More homeownership means landlords selling, yet everyone pretends otherwise
I swear with some work commercial office blocks could be converted to rental accomodation.
No big construction required. Much faster turn around and problems solved.
If the demand for housing is being generated by overseas arrivals i think they might have a demand to live in central business districts….
Just a thought bubble, given commercial property is in a bit of a crisis.
Population growth through current projected numbers will surely add more renters and owner/occupiers, which seems the core issue when it comes to affordability and availability.
Insufficient stock for the projected ludicrous population growth means demand and prices rocket.
Then there’s the 1M vacant homes on the night of the last census.
Duh, scarcity increases absent a huge crash in house prices which is bad for a totally different reason. Say you have 3.5 million homes in the rental market and 4 million people looking for homes. Then 2.5 million of them become owner occupied. You now have 1 million rentals and 1.5 million looking for a house say you add another 100,000 so there are now homes for 2/3 people looking to rent ïas opposed to 7/8. Then add in say 50,000 new home hunters from kids moving out and say 350,000 from immigration. So previously you had an undersupply where there were enough homes for 87.5% of renters now there is an undersupply where there is only enough homes for 57.8% of renters. Now what makes it worse is that many of those remaining renters don't have the financial capacity or credit capacity to buy a home so now almost half of all people renting are homeless. Now would you rather have a 42.2% chance of being homeless or a 12.5% chance. The less stock the higher the prices supply and demand. If 12.5% of people can't get what they need the scarity price rise is smaller if 40% can't the scarcity price rise is higher basic math!
The math works only if immigration stops then one renter is a new owner. If immigration continues and no new supply, then who cant save to buy a house is getting in bigger trouble as new immigrants may be able to outbit who is an old renter. Supply is the solution, not overpriced ownership. It will create a massive bubble and bubbles will pop one day.
Some great thoughts and data here - in particular
'The most extreme way to increase homeownership without landlords selling is if only first-home buyers bought all the new homes. You could even call this approach an “investor ban on new housing”, which is something that people think is very bad.
Let’s go through this scenario. In ten years, if the recent level of new housing construction continues, there will be about 12.4 million dwellings in Australia. But there will always still be those same 3.6 million dwellings owned by landlords that exist today.
So the best we can do is go from 66% to 72% homeownership over a decade, assuming an investor ban on new homes has no effect on how many new homes are built.'
Poor assumption on balance s vs d. If it was in balance the price would be at equilibrium. Now there are more people looking to rent than rental available. Hence rents going up. With your simple math this equals to for example 10 people looking and 4 dwelling available. So the ratio d vs supply is 2.5. now let's remove 1 tenant and 1 dwelling. We have now. D vs S ratio of 3 (9/3). While it's still 6 ppl that can't find rent, the ratio D vs S is a measure of the competition among renters which is what pushes the rent up.
It's simply math that mostly ignores other effects. My anecdotal impression is that Home owners will typically purchase a *larger* house than they need, while renters will rent a house only as large as necessary. I would suspect this means that on average, homeownership reduces the supply, since you have people "future proofing" with large houses (thanks to very large transaction costs associated with buying/selling real estate).
I'm not inclined to do the research on this right now, but it seems dubious to assume that its a 1:1 relationship when owning vs renting, as we don't have 1 person living in a home - the average household size is more like 2.5, and shifting this up or down will have a huge effect on the apparent supply of housing. Homeownership could well be a less efficient use of housing, if people hang on to large houses as they age or buy bigger houses than they need (compared tor renting, where people will be quite inclined to pay for as little house as they need)
As to how this would affect rents - its hard to say, since there's so many different levers affecting the rental market pointing to any single factor and saying that is causing most of the effect is unlikely to be accurate.
“So the best we can do is go from 66% to 72% homeownership over a decade...”
It is obvious that increasing homeownership and increasing rental supply are two goals that are at odds with one another. But why come down on the side of home ownership being the desirable outcome? To my mind, many of our supply crises around the world are rooted in “home-voters” (as in the book by Fischel) preferring policies that make the value of their homes go up.
A society with more renters is a society with more voters who care about enacting policies in the best interest of renters. If anything, continuing to pursue the goal of widespread homeownership is at odds with the goal of abundance and affordability.
Hi Cameron, the logic does fall down to the extent that previously investor-owned and permanently rented properties are not taken up by owner-occupiers who were previously renting in the same market area.
For example, they may be taken up by people who use it as a holiday home or at least a property they only use for part of the year. Common in high amenity areas that people like to visit at particular times of the year.
There is also the issue which I think may have happened more during the Covid pandemic, e.g. previously non-resident Australian citizens returning to live in a home purchased from an investor who had previously rented it out - again no reduction in Australian rental demand but lost rental dwelling stock.
Particular geographic areas may also be affected by similar migration within Australia, i.e. in-moving owner occupiers take up formerly investor-owned properties, removing rental dwelling stock without reducing local rental demand. Again, this is something that seems to have happened more in parts Queensland, for example, during the pandemic.
I understand the loss of rental dwelling stock, through changes such as above, may have been a contributing factor to the low vacancy rates and rental increases experienced in the last couple of years. Of course, increased overall demand through reduced average household sizes during the pandemic and now increased migration have been the major factors involved.
I have not done the detailed research for evidence in each of these respects, but these are examples of circumstances that depart from your logic of each new owner-occupier being one less renter.
"Oh no, landlords will sell their dwellings. This is terrible news for renters!"
Can you give some examples of people saying that? (Preferably respected people not some random joes on Twitter).
It sounds so stupid it's hard to believe someone saying it seriously.
Compelling logic and data as usual, Cameron. Thx. I think the real issue with landlord economics deteriorating is they are probably less likely to buy (and therefore finance) new build and therefore stock growth is lower. Curious if the data shows any correlation there. Evan T