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The dire warning to those over 35 on home ownership

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IF YOU aren’t on the property ladder by 35 then you could be paying off your mortage with your superannuation, a property expert has warned.
The stark statement comes as figures show the wealth gap between generations is widening with home ownership among young Australians falling to the lowest level on record.

Startling Grattan Institute statistics show wealthy people aged 55-64 are the only group which has seen its home ownership rates increase over 30 years.

The biggest falls in ownership have been suffered by the young people aged 25-34, who saw their home ownership rate drop by more than 30 per cent from 1981 until 2011. Only 45 per cent of them own their own homes.

This is down 16 per cent from the 1980s, with almost half the decline coming in the past decade.

Only the richest Australians aged 55-64 have seen their home ownership levels increase. Picture: Grattan Institute.Source:Supplied

Only the richest Australians aged 55-64 have seen their home ownership levels increase. Picture: Grattan Institute.Source:Supplied

And, if the government doesn’t do something to help younger people own homes, there will be “stark differences” between the “haves and have-nots” in the near future, warns a leading housing policy expert.

The alarming findings come after Sydney held its title as the second-costliest housing market in the world, in this year’s Demographia International Housing Affordability Survey.

Research by Finder.com.au shows that even Sydney’s ‘bargain’ suburbs that were $500,000 or cheaper in 2012 have nearly doubled in value in the past five years.

While Melbourne, ranked the world’s most liveable city the past seven years by the Economist Intelligence Unit, is now the planet’s sixth-most expensive place to buy a house.

Brendan Coates, a housing policy expert at the Grattan Institute, said the issue of young people being locked out of the property ladder is one which will take at least two decades to fix.

“Reforming negative gearing and capital gains tax, which have added fuel to the fire, would be a good start but it would only lower prices by about two per cent.

“It’s not about how many homes we build this year or next year. We would need to see at least a decade of sustained home building to make a big difference.

“If Australians are not on the property ladder by the time they are 35, then it is unlikely that they will own their home outright,” he said.

“This means that more and more people will start to use their superannuation to pay off their debts. This is worrying because, over time, the differences between the haves and have-nots will be stark.”

He added soaring property prices are a major factor behind the rapidly growing wealth of older Australians.

‘More money going on servicing a mortgage means there is less to spend elsewhere, dragging on economic growth,’ says economist Paul Dales. Picture: Grattan Institute

‘More money going on servicing a mortgage means there is less to spend elsewhere, dragging on economic growth,’ says economist Paul Dales. Picture: Grattan Institute

“Households headed by 65-74-year-olds were on average $500,000 wealthier in 2015-16 than households in the same age group 12 years ago,” he added.

According to the ABS, house prices grew by 37 per cent on average across all the capital cities between 2003-04 and 2015-16 and by more than 50 per cent in Melbourne alone.

However, Paul Dales, chief Australian economist at Capital Economics said the age gap in home ownership is not all bad news for the Aussie economy.

“There are a lot of social issues which come out of young people not being able to afford their own homes, but for the economy – there’s not one clear answer to say whether it’s good or bad.

“One one hand, young people are spending so much of their income on mortgage repayments or on rent that they have far less money on other things.

“More money going on servicing a mortgage means there is less to spend elsewhere, dragging on economic growth.
“But, there are some offsets to this. The older homeowners have seen their family homes have soared in value and, as a result, they have more wealth to spend on other things.

“We also see a lot of young people living with their parents so they can save for a deposit for a home, and they are put off by renting because it is so expensive.

“This means their income is not being swallowed up by rent, so this can also have a positive effect on the economy.”

Some of the falls in home ownership are also partly the result of social changes Australians are waiting until later in
life before starting work, forming long-term partnerships, and having children, Mr Coates said.

“But most Australians still want to own a home, so it is reasonable to conclude that higher property prices are the biggest cause of lower ownership rates,” he said.

A Grattan spokesman said the only way young people can afford to buy a house is with help from “the bank of mum and dad”.

“Inheritances tend to transmit wealth to children who are already well-off, and home ownership is more likely among those who receive an inheritance, and more likely still among those who receive larger inheritances,” he said.

“Australia is becoming wealthier, but much of the increase is concentrated in the hands of older generations. The trend is unmistakeable: unless something changes, the young will fall further behind and inequality will get worse.”

Originally Published: brisbaneinvestor.com.au

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Opinion

Would Australian Households Be Better Off if We Ditch Negative Gearing?

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Would Australian Households Be Better Off if We Ditch Negative Gearing

Economic modelling undertaken by University of Melbourne economists, and presented to the Reserve Bank last month, shows that three-quarters of Australian Households would be better off if negative gearing is abolished.

The study was posted on the Reserve Bank website for public release on Friday.

The paper explores the implications of negative gearing – including a 30 per cent collapse in the supply of rental properties – and found that abolishing negative gearing would lead to an overall welfare gain of 1.5 per cent of GDP.

Negative gearing is a policy that largely benefits landlords, and for the 17 per cent of the Australia population that have property investments – out of which 70 per cent are negatively geared – would be worse off.

The study estimated that thirteen per cent of the population would be directly influenced by the removal of negative gearing, and likely to quit their holdings.

“The housing prices fall because removing negative gearing takes a significant amount of housing investment out of the property market,” the report said.

“Both the proportion of landlords and the amount of resources allocated to housing investment, given by the average expenditure, have fallen significantly after the policy reform.

Importantly, removing negative gearing increases the average homeownership rate of the economy from 66.7 per cent to 72.2 per cent.

The improvement in homeownership was observed most predominantly among poor households, where the fall in house price and the rise in rent reduce the price-to-rent ratio in the economy by 4.2 per cent.

“This has direct implications on housing affordability as the fall in house price lowers both the downpayment requirement for mortgages and the size of mortgages required to purchase a house, making it easier for households to own a home.”

If negative gearing was to be scrapped, the average mortgage size held by homeowners would likely decrease 21 per cent.

“Eliminating negative gearing takes young landlords who were rich enough to meet a downpayment requirement for investment properties away from the market.

“This reconciles a recent trend in the property market that there has been a rise in investment housing debt holdings by young and rich 35 households who would have benefitted the most from negative gearing concessions.

“The aggregate welfare for the economy improves upon the repeal of negative gearing … around 80 per cent of households are better off after the policy reform.”

Australia’s negative gearing regime stands alone against comparable OECD countries. Only New Zealand and Japan allow the unrestricted use of negative gearing losses to offset income from other sources.

The report’s authors, Yunho Cho, Shuyun May Li, and Lawrence Uren said that along with their findings on negative gearing it would also be worth considering some partial restrictions, such as allowing tax deductions for mortgage interest payments only.

Originally Published: www.brisbaneinvestor.com.au

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Opinion

QLD set for double-digit property growth

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moreton investor, opinion

SOUTHEAST Queensland house prices are tipped to grow by up to 20 per cent in the next few years as Sydney and Melbourne’s once sizzling property markets continue to lose steam, according to veteran real estate agent John McGrath.

Speaking after the release of the group’s annual residential market report, Mr McGrath told The Courier-Mail the state was only just over halfway through the current property cycle and stood to benefit from the slowdown starting to grip the southern capitals.

“We’re very bullish in your part of the world,” Mr McGrath said.

“There’s no doubt in my mind there will continue to be growth in southeast Queensland.”

John McGrath of McGrath Estate Agents has released the annual McGrath Report.

John McGrath of McGrath Estate Agents has released the annual McGrath Report.

Property research firm CoreLogic, which releases its monthly home value index this week, has flagged a further fall in Sydney housing values, but a rise of 0.3 per cent in Brisbane home prices.

Mr McGrath said he expected between 10 and 20 per cent growth over the next two to three years in the Queensland’s southeast corner, led by Brisbane.

“There have been huge capital gains in Sydney and Melbourne and not only has it made it unaffordable … it’s certainly made people look for better value elsewhere in the country,” he said.

“I think southeast Queensland and Perth represent that value.”

Brisbane house prices are tipped for further growth according to McGrath. Picture: Richard Walker.

Brisbane house prices are tipped for further growth according to McGrath. Picture: Richard Walker.

The McGrath report found southeast Queensland’s affordability was attracting record levels of interstate migration as well as rising interest from investors and first home buyers, with its housing market continuing to produce solid results despite the economy remaining sluggish as it transitions away from mining.

“During the GFC, a lot of people thought it was sensible to wait, but now we’ve got a lot of people sitting in ordinary homes in Sydney and Melbourne worth $2 million to $2.5 million – many in their 60s and 70s – who are saying ‘what could we do next?’ and looking to southeast Queensland,” Mr McGrath said.

And he said it wasn’t just Baby Boomers and seachangers who were selling up and buying in Queensland with money to spare, but also young families.

Mr McGrath predicts suburbs with easy access to the CBD, the water and/or infrastructure to be the big winners over the next year.

Residential property in the bayside suburb of Wynnum, Brisbane.

Residential property in the bayside suburb of Wynnum, Brisbane.

In Brisbane, his top pick is the bayside suburb of Wynnum, 14km from the CBD.

It borders the more prestigious Manly and boasts the same seaside village atmosphere without the hefty price tag, which is attracting younger professionals as well as interstate and international buyers.

North Lakes in the Moreton Bay region is also expected to continue to experience strong growth, with significant residential and commercial developments in the pipeline.

An aerial photo of North Lakes, 25km from Brisbane’s CBD. Picture: Richard Walker.

An aerial photo of North Lakes, 25km from Brisbane’s CBD. Picture: Richard Walker.

“I think it’s going to continue to attract a lot of young families that can’t afford inner Brisbane,” Mr McGrath said.

On the Gold Coast, Coomera is tipped to benefit from new infrastructure including the $470 million Westfield Shopping Centre due to open in late 2018.

“There are a lot of great areas in between Brisbane and the Gold Coast and Coomera is a great example,” Mr McGrath said.

“I think it will continue to grow.”

An artist impression of the Westfield Coomera Town Centre. Supplied by Westfield.

An artist impression of the Westfield Coomera Town Centre. Supplied by Westfield.

On the Sunshine Coast, McGrath’s top picks are Peregian Springs and Caloundra.

The regional centre of Toowoomba is also tipped for strong growth over the next year thanks to its affordability and access to east coast cities via the new airport, according to the report.

Originally Published: brisbaneinvestor.com.au

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Opinion

This is why Queensland is first-home buyer’s dream

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moreton, queensland, opinion

Queensland first-home buyer loan approvals have soared by nearly 20 percent in the last 12 months, jumping 5 percent in the last month alone, new data shows.

The Sunshine State boasts the highest number of first-home buyers in Australia, thanks to low-interest rates, a $20,000 state government grant and one of the country’s most affordable housing markets.

The latest data from Australian Bureau of Statistics shows Queensland first-home buyer activity has increased by 16 percent during 2017 – and it’s likely to intensify, with developers ramping up the incentives for first-time buyers as the last few months of the $20,000 First Home Owners’ Grant close in.

The grant, which was scheduled to drop back to $15,000 on June 30, was extended until December 31 by the Queensland government.

Domain Group senior economist Andrew Wilson said the grant had been extremely successful in bringing forward demand stimulating the first-home buyer market.

“We had a rush of first-home buyers in June when people thought the grant was going to end but since then the numbers have continued to keep growing,” he said.

While Sydney continues to battle a housing affordability crisis, Queensland first-home buyers have 92 suburbs in Greater Brisbane alone with a median below the average purchasing power ($392,000) to choose from.

In the Brisbane LGA, 17 suburbs still have medians of $500,000 or less, the latest Domain Group data shows, whereas Sydney now has no suburbs with a median of $500,000 or less.

Acacia Ridge, Boondall, Tingalpa, Deagon and Riverhills all have a median house price of $500,000 or less.

With the $20,000 grant scheduled to drop back to $15,000 at the end of the year, developers are now making a renewed push to get first-time buyers to take advantage of the extra cash before it expires.

One of Australia’s biggest residential land developers, Peet Limited, is leading the push, recently releasing 40 new house and land packages under $400,000, with some packages starting as low as $295,000 with the First Home Owners’ Grant.

The packages are available in communities near Ipswich, Caboolture and Logan – some of south-east Queensland’s biggest growth corridors – and include front landscaping and fencing.

Peet Limited CEO and managing director Brendan Gore said the company wanted to show homebuyers that there was still a big choice in quality, affordable homes available.

“People are hearing a lot about escalating property prices and are really worried about being priced out of the market.

“We want to reassure them that it isn’t too late. It is still very possible to buy an attractive family home, close to amenities, in an area with good investment potential, for under the magic $400,000.”

Mr Gore said although the grant had been extended a number of times, home sales tended to peak whenever buyers could see the grant coming to a close.

“The First Home Owners’ Grant is a big help for people who are struggling to get into the property,” he said. “The deadline is definitely on the radar for those buyers who are eligible.”

Peet’s 40 under $400,000 packages will be available until November 3, 2017, or until sold out.

Originally Published: brisbaneinvestor.com.au

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