, alongside the political posturing and media spin in the run-up to the recent federal election, the old chestnut of housing affordability,

particularly for first-time buyers, has been front and centre of mainstream media headlines. News stories abound with the 10 to 15 years required to save the massive deposits and the high repayments required on a medium-priced capital city home that only further disheartens first-time buyers around the country. But does the hype and the scare campaigns match reality? And where can first-time buyers actually afford to buy a home? Well, to put the facts alongside the fiction, Effie Zahos from Australia's biggest financial comparison site Canstar has recently teamed up again with leading a long-term property research house, Hotspotting, to produce the Bright Starters first-time buyer report.

And to reveal the details, we're joined again by co-author and 35-year property research veteran, Terry Ryder. So welcome back to the show again, Terry. Hi, Wushley, great to be here. Always good to talk about real estate issues, but probably this one more so than others because I think there's media abounds with misinformation on housing market topics, but no one more so than the one on housing affordability, which has got so many myths

and misconceptions happening around it that it's probably very hard for the average consumer to make sense of it and to actually realise that there's actually some hope out there for young buyers. Totally agree, mate, and you've probably started to answer my first question already, and that's what has driven you and Effie to actually produce this great bright starters first-time buyers report? Well, it's really because the standard media fear sort

of fuelled by attention-seeking economists and others who want free publicity is, you know, that it's hopeless that young Australians are doomed to a lifetime of renting or the very best it's going to take them 10, 12 or 15 years to save a deposit. And the reports that come to those conclusions base their findings on a set of parameters that are completely unrealistic in terms of what the average first-time buyer might aim at for me it's like it's the real estate equivalent of a young

person leaving school and saving up for their first car and they want to buy a rolls royce and we're all outraged because they can't afford to buy a rolls royce but the average scenario is they might buy a secondhand corolla and get there quite quickly so the housing market to a certain degree is quite similar if you have realistic expectations you can actually achieve the goal of home ownership relatively quickly and easily no although but I hesitate to say easily because I know it's not easy it's never been easy but particularly in this day and age. Yeah now well said so just to give us a bit of an overview what what does the report cover? Well we've looked at 14 major market jurisdictions around the country,

basically the whole of Australia, which we've divided into 14 major market jurisdictions, eight capital cities and six state and territory regional market jurisdictions. And we've ranked them from one to 14 in terms of their affordability on certain metrics. Basically in simple terms, what it takes for the typical young individual

on typical incomes or young couples to say a realistic deposit to get into the housing market. And we've done it by targeting the lower 25% of the market because that's where first home buyers typically go. They don't buy the median house price in Sydney. They go for the lower price ranges and we included something that most of the reports that make housing affordability sound dire don't do and that is we included apartments

because for many young people, the apartment lifestyle is what they're looking for anyway, but also apartments are more affordable or you can get what you want in a better location perhaps for the same price if you aim for an apartment, which a lot of young people do. So we come up with a series of realistic criterion parameters to arrive at a result which says, okay, realistically, how long does it take people say in their 20s to get together a deposit to buy their first home

yeah perfect timing to put some reality into the conversation so from from your perspective then what are the the real keys to securing a first home in a reasonable time frame yeah well it's the simple equation is aim at the lower price ranges be realistic in other words there's some compromise available that's the first one second one is partner up because it's a lot easier to achieve you've got a young couple both earning with two incomes and he's saving a certain percentage of it to get that deposit together and the third one is don't be stuck on this notion that you've got to have a 20 deposit because you don't need 20 you can get into the market with a 10 deposit in fact with some of the government schemes you only need five percent and if you

qualify for those schemes you can get away with a five percent deposit without paying lenders mortgage insurance but even if you can't avail yourself of those sorts of government support schemes a 10 deposit is better and having to pay lenders mortgage insurance than holding out for longer to get 20 to avoid mortgage insurance you're better to go now with 10 and wait for 20 even though you have to pay lenders mortgage insurance so those are the basic criteria yeah you know you know we're basically saying you don't get to dream home with your first purchase that's never been possible probably never will be aim realistic partner up save 10 and um yeah be willing to compromise with your first purchase you'll get your dream home

eventually but you're probably not going to get it with your first one i totally agree and i i know my own case terry and this is many years ago where when i bought my first home i actually You borrowed 97% because you could do that at that particular time and wasn't really that fearful of mortgage insurance. There seems to be this massive ogre that they paint mortgage insurance to be, but reality, if you actually capitalise it onto the loan, yes, it adds a few bucks every month to the repayments, but if that gets you into the property ownership earlier

and you believe the property is going to continue to grow, then that shouldn't be a major fear. So, no, that's good. So, sort of drilling in a little bit then, what are the key assumptions and the methodology and the metrics that you adopted to create the report then? Well, we came up with a top five or a top ten. You know, for the larger cities, we came up with a top ten location, suburbs, and for some of the smaller cities or regional areas, a top five. and we selected locations that had that first criteria of affordability in that lower 25% of the price ranges

for the overall city. But we also thought that even though you're buying a home, people want to buy in an area they feel is going to show some capital growth because some have said their number one asset and they want it to grow in value. So we also had criteria about the location in terms of being close to major jobs nodes, So places that have got good infrastructure and good amenities,

good public transport, all those things that people want, good schools. Always keeping in mind, one of the furfies out there in real estate is that everyone works in the CBD and therefore they need to be close to the CBD. Of course, the vast majority of people, even pre-COVID, never did work in the CBD. Most people are out there working in suburban jobs now. So we're thinking Sydney, we might be thinking Western Sydney,

There's massive employment zones out there in the west of Sydney, around the suburbs, up in the far northern suburbs of Melbourne, and huge employment zones up there. So a lot of people are working in those places, not commuting to the CBD. So that was part of the criteria as well, that being close to major employment, major amenities, so good prospects for growth as well as being affordable. Yeah, awesome. So, I mean, that's really good news because what that's telling me already is that you're not suggesting people buy properties way up in the boondocks on their own in the middle of nowhere. There's proven affordability from what you're talking about

in areas close to where people want to be. That's right. And sometimes in the outer fringes is where people want to be because that's where they happen to be working. Or, you know, a combination of employment and affordability might lead people to choose to be out there but if if you remember that we've included apartments as a viable option for young people particularly in the biggest cities um you can be in sort of good middle ring areas uh affordably in sydney and melbourne um i mean for example some of the

trendy uh inner city suburbs of melbourne i know one of these is very dear to your heart for other reasons like richmond for example and hawthorne next door that the average house there is very expensive and beyond the reach of most first-time buyers but the average apartment actually is about a third of the cost of the average house and those are some of the realities of some of the inner and middle ring suburbs of our biggest cities that if you make that um that choice to go for an apartment you can actually be in a really nice trendy area with all the cafe culture and lifestyle that you want at a very affordable price. You know, with the provisor, you've got a young couple both earning,

saving a good portion of their income, and they can be in there in a matter of years if they really set their minds to it. Yeah, awesome. Well, now we get to the guts of the matter. How do the cities and the regions really rank when it comes to affordability on the basis that you've looked at it, Ben Terry? Yeah, well, no great surprise is that the regional areas have a greater level of affordability than the capital cities.

But Perth, the city of Perth actually is the third ranked most affordable place in Australia, and that's partly because Perth's market actually spent six or seven years with prices sort of dropping gradually after the end of that big resources investment boom that ended about 2013. So they had that period of in the doldrums. And so they're now actually generally described as the most affordable capital city in Australia. So they rank number three in the country in terms of affordability.

Great opportunity there. There's also a very high level of state government assistance for first-time buyers there. So that's an opportunity. But of the top seven, the other six are regional markets. But that's not necessarily irrelevant to a lot of people because we do have this trend still, very strong people moving um to the fringes and out to the regions for um you know working remotely enabled by technology so um regional queensland regional victoria regional new south wales um they all rate quite highly overall in terms of affordability there's plenty of great places for

people to live with wonderful lifestyles where you can get into your first home and some of them I suppose the ideal for a lot of people is in regional Victoria places like Ballarat and Bendigo where you're still quite well connected to your capital city if you need to go there. Orange, those sorts of places in regional New South Wales, not too far from the big city if you want to go there. So there's some pretty good options there. and with, you know, those criteria in place,

aiming for those lower price ranges to the young people both earning and saving a certain percentage of their income, you know, in the most affordable part of Australia, which is regional Western Australia, now Port, somewhere between 12 and 18 months, so you can get to get that 10% deposit and be in your first home. Yeah, that's awesome. I'm guessing that at the bottom of the barrel are our major capitals, Sydney and Melbourne.

Yes, no surprises there that Sydney would be last and Melbourne second last. So they're on the criteria that we have based the report on. We've got numbers for people saving a 20% deposit as well as 10%. But the basis of the report really is 10%. Young couple both earning. you're talking three four five years for the locations on our top 10 lists in Sydney for example the best you can probably do is a bit over three years so you know that's that's not so great but it's certainly a lot better than the 15-year doomsday scenario that we're often

presented with in mainstream media. Totally so you know we're only talking between 18 months to three years to save a sizable deposit, because as you've said, it's a 10% deposit, and there's still options that they need a bit less than that if they take advantage of the incentives and some of the other lender offerings around. So flicking to the repayment side of the equation, then what percentage of income is required to service repayments in those top areas then, Terry? Now, look, we found, again, on the criteria that we decided on, that in the seven most affordable jurisdictions out of the 14, which includes the City of Perth, on that 10% deposit to incomes, it's less than 20% of their combined incomes to service their monthly mortgage repayments and their vendor's mortgage insurance. Yep. so that that's included in the package but you know 10 deposit you will have to pay lmi

but usually a lot of people just capitalize that into the loan so taking that into account yeah certainly less 20 of the combined income which is um is is not a great burden i don't think um you know i think all the people who like to talk about mortgage stress they tend to set the the benchmark at about 30 or 33 percent if you're above that then you're more bit stressed apparently but most of these um equations that we came up with it's less than 20 percent yeah okay so at the other end of the scale if we we look at sydney then what what sort of percentage of the income would require to get an apartment in in sydney based on 90 percent well in sydney you're getting up closer to that those 30 30 30 percent type figures um which you know i i think

is still fairly common i've often seen in media some of those reports about mortgage stress and i said well according to this equation i'm suffering from mortgage stress myself but i haven't actually felt particularly stressed you know i've been comfortably servicing my loans and feeling pretty good about the world but apparently i should be stressed because you know they but you know it's an arbitrary benchmark isn't it there's no law that says you know if you're paying more and 30% of your income on your housing costs, then you're suffering from mortgage risk. Who decides that?

Somebody who wants free publicity, basically, and they know that the best way to get it is to come up with a screaming, sensational negative, and that's what they do. And that's most of what we hear in mainstream media on the subject of housing affordability, and I just think most of it is bunkum. Yeah, I totally agree. I noticed that good old Hobart, Dan and Tassie,

given it's had a historic run over the last five years plus in terms of value increases, comes in at a number of 11 on the scale. And I'm assuming that because the incomes are probably relatively less in that vicinity, that's contributing to that, is it? Well, the biggest contributor is the fact that Hobart's not a cheap city anymore. You remember the days not so long ago, it seems, or it feels like it wasn't so long ago that Hobart was the cheapest

of the capital cities, but now it's one of the most expensive. It's had extraordinary growth for the last four to five years, and now the median house price for Hobart is higher than Perth and higher than Adelaide and Darwin. It's on a par with Brisbane, and it's extraordinary. And just diverging for a moment, the reason why that's happened is because the Tasmanian economy has been outperforming. It's been ranked number one in the Comsec State of the States report for, I think, the last seven consecutive quarters. And that would surprise a lot of people. But Tasmania economy has risen up the rankings and that has translated into a very strong and growing property market. And price has risen to the degree where Hobart is as expensive almost as Brisbane now.

Yeah, and that exodus to lifestyle in the last couple of years, Tasmania and Hobart in particular has been a big beneficiary of that. So very interesting, mate. So bringing this all together and in sort of summary, what are the real take away conclusions when it comes to housing affordability for first home buyers? I think it's a lot more attainable than mainstream media would let us believe. Don't believe the headlines say that you're doomed to a lifetime of renting. don't believe the articles that say it would take you 12 or 15 years to save a deposit the parameters by which they arrive at those conclusions are completely unrealistic and unrelated to the scenario that most first-time buyers face it's about compromise and sacrifice

certainly but I think one of the great things that well I don't know about great things but It's certainly one of the unsung advantages of the COVID period is it's taught us how to save because we've had to. We've been in restrictions and lockdowns and we haven't been able to travel overseas. And a lot of households have saved a lot of money. But it's given us a clue to how to do it. So I'd also mention, I'll give a plug to one of my kids

who was a couple of years ago was in Melbourne going to university, university full-time part-time job you know working in a hospitality being pretty active social life it managed to save 15 grand in a year um now if she can do that um as a full-time student working part-time and still having an active social life then i think a young couple both working full-time can get together a decent deposit to buy say an apartment in a in a decent area even in places like sydney and melbourne in a couple of years you know um it's just okay making the goal and say okay let's go for it and if it means we have to make a few sacrifices and forego a few um extravagances then that's how you do it yeah totally agree and i i think the you

know it might sound strange for me to say but covid has certainly had some blessings in that regard because it's been habit forming you know we've changed our habits a result of it and habits are the hardest thing to change so if we've developed this savings habit and i heard a figure quoted the other day that uh australians collectively have put away over a billion dollars worth of savings over the last couple of years which is you know quite incredible and uh certainly contributing in a very positive way to people who are serious about getting on the housing ladder are now having both the skills to do it and the wherewithal to do it, mate.

So look, mate, I always love talking to you, Terry. I love the way you just shed reality on the fiction that gets perpetrated by other sources in the media. So I just want to thank you again for sharing these very balancing real-world facts. And thanks again for your time on the show today. Always a pleasure talking to you, Bush, and particularly about real estate.

Yeah, I love it, mate. Fantastic, Terry. Well, finally, what a breath of fresh air and a voice of hope and inspiration in a world of negative noise when it comes to housing affordability. If you're excited about the affordable first-time buyer opportunities

and or you know someone who's going to benefit from hearing about it, you can grab yourself a copy of CanStar's Bright Starters Report, which you can find at canstar.com.au. And if you're looking to secure any property with confidence based on real research, make sure you check out terryshotspotting.com.au.

You're watching your go-to place for all things property here on Realty Talk. Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year. Depreciation is a non-cash deduction. This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation-free quote. Another wrap for this week's special show.

Another big thanks to Terry Ryder for unpacking the Bright Starters report. And it's quite comforting to know that for those first-home buyers who are prepared to be creative and look further afield, the Australian dream of home ownership is still very much alive and affordable. and before we go make sure you don't miss another episode of your trusted voice for all things property by subscribing to Realty Talk Now on Apple Podcasts, Google Podcasts, Spotify, YouTube or wherever you listen and make sure you jump on channels.realty.com.au forward slash Realty Talk and click on the subscribe now button to get a free copy of my award-winning book get invested. And while you're there, check out one of Australia's most extensive range of

properties for sale from over 7,000 agents nationally, where you'll even find properties that aren't listed anywhere else. Thanks again to realty.com.au and B&T Tax Appreciation for their ongoing support. I'm Bushy Martin from Know How Property Finance. Remember to always get invested, and I look forward to seeing you again next week. miss something in this week's show or want to catch up on past shows do it anytime at realty.com.au where we connect buyers sellers and agents differently