Property Hub - Investment Insights & Inspiration - Realty Talk: How we got it wrong

Episode Date: July 7, 2023

It is crystal clear! Australia’s housing woes stem from a shortage of supply and it’s not likely to get better any time soon.    Our guests this week deal with varied topics surrounding buyer reluctance due to uncertainty, political inaction, an overabundance of enthusiasm leading to potential missteps and higher investment risks.  Scott O’Neill says high demand and supply shortages can lead to hasty and ill thought out investments in commercial property.     Pete Wargent joins Bushy as they tackle where we have gone wrong - over a long period of time - with housing affordability.  They have a solution, so let's hope the policy makers are listening.    Not knowing what questions to ask and what answers to expect is the problem facing anyone wanting to engage a builder to build their dream home.   Like anything complex, it pays to get expert and unbiased advice.  We think we might have the answer for you in today's show.   NEW – Join the Property Hub community on Substack! Sign up to get Australian property news, opinion and episodes in your inbox: https://propertyhubau.substack.com/ Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] 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. Hello and welcome to Realty Talk, one of the shows on the Property Hub, which is distributed by DM Media. You're going to find us on all podcast players and through the Southern Cross Oz Stereo Network. Realty Talk is Australia's longest running property podcast with over a decade of presenting property investment insights, inspirational stories and unbiased advice from Australia's top property experts, leaders and analysts.

Well, you know, it's crystal clear Australia's housing woes stem from a shortage of supply and it's not likely to get any better anytime soon. Our guests this week deal with varied topics surrounding buyer reluctance due to uncertainty, political inaction and overabundance of enthusiasm leading to potential missteps and higher investment risks. You want to look into every aspect that can really influence the investment's outcome.

So that could be from releasing the property to the actual current building conditions, the legalities of the property the lease as well so that's probably one of the big differences from residential that has giant impacts on the net income so due diligence will require you to go and explore exactly what outgoings are paid by the tenants and paid by the owner and then you as the investor need to go and work out what is the actual income you're getting out of this and that will tell you how much you should pay for the property. That's Scott O'Neill with some very sound advice for commercial investors. Hear him in today's show, because he says that high

demand and supply shortages can lead to hasty and ill-thought-out investment in commercial property. Pete Wadgen joins Bushy this week as they tackle where we've likely gone wrong over a long period of time with housing affordability. And the other thing at the moment, we've got this extraordinary lending assessment buffer for people wanting to take out a mortgage three percentage points it's higher than it's ever been before which means that a lot of investors are being stress tested for a mythical nine percent mortgage rate going forward which isn't realistic and it's just stymieing the supply of investors in the market and for as long as that goes on it's a huge handbrake the good news is that they do have a solution so let's hope that our policy makers

are listening. Not knowing what questions to ask and what the answers should be is the problem facing anyone wanting to engage a builder to build their dream home. You know like anything complex it always pays to get expert and unbiased advice and we think that we might just have the answer for you in today's show. Hey if you like the show make sure you hit the subscribe button and help us to continue to bring you the very best guests. Bushy will be back in just a moment as he kicks off this week's show. 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 KnowHow 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 know-how has helped over 1 900 homeowners and investors secure more than 800 million dollars 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 are you looking to build your home or an investment property As I've mentioned before on the show, there are significant cost and cash flow benefits in building a property over buying an existing one.

But with the current climate where the mainstream media is filled with builder bust horror stories, where do you start and who do you trust to ensure that you're selecting a good, reliable builder that's going to ensure that your time, quality and cost needs are met and your risks are minimized? Well, to assist you with what can be a daunting challenge of selecting a good builder, we're joined by Lomet Manciamelli. who's the co-founder of a new innovative builder broker service called Builder Finders. So welcome back to the show, Lynette. Thanks for having me back. Great. Now, we had a great chat recently in relation to, you know,

what a builder broker brings to the exercise to assist people looking to build a property. But in relation to builder selection, I'd love to sort of get your thoughts on what research do you need to do when selecting a builder? There's so much to do. You can't just look at a property down the street that someone's building and think this is a great house,

who you're about to spend hundreds of thousands of dollars with, which is really probably the biggest purchase anyone is going to make in their lifetime. It's really important to thoroughly research a builder. And the way that I go about it in the research model that BuilderFinders has is I actually ask the builders to complete a questionnaire to start with. So, I mean, there are many aspects to researching and doing a due diligence on a builder, but getting them to give you some of their responses so that you can have a verification process of what they're providing to you about themselves and about their business is a starting point to researching a builder.

Yeah, very good point. So beyond the initial research, what investigations do you do when looking at the builder selection? I like to know who I'm dealing with. So I do basic ID check. I want to see their license and see exactly who they are. That's just, you know, it sounds, you know, bill of finders 101, but, you know, the initial, you want to know who you're dealing with and verify their identity.

And then you want to be able to look at other things like do asset checks on them to see their company details, who the directors are, who the shareholders are. Again, who are you spending all this money with? And you're basically looking to find some history on them to see how long they've been in business for, how long their company's been running. I do license checks, that's a given, but that's certainly, you know, absolutely paramount to see that they are in fact a licensed builder, that they haven't lapsed their license, that it's not expired. I do other

investigations like running creditor watch reports on them. So I'm looking there for court judgments, payment defaults, just to see what kind of integrity they have within their business. Of course, making certain that they're eligible for the home builder's compensation fund, so a builder's warranty essentially doing things like online reviews insolvency checks looking at their license and trying to establish whether they have in fact been phoenixing so opening and closing companies to avoid debt and move assets around so that's a real major issue still that hasn't been cleaned up in the construction industry the government's tried several times but it's still out there so you know if a builder's got license numbers connected

with multiple different companies, it's going to be something that you want to be looking into. Yeah, very good point. So in dealing with anyone these days, reference checking is an important thing to do. In that regard, what reference checking do you do when selecting a builder? Okay, so I want to be talking to a variety of their clients,

and what I mean by that is past clients. So that's going to give you a really good idea of how things ended up, Were they satisfied with the end result? It's historical referencing, I like to call it, because their memory of the build and everything that they went through is, you know, it's in the past. So whilst you'll get some information on that, a lot of it's going to be about the end result and the quality of the work

and an overall feel of the experience. And there's nothing like talking to current clients that the builder is literally in the middle of a build with because that gives you a whole different feel. You're touching on points of communication, which is absolutely critical in selecting a builder. But you get to feel, you know, are they responding to your emails, your phone calls? Are you having site meetings with them? How are they keeping you updated?

A variety of different things get asked from a current customer as opposed to a past customer. So both are equally important. A reference checking I do is talking to their subcontractors, you know, their subbies, as well as their suppliers, you know, because Mr. Builder is not laying the tiles on the wall in your bathroom. His tiler is. His plumber's installing the tapware. You want to know, you know, who are they working with?

How long have they been working together? How many jobs have they done over how many multiples of years? You know, the stronger those responses are, it gives me a real holistic picture that the builder's crew is really tight. And what that will also indicate too is that the time efficiencies that come with that, if they're working with people that they know that they've worked with multiple times um the workflow will be a lot better than

a builder that hasn't got a you know a real firm career around them so they're the kind of some of the research um things are some of the excuse me the reference checking that i do with those different types of people yeah i love the fact that you're talking to past clients as well as current clients because builders personnel can change and i i know in my own experience the quality of the actual on-site formal or construction manager handling that particular job has a massive impact on the time quality cost parameters. So if you're doing that sort of in-depth checking, then you're really making sure that not only historically are they good,

but they're continuing to do that. So I love that sort of 360 degree approach that you're taking to that. But as we all know, Will and Annette, when you ask a question, and it's often as much what is said and not said that can tell the story. So what are some of the red flags that give an indication of some potential troubles there when selecting a builder? Okay, so coming off sort of that reference checking, one thing I would certainly be doing in that reference checking

and what therefore becomes a red flag if you hear of it, and that is variations. So I like my builders all to work with fixed price contracts, and if in sort of speaking to past clients, you're hearing that oh yeah there was a variation along the way the builder didn't foresee something i mean understanding renovations sometimes things are unforeseen that cannot be preempted in advance but other things if they're in a new home build or you know the builder didn't factor xyz in then the builder has to initiate a variation that just means more money for you so there's always

going to be a variation a client initiated variation is totally fine builder not so much so that's a red flag for me um if they have like i said with the phoenix team they have multiple companies associated with their license another major red flag they don't want to provide you references and they're just like we'll just have a look at this but you know then you're not knowing what's the experience like and as i mentioned you know obviously many times in my own experience the end result might be great but the journey is horrific and that's what people grow gray hairs with people get divorced out of building and renovating you know if it's not a great experience but i know that's extreme but you know like there's so much headache that comes to you if

you haven't checked out any red flags they're pushing you to sign a contract too early you know that's another red flag um they're getting really poor reviews you know you want to get answers sometimes you know a bad review is not necessarily a bad review you need to understand what the circumstances are so ask the questions and if you're not getting a reasonable answer or they don't want to respond to you there's your red flag you know if they want cash up front there's red flag there are several red flags they're just some of them yeah no that's uh really opening our eyes to some things that mightn't appear to be uh potentially dangerous but for someone in the know like yourself who's dealing with it all the time you know exactly what you're looking for in

that regard so look i'd again lynette i want to really thank you for sharing your very informative insights and thanks again for your very generous time on the show today you're welcome thanks for having me. Thanks Lynette. Well as you've just heard the devil's always in the detail and knowing what to ask and what the answers mean when it comes to selecting and separating the best builder from the rest for your construction needs. So if you'd like to learn more or you need someone to assist you with all of this reach out to Lynette and the team at builderfinders.com.au. Keep tuning in to your property hub's go-to place for all things property here on Realty Talk. Property deductions can save you thousands of dollars each year. To make sure you maximise deductions,

you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote economic growth in recent years has increased the demand for commercial property but limited supply has contributed to tightening vacancies and when vacancies are tight you may be tempted to take on high risk investments so the best way to minimize this is to undertake appropriate due diligence it's essential to properly assess the

risks associated with the property and to make much better informed decisions and whether the investment is actually worth it. So what due diligence do you need to do to optimize your position? Well, to unpack this, we're joined by a successful investor and leading commercial buyers agent, Scott O'Neill, the co-founder of Rethink Investing, who specializes in finding and securing commercial properties right across Australia. So welcome back to Realty Talks, Scott. Good to be back, Bushy. I want to dive into this subject because there's a big difference between the due diligence that you do on a residential property versus the commercial space so within that context in very general terms what does due diligence entail? Well due diligence is

basically an all-encompassing exploration on a property and in this case we're talking specifically for commercial properties so you want to look into every aspect that can really influence the investments outcome so that can be from releasing the property to the actual current building conditions the legalities of the property the lease as well so that's probably one of the big differences from residential the contract it will basically the lease is a contract so it's completely variable depending on which lawyers wrote it up at the time so you need to review it because they can exclude outgoings include others so that has giant impacts on the net income so due diligence will require you to go and explore exactly what outgoings are paid by the tenants

and paid by the owner and then you as the investor need to go and work out what is the actual due I guess what is the actual income you're getting out of this and that will tell you how much you should pay for the property so it all goes back down to the income and I guess the certainty of that income yeah I love it mate so I'd love for you before we sort of dive into some of the key aspects of the due diligence can you summarize for us what the in addition to what you've just mentioned the key due diligence areas that need to be covered to minimize your purchase risks in the commercial space so what i would look for would be i want to understand the tenant's history of payment so we've got a quite a fortunate history from a due diligence point of view to

review which is covid we can see how the tenants perform during covid did they receive job key because that will tell you how strong they are as a tenant like did their income shift you know by more than 30 at the time how affected were they did they negotiate you know hard line deals with the owner at the time so you can see that history which is great so if you can see the tenant got through that period without any alterations then you've probably got a pretty solid tenant so looking at the history of the tenant is important uh look the good thing about commercial is you can google a tenant and see what their business reviews are you've got to look into credit history and you know look into the director uh history as well and um depending on the asset

type you need to look at that i guess the extra competition that may arise like if you're buying a child care you want to get on the council website and see where upcoming da's are because you don't want extra competition to cause you potential problems same goes if you're buying a supermarket or any type of business that's prone to uh you know that radius search type competition that may come up from more people in that area wanting your your customer uh building a pest report it's classic old one everyone understands it but you need to really go into what responsibilities are the tenants and the owners so there's no point on trying to you know hit the owner up for new carpets if the tenant pays for the carpet so just kind of keeping the

lease in reference while you're negotiating maintenance often and the big ticket items that i recommend everyone look at it's obviously the roof uh get up on the roof get a drone on the roof if you need to check that roof because commercial buildings can be massive in size therefore the cost of the roof replacement and repairs can be big and um following on from that air conditioning you know managing a big shopping center or a gym again you might have a you know $700,000 air con on the roof. So you've got to make sure you're not up for capital works as well. And look, you can keep going on for the next 10 minutes,

but you really just want to look at the lease details, the condition of the building, why the tenants want to be there as well. So call them up. That's a big part of due diligence and have a chat. You'd be interested to find that most tenants are quite open to chatting. I normally by start off by asking him, does the property need any maintenance? Tell me, does it leak? when it rains because the building report may not show leaks if it's a dry day so um yeah tenant

discussions i'll uncover extra issues and and then you just rely on the lawyer to do a legal lease review very important that's almost as important as reviewing the initial contract yeah and uh and then you just got to match all the numbers up and make sure they match what you're hoping because if the yields got lower because we've found there's extra outgoings then back to the drawing board on the price. Yes, very good point. Now, I know you're a big proponent of including a subject to due diligence clause when you make an offer. Can you talk to us a little bit about what does the due diligence clause entail? And hand in hand with that, how do you successfully negotiate this inclusion on a high demand property where selling agents mightn't be that interested

in conditional contracts yeah it's a great question bushy i i think there's a lot of those properties you simply need to let go if you can't get that due diligence clause in so for example the classic auction where they're selling a fuel station or a child care or a kfc outlet they're going to say do all your due diligence up front which could cost tens of thousands of dollars by the time you get all the the services out and lawyers over the leases and it's simply not worth it especially in an auction condition because this is one of the i guess the big i guess gotchas in commercial novice investors come into this field and they want a secure lease and that is generally the type of property that will go to auction because they know people are going to overpay

for it because they're hoodwinked by the you know exciting long lease and they'll pay too much for it but they're the auction condition property so yeah my biggest advice for an investor looking at at this for the first time is probably just don't go to the auctions there's plenty of these especially now interest rates are higher these deals will pass in an auction so buy them after if you need to and then you can negotiate a classic strong due diligence clause which will generally give you 21 to 28 days off market where you can have exclusive rights over the property and you can pull out for any reason and when you're spending potentially millions of dollars it's literally the the way to not make a mistake you're not going to be rushed and if you are you

walk away from the deal yeah man and it also means if the if the due diligence clause is accepted you've effectively taken the property off the market while you're doing your investigation without someone else zumping you and coming in and buying it out from underneath so no i think that's a an absolute must i i even strongly suggest that in a lot of residential purchases too by the way so uh just to just to give you that extra effective insurance cause but the other thing i want to sort of drill into a little bit more detail scott is why is it important to uh in addition to what you've already mentioned uh already to check the lease agreements and the rental receipts in particular in that regard uh because

the rental receipts will show proof of history because you want to you're buying a going concern situation so if you can see consistent income being paid last year with an old owner it's probably going to happen for you as the new owner so again it just it means you don't need that 15 year lease to create certainty around the situation so you can get confident even if it's a short lease property but you can see the tenants paying well you call them up they've told you they want to stay long term all of a sudden we've got a deal 10 20 below market value because we're not relying solely on a lease for protection we're relying on our own due diligence so uh yeah history of payment is very big and um and obviously what the agent presents may not be

happening in reality so imagine there's a property of you you've been promised 100 grand a year and in reality it really works out to be 90. you've you've paid too much and uh history due diligence is it's just a quick way of finding that out yeah yeah no brilliantly said uh the other thing yeah that you've mentioned that in previous dispatches is uh insurance coverage what's in this due diligence process is there any benefit in reviewing insurance coverage uh in that regard yeah look it's one of the the pain points for us right now with due diligence because insurance premiums have gone up uh you know by a lot i don't have an exact percentage but i've seen things double in value go up 30 i saw one go up five times in value the reason there's many

reasons for this like obviously it's been a crazy old world the last five years um bushfires flooding covered now now inflation's going through the roof now inflation's very bad for build costs and building replacement value is a major component of the direct you know cost method in insurance so they're all going up at the moment and that means if you've got a gross lease property your your net income is going to be lower because next year's bill is going to be higher so try get that done early in due diligence and it's hard to because you don't have all the facts of the property like the age and the uh you know what what the roof is insulated with and all that kind of stuff because you need all that for a proper quote um but yeah try like it's it's hard

to get that information in time because quotes can take weeks to get and um you just could be wary and get on it and or even just check the old owner's insurance and make sure it's up to date because there's a 90 chance it's not and um and that's something we we are working hard to kind of close that time gap and how i'd like to get that valid quote back and then we get ready for that inevitable argument with the owner to say oh that's a ridiculous quote and then they go search for better quotes and they try to undercut it somehow by not telling the full story the picture like it's a daily occurrence for us and um but the reality is no one's trying to rip anyone else off we just need adequate insurance and that sometimes mean it goes up in value which needs to

then be factored in into the eventual purchase price yeah very good it's always the the net revenue not the gross yield that you need to be worried about and the insurance as you say right across the board it's jumped up significantly in in every property asset category of recent years. So an important consideration. Look, Scott, as always, we could talk for hours on this, but I really appreciate you sort of refreshing us on the importance of due diligence in the commercial space. Thanks for opening our eyes and ears to the considerations there. And thanks again for coming back on the show. No worries. Have a great day, mate. Thanks, Scott. Well, as you've just heard, due diligence is a critical process that will help you make informed decisions,

minimize risks and maximize your returns by identifying in advance any potential issues that could affect a property's value or its income potential so don't be tempted to close a deal quickly without conducting property due diligence which can lead to very costly mistakes and if you need professional help with any of this reach out to scott and the team at rethinkinvesting.com you're tuned in to the property hub's go-to place for all things property here on realty talk 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 Know How 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 In recent times, the news has been filled with stories about one crisis after another. We keep hearing about the housing crisis, the rental crisis, and the construction crisis. Everything's a crisis. But for those of us who've been involved with property for many years, we know that a crisis

isn't an unexpected overnight sensation, it is a slow-burning fuse caused by years of neglect with politicians kicking the housing too hard basket further down the road until inevitably it falls over a cliff. And unfortunately, that time is now, when all of our housing chickens have finally come home to roost. And while there's a multitude of housing symptoms, the root cause all comes back to housing supply or the lack of it. So to separate the fact from the fiction of our national housing crises and the underlying

supply issues, so that you can make better sense of it and use it to your advantage, we're joined by RealtyTalk regular Pete Wardgen, who's one of the country's leading property analysts and buyers' agents, as well as being a multiple published author and all-round investment strategy guru. So welcome back to the show, Pete. Pleasure. Thanks, Bushy. Great to be on. This issue that we're going to talk about, I think, is the root cause, as I've said in the intro, of a lot of the issues that are currently being experienced in property. So I'm going to love to dive into this from your perspective. But just to sort of set the scene,

can you talk to us about how low are housing stock and supply levels around the country and what do you think are some of the causes? That's a really good point. There's a few different ways to look at housing supply. So firstly, you could look at the number of dwellings that's under construction, which is still quite high. It's over 200,000. But a lot of those are being delayed very slow.

A lot of them are listed as under construction, but they're really getting no further than the slab going down. There's shortages of materials in some cases. And I think looking further ahead, 12, 18 months' time, that pipeline is going to shrink significantly because nobody's buying new homes or getting construction loans at the moment. I think there's other ways to look at supply as well. If you look at rental vacancies in the capital cities, they're around 1% and apartment vacancies are the lowest we've ever seen. So there's obviously a shortage of rental property on the market. and i think the other thing is um a measure of supply is how much property is available for

stay for sale what they call the stock on the market well that's down about 30 from the five year average and it's about half of what it was a decade ago so very few people are selling and that itself sort of underpins the market so yes it's a crisis of crises as you mentioned lots of different shortages and different drivers of each yeah spot on so without stating the bleeding obvious uh what impacts is this both lack of housing supply and the low stock supply levels having beyond what we've already talked about well most new arrivals into australia are renters initially and now we've got the borders open and we've got record population growth so where it's showing up most acutely is in the rental market um we've got rising rents now especially in the

capital cities we're also seeing at the bottom end of the market there's more homelessness there's more tense cities i think if you look at the census figures homelessness was up around five percent between the census states but in victoria it's up 24 percent um so yes it's it's probably partly down to better ways to identify and measure these things but there's clearly a massive issue in the rental market i think more people are now house sharing or staying at home with parents for longer so the main issue is in the rental market at the moment um i think looking ahead though there's going to be a shortage of physical dwellings. We're not building enough or we won't be,

especially as the pipeline shrinks over the next couple of years. So we'll start to see a shortage of homes for sale and just very little vacant property around the capital city. So there's a lot happening in that space. Yeah, no question on that front. So sort of projecting forward then, what future trends are you seeing in terms of housing stock supply, relative demand in the medium to long term?

It's a mess, I think, over the next few years. The real-time indicators, you look at the number of new home sales, they're at decade lows. Last month, the lending indicators showed that lending to buy or build a new home is the lowest since September 2008, which you'll remember as a period of great panic. This doesn't even account for the fact that we've got a bigger population, higher prices than 15 years ago. So we're 15 year low. So that suggests that if you look at 12 to 18 months time, the pipeline of dwellings under construction will be sinking or shrinking significantly. So population growth running over 500,000 per annum. So there's going to be an acute shortage over the next few years. I think if you look maybe five years out, people will be looking towards things like build to rent to deliver more supply. but this is so far down the track and we've got a lot of bridges to cross in the meantime. Yeah, spot on. Now, there's been a plethora of fairly reactive type of immediate solutions

that have been thrown around by all levels of government and others. But I'd love to get your read on the effectiveness or otherwise of some of these housing stock supply options and how effective do you think they're going to be? Well, it's hard to keep up because in Queensland, where I live, there's a new proposal practically every couple of weeks we saw some wild ideas being thrown around about taxing people on properties that weren't even in Queensland well that that idea got shelled pretty quickly and there's been all kinds of changes to tenancy rules Victoria's increasing land tax for property investors I think just the general vibe or the theme at the moment there's a

of demonizing our property investors or people who own holiday homes airbnbs uh but the problem is um in australia we don't really build much in the way of social housing so private landlords are the solution to the rental crisis and um it's not working frankly uh you can see the number of rental properties has shrunk dramatically over the past year and it's still happening especially in the capital cities now as some of the the new migration takes off again and i think some of the The regional movers during the COVID pandemic are heading back to the office, back to the cities. So there's some chronic shortages of rental properties, but the solutions are all targeted

at investors, which is not going to work. So we're going to need some better solutions going forward. Well, I think you're absolutely right. Unfortunately, investors have been demonized and villainized as the issue. But I think rather than treating them as the foe, if we started embracing them as a friend, because they're the only consistent source of new housing supply and rental supply, so rather than restricting them, it would sort of make sense to switch it the other way and actually incentivise them to increase the level of both rental and housing stock, as they did a few decades ago when the government sort of washed its hand of housing supply. And I think that's a big issue now. We're seeing the, I think the latest exercise you've probably got your head around

is that the Greens are still wanting to impose this rental cap on investors, which I don't know about your thoughts, Pete, but that just seems madness and extreme. If rental caps actually works or if price caps actually works, well, why wouldn't we just cap everything? Why not just cap inflation at 3%,

cap interest rates at 4%. There we go, I've solved the economy just by capping prices of course we know in economics caps don't work in the short term they have an impact but over the medium term they don't work at all i think if you if governments were serious about fixing housing supply um what we used to have there's a couple of things that would be easy fixes firstly uh non-resident buyers or foreign buyers used to buy a lot of the new builds in australia but um there's stamp duty surcharges against them or that another group they got demonized. Then the other thing at the moment, we've got this extraordinary lending

assessment buffer for people wanting to take out a mortgage, three percentage points. It's higher than it's ever been before, which means that a lot of investors are being stress tested for a mythical 9% mortgage rate going forward, which isn't realistic. And it's just stymieing the supply of investors in the market. And for as long as that goes on, it's a huge handbrake on supply as we saw a decade ago when prices rise and when people can borrow the supply will respond but at the moment it's not being allowed to yeah right so it's sort of getting at a crystal ball and and living in an ideal world then pete what initiatives do you think need to be implemented to ensure sustainable housing stock and and supply levels anything i think well that

i think that's a good starting point is if people want to borrow let them borrow i think there's been a huge focus over the past 15 years of removing all of the risk out of the system we don't have low dock loans anymore to speak of um we have seen in the past 12 months um higher debt to income lending has been shut down uh low deposit lending uh very very low now um and the lending assessment buffer is so wide we've already seen interest rates go up by four percent for the cash rate and yeah we're still stress testing people with the three percent lending buffer so i think that's a big part of it is um if you want people to buy and build you've got to let them borrow so i think that would be a starting point and i think yes some of the the tax incentives

have actually restricted investment in housing rather than allowing it to go ahead so i think that needs a look as well i wonder whether particularly when it comes to the social housing component that governments actually need to step up and take an active role in at least that safety net exercise for those that are disadvantaged rather than rely on just-in-time private developers who are only ever going to provide housing when there's a dollop to be made. So I think there needs to be a little bit more skin in the game from governments at that level. They don't seem to become very Teflon in recent times and always looking to point the finger at someone else and have someone else to blame. But I really think they've got to come to the table and start taking

some active action rather than expecting everyone else to do it. But we are seeing that a little bit in Queensland. So there's a huge bonanza in royalties from the coal price boom. And so Queensland is committing over $600 million to social housing. But you have to remember the cost of new builds now that's that's going to be about 500 new uh social housing units it's not much in the grand scheme of things and a booming population so a lot more needs to be done and it hasn't been done with the exception of the uh rudd stimulus um around 2008 that was the only time over the past few decades we've seen any kind of social housing push so there's definitely an area which will come into more focus yeah absolutely well as always mate i want to thank you for your

insights on this very critical issue, Pete, and thanks again for your generous time on the show today. Pleasure. Thanks, Bushy. Thanks, Pete. Well, if it isn't and wasn't crystal clear before, it certainly is now. At the epicentre of Australia's housing woes is an endemic shortage of appropriate housing supply, and it's not likely to get better any time soon until a holistic and integrated long-term systemic approach is taken by all and sundry to addressing sustainable housing solutions. In the meantime, as a born contrarian, our housing supply shortages actually provide great opportunities for astute investors

to provide the right housing solutions in the right places at the right time. So to plagiarise good old Warren Buffett, be greedy when others are being fearful. Stay for us for more here on Realty Talk, your go-to place for all things property. To make sure you get the most from your investment property, you need to claim depreciation. PMT tax depreciation ensures that depreciation claims are maximized and compliance is maintained through their physical site inspections. During a site inspection, a specialist BMT site inspector measures the building and identifies every depreciable asset possible. Call BMT on 1300 728 726 for a free estimate of the likely deductions. And that brings us to the end of this week's show. A big thanks to our

special guests, Lynette, Scott and Pete, and of course, Bushy Martin. And before we go, make sure that you don't miss a single episode of Realty Talk or Bushy's Get Invested podcast delivered to you each and every week. You can do that by subscribing to the Property Hub. Do it right now on your favourite podcast player or wherever you're listening to this show. Thanks to our supporters are realty.com.au, BMT, Tax Depreciation, Know How Property Finance and DePiro Marketing. I'm Kevin Turner and on behalf of Bushy and the entire Property Hub team we 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.