August 26, 2025 • 23 mins
The Federal government is pushing big super funds into the housing market: That market is currently dominated by 'mum and dad' investors - Would big funds do better? Overseas experience of major institutional ownership of housing shows that rents rise when big funds buy into housing because they need a higher running yield. In turn, traditional buyers get priced out.
Nerida Conisbee, chief economist at Ray White joins Associate Editor - Wealth, James Kirby in this episode.
In today's show, we cover:
- The risk of letting big funds into housing
- Universal 5 per cent Home Deposit to launch early
- Investors monitor accelerated housing incentives
- Good news for renovators - the replacement cost is back to normal
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
Hello and welcome to The Australian's Money Positive podcast. I'm
James Kirby. Welcome aboard everybody. Well, as they say in
the cricket, it's all happening across property market. Just now
we've had a raid cut, we've had a surprise acceleration
of the universal home deposit scheme from the government, and
off the back of the economic we've got all sorts
(00:30):
of things happening on the environmental regulations around housing, some
which will make houses get built faster, believe it or not,
some that will change the whole nature perhaps of housing.
I'm joined today by regular guest Nearada Connor Species, the
chief economist at Ray White. How are you, Nerida, I'm well,
(00:52):
thanks for having me. I think the last time you
were on were probably we were just discussing this that
this was a big step, this universal five percent home
deposit for first home buyers. Anyone in the country can
now buy a house at a five percent deposit if
they are a first home buyer. And it's staggered how
much you can spend. I think like nine to fifty
(01:14):
in Melbourne, a million plus in Sydney. But it's really
going to add that segment of the market is pretty hot.
Already good thing or a bad thing.
Speaker 2 (01:23):
Well, there's two sides to it. On an individual level,
it's obviously a good thing because it does allow a
first time buyer to get in quicker than they otherwise
would and it is one of the key reasons why
Later's housing policy going into the election was so popular.
Speaker 1 (01:40):
We should mention they've actually accelerated. It happened. It was
supposed to start January next year, and Prime Minister Abenez
has just announced it's going to start in September.
Speaker 2 (01:47):
Yeah, okay, yes, So an individual level, very popular. On
an affordability level, not so great, because we know that
when you give people the ability to borrow more money,
we'll give them more money. It does lead to much
higher acceleration of pricing in a constrained supply environment, and
we do have a housing supply issue, and there's not
(02:10):
enough homes particulate those cheaper price points, and this will
lead to an acceleration of those cheaper homes in terms
of pricing.
Speaker 1 (02:17):
So the estibus were up to five percent higher.
Speaker 2 (02:21):
Yeah, it's already happening. I mean, we have a look
over the last couple of years in markets like Sydney.
Sydney pricing has been fairly flat, but it has been
flat mainly at the top end, or even declining at
the top end. If we have a look at sub
a million, we have seen quite strong growth at for
homes priced at that level.
Speaker 1 (02:39):
Yeah, I mean, the argument in favor of it is
that it increases home ownership. And the same report that
said if we push up prices also said it would
increase participation or whole ownership rates from six five percent
sixty six to sixty seven, So more people get to
(02:59):
own a home than would have previously. Is the trede
off worth it?
Speaker 2 (03:05):
The issue is that it will push more homes outside
of that affordable price point. So it is worth it
for those that can get in, and it's worth it
for those that can afford to pay off a loan.
But to put this policy in isolation without looking seriously
at housing supply is a challenge. So I know the
(03:26):
federal government is looking seriously at housing supply, but we
can't just keep giving people access to more funds assuming
that it won't lead to continued strong price growth.
Speaker 1 (03:37):
And that's a challenge we have. So from an investor,
the investors' investors listening and looking at this market. It's
what it means is that a segment of the market,
the first home buyer strata, the million dollar market in
a little bit higher in Melbourne, but a little bit
lower than a million in Melbourne, and then lower again
(03:59):
in the other cities. But something in that region eight
hundred thousand plus across the country, seven to fifty plus
across the country. That's the hottest segment of the market.
Is that fair to see? Is that the investment messages
such to investors, that is the hottest part of the market.
Speaker 2 (04:15):
Yeah, absolutely, it is the hottest part of the market.
So it is really been driven by first home buyers,
but we also know that part of the market is
popular with renters and investors are also in that market
as a result, so it will continue to get strong.
I mean, we've seen it very clearly in markets like Brisbane.
So do you have a look at a market like
(04:35):
It's witch house prices have more than doubled over the
past five years, and it is because It's witch medium
was about four hundred thousand at the start of twenty twenty,
it's now at about eight hundred thousand and really being
driven by affordability, So people buying there as first home buyers,
but also investors too because it was at a price
(04:57):
that investors are pretty happy putting their money into.
Speaker 1 (05:01):
Yes, right, but it's an entry level, isn't it, and
people have doubled their money. It's not interested in the
market that's moving it five percent a year or whatever.
Tell me more broadly, you did something very interesting this week,
a deep dive as you do on these research notes
on what's happening around energy ratings in homes. That's to
put it simply, more broadly, what the government is doing
(05:23):
right is they are suspending temporarily the environmental layer, if
you like, in the new home approval process. But you
were worried about this. I'm not surprised that you were worried.
I just thought that you would be pro supply of
homes as the primary driver over anything else.
Speaker 2 (05:46):
I mean, one of the challenges with housing supply, or
pushing through housing supply quickly is that to do so
the government the main labor that they can is planning.
So we have certainly seen that they have relaxed a
lot of planning around Australia to allow for more development
to take place. The next state. What they're looking at,
(06:08):
which was an outcome from the Federal government's Economic Roundtable,
was a relaxation of National Construction Code, where they've said
no more changes on environmental aspects of the code, so
you know for things such as energy efficiency or you know,
shading or whatever that we know changes for four years.
(06:28):
They will adjust the code for their safety obviously, so
that will continue be adjusted. But their idea being that
they do want to push through more homes. They're doing
it through planning, they're doing it through relaxing the construction code.
Speaker 1 (06:44):
So the trade off is that they will build more
homes and they will not be as environmentally sophisticated as
they might have been.
Speaker 2 (06:51):
Yes, and also the neighborhood might not be as livable.
And so I think that's the other aspect too with
the planning, the relaxation of planning.
Speaker 1 (07:00):
So from an investment point of view, again this is
all in the new home area, isn't it? Broadly from
the summit, Productivity Summit, Wealth Tax Summit as we like
to call it in the Australian tell me looking at
what was said around the table and what the treasure
is set afterwards for property investors what do you think
(07:20):
is coming down the line that property investors should be
aware of.
Speaker 2 (07:26):
Well, I think particularly buying new So it does apply
to new house and land, but it also applies to
new apartments. You do need to be careful as an investor.
You always need to be careful buying off the plan
obviously that even buying a new home in a new area,
that the area does have a high level of amenity,
and also that it does have a certain level of
(07:48):
environmental sustainability, so you know, you don't want to be
caught in a situation. I mean, a really good example
is a flammable cladding issue that came up last decade
that you know leads projects get pushed ahead very quickly.
They may be trying to cut costs and maybe trying
to get them up quickly, and you are left with
a very hefty bill down the track because they do
(08:09):
have to make adjustments. So you know, that's always something
to be wary of. But I think particularly now because
we are seeing an enormous level of development proposed and
as a result, there may be some issues with the
developments that take place.
Speaker 1 (08:22):
Okay, so that is from an investment point of view,
there is the concern that the standards, if they are
suspended or rushed or diluted in any fashion during an
acceleration of the housing target, could cause economic risks that
aren't immediately obvious.
Speaker 2 (08:41):
Yeah, and also I mean even the ability to leave
the property and also the capital growth of that property.
So you know, there's definitely risks associated with investing in
an environment where we are going, you know, ideally, because
that's what the government is trying to do is ideally
get high levels of development taking place.
Speaker 1 (09:00):
We'll take a break because I wanted to talk to
you about this idea again at the summit was that
the big super funds would could should provide housing. Now,
what we've never really discussed on the show is what
would that reality be at the moment this show exists.
And particularly the property dimension of this show is aimed
at people who are investors in property. Most people have
(09:21):
one property, maybe too. It's a backbone of every day
investing in Australia. What if that was replaced by institutional investments?
What would it mean. We'll be back in a moment. Hello,
(09:43):
Welcome back to The Australian's Money Puzzle podcast. James Kirby
talking to narrative Conspy regular guests on the show talks
to us about the big picture in for property investors,
and the big picture having remained relatively stable for a
long time, there is a lot happening policy wise which
is directly relevant to investors just now. I mean, here's
(10:04):
the thing, for instance, narrative, if the big super funds
did get the green light to go into housing, and
by that I mean a green light would be that
they are allowed, they are encouraged, and the deals are
put on the table that they would be keen to
participate in. Tell me what has happened around the world
(10:25):
when big funds have gone into property, private equity funds, etc.
Say in the UK, in the US. What's the experience there?
Is it better? Is it different than market that's controlled
by private investors as we have our market just now.
Speaker 2 (10:40):
So Australia has it had much institutional investment at all.
Is quite different to what we're seeing in the US
and the UK and most of Europe, where we have
seeing tension funds, super innovation funds. We've seen a lot
of private equity getting into housing renting them out. I
think for Australia we do need a bit of a
diversification of who I own rental properties, because at the
(11:02):
moment it's very heavily geared to mum and dad investors,
and we know it's certainly in recent years that if
there's not enough investment in housing from that group, then
we do have rental problems. So this would ideally help
if we see more investment from these other groups and
would ideally help with keeping rental growth calm the problem.
(11:23):
So what are emerging in the US is around very
similar issues to hear that people feel well, So if
you have a look at it, if you have a
good mum and dad investor in Australia, often they're quite
okay with very low rental yields because they're relying on
capital growth. If you have a look at institutional investors,
they need that rental yield to make the development, to
(11:46):
make the projects that come.
Speaker 1 (11:47):
Oh yes, so the year is okay, This is very
important point. Yeah, okay.
Speaker 2 (11:51):
So if you look at an institutional investor, if they
build an apartment building or they buy a whole suburb,
which has happened in the US, they may be they
may quite substantially push up rents to be able to
generate that decent return. So I think there is a
perception in Australia that if we get this institutional investment in,
(12:13):
it will calm rents and it will make it you know,
it will make it cheaper or better for renters. So
I don't think that's necessarily the case.
Speaker 1 (12:21):
You think super funds are institutionalization, but big funds own
literally tracks of the suburbs that actually would push rents.
Speaker 2 (12:29):
Up potentially, yes. And also, you know, we all have
super that if they don't push rents up and they
don't get a decent yield, how do you feel about
that being part of your superannuation balance? Because I think
on one hand, most of us, I mean, most people
feel that housing is too expensive and it would be
(12:52):
great if we could calm rents and calm house prices.
But at the same time, are you willing to take
a hint on your superbalance for that to take place?
And I think that's the that's kind of the uncomfortable
question we have around super funds getting into.
Speaker 1 (13:07):
And it's that the experience overseas that rents did do
go higher when institution investors because the yield is more
the running yield is more important to them. Than it
would be for a moment, Dad.
Speaker 2 (13:18):
Yeah, it has. If you look at the anger around
rental housing the US in particular, it's not anger directed
towards individual investors. It's now anger directed towards the big
funds or the big groups or the big companies that
I that I need properties and the same problems. They're
the same problems around upkeep. They're the same, you know,
(13:40):
they're very similar problems that the anchor now is directed
more to individual investors. Here, it's directed towards large companies.
So it's necessarily solve those problems.
Speaker 1 (13:48):
So the retor, the rector here complains to mister and
missus Smith, but the rent in Chicago complains to Gigantic
Corporation Limited, And it's completely different. Dynamic about bidding at
auction or if you were bidding for the house around
the corner and you were up against amp.
Speaker 2 (14:06):
Yeah, well this is the much statement pockets and then
an individual investor absolutely.
Speaker 1 (14:11):
Yeah, I mean, I digress, but it's true, as you say,
deeper pockets are Remember going I was a property reporter
once upon a time, commercial property, and you would go
downtown there would be an auction city building, you know,
and everyone would stand on the street and the bidding
would start, and if the person from AMP put their
hand up, everyone would just go, oh, hell, ampre here,
you know, because they wanted, if they wanted. It's a
(14:33):
completely different dynamic than the individual investor who's looking at it.
And we've never had that in housing. That's a really
interesting point you make and that you bring up. I mean,
at its worst, I think is the vulture funds, which
of course swoop on housing when there's a crash. This
is a different dynamic. This is we're assuming under normal circumstances,
with a normal, gently growing economy. What would happen if
(14:56):
big funds came into the market just to develop that
a little bit more. Or there's also and it hasn't
been here at all, but we must allow for it.
I think now the sooner or later companies themselves buying
housing in Ireland. At the moment I noticed where there's
a lot of dependence, of course on multinationals companies like
I think it's certainly Ryanair and I think Intel have
(15:18):
been buying housing for their staff and they come out
and they say we cannot get the staff. The staff
can't afford to live in Dublin. So our answer is
we will buy houses for them. We haven't had that here.
It's got to be a potential outcome. Hasn't it our
market sooner or later?
Speaker 2 (15:36):
Yeah, I mean we have had it here. I guess
places like man Easa we're probably originally, yes, traditionally mining
mining towns.
Speaker 1 (15:44):
Yes, there was specific Dunlop houses actually where I lived
at one stage. Once upon a time, Pacific Dunlop had
owned a whole pile of houses. This was, once upon
a time, big conglomerate. But I'm talking about a different
dynamic where the company was not in housing. It's not
patron such. It's an urgency where they say we can't
get the workers, they can't live in the middle of
(16:05):
Melbourne or Sydney, so we've bought houses for them. Do
you think that's going to happen here ever?
Speaker 2 (16:11):
Yeah, well, I think it's happening in a very mile
way in places like Bayer and Bay. You know, you
hear of hospitality companies providing some sort of accommodation, not
on mass you know, it hasn't happened here. But you know,
besides big infrastructure projects or big mining projects where they've
had to provide housing in quite isolated areas. But it's
one option. I mean, if you do need young staff
(16:34):
in Sydney, and young staff in Sydney really find it
difficult to live in such an expensive place, it is
an option to be providing that absolutely.
Speaker 1 (16:43):
Okay, now we've covered favorite ground here. As I said,
there is a It's one of those times for a
policy sometimes doesn't matter an awful lot if you're an investor.
There are ties where it really matters. We have a
fairly active government outlining a policy in front of us
just now. A lot of it is pertinent property and
you can see how they can pull the lever so quickly,
(17:04):
like for instance, accelerating that first home deposit scheme and
opening it up from September on, which will instantly, I think,
feed into the home buyer market. And if you think
the prices are lifting quickly in that strata now where
they can only accelerate it, I would think. Okay. I've
kept some very interesting questions for Narrada right smack in
her area. We'll talk about them in a moment. Hello
(17:33):
and welcome back to the Australians Money Puzzled podcast. James
Kirby here with neared economspy chief economist at the Rape
White Group, someone who's willing to take questions of all
types from all types, which is good because we have
some pretty curly questions for her. First once from Sean.
I often hear of people using renovations as a strategy
(17:54):
to increase equity or the sale price of their home.
This polarized opinion on the merit of this, particularly with
construction labor costs increasing. I know many success stories failed
to account for all the costs in this area. So
are the days of renovating for profit behind this? Hey,
this is really interesting. We had talked through last year
(18:14):
how people were afraid to renovate, but I noticed you've
been doing some work on replacement cost, and that replacement
cost is Could you explain to people what happened and
how that's improving again?
Speaker 2 (18:27):
Yeah, So what happened through the pandemic is that it
became apparent that it was cheaper to buy an established
home then buy a brand new home. So hard to measure,
but we saw it in the outskirts of many capital
cities that when we had to look at house and
land developments, anything that was built in twenty twenty could
be sort of thirty forty percent cheaper then something that
(18:49):
was being built in twenty twenty four and not dramatically
different in terms of quality. And so what happened is
that we've started to see a lot of people moving
into buy homes built in twenty twenty and.
Speaker 1 (19:02):
You don't buy the new one, You're buy the one
that's one year old, because you know, I.
Speaker 2 (19:06):
Think, yeah, like you said, buying a used part. It's
basically it's around replacement costs that if you have a
look at trying to bridge that gap, it was too
why that construction costs have really blown out even their
house parts seen strong growth, we've seen it narrow and
it's not because house construction costs have dropped, they have stabilized.
(19:28):
But what we have seen is that house prices have
now caught up in many areas and as a result
that that gap has substantially narrowed. So I think ideally
a lot of people would have hoped construction costs come down,
but they haven't. That we have seen it increased in
the cost of buying it home.
Speaker 1 (19:45):
Okay, back to Sean, Then in that scenario, are renovations
financially more promising than there would be.
Speaker 2 (19:56):
It depends on what you're doing. And you know, this
is a thing. If you're doing like a really super
unusual backyard sculpture or something, you know, maybe not. But
if you're doing something like painting and it saves someone time,
then you know that would definitely work out. I mean,
at a base level. You know, we generally say the
(20:16):
cost of your home now plus the renovation would equal
the cost you could sell at. But you know that's
not necessarily the case. We know that some renovations do
add a lot more value than others.
Speaker 1 (20:26):
And okay, yeah, but I suppose usefully people that variability
has improved, that sense of oh, having no idea how
much costs would blow out, that period has calmed.
Speaker 2 (20:38):
It has come. And I think the other thing too,
is that when we have a look at properties that
go up for option, a fully renovated family home will
absolutely do a lot better than something that's unrenovated. So
people are taking into account the fact that it is
hard to build at the moment, or still pretty hard
to build and still pretty expensive.
Speaker 1 (20:56):
Yes, okay, so that's still highly valued. That you have
put yourself through the torture of dealing with the spectrum
of treaties as it should be. Okay, final question from Carl.
I was reading the Productivity Commission found that productivity in housing,
measured by dwellings completed per hour, has dropped by fifty
three percent. It made me wonder whether the decline is
(21:17):
due to the increasing size of homes we're building today.
Is that true? The productivity in housing has dropped and why?
Speaker 2 (21:23):
Yeah, so it takes on average six it's gone out
from six months to build a home to over almost
eleven months.
Speaker 1 (21:29):
So there's you know.
Speaker 2 (21:30):
It is taking a lot longer. It's kind of it's
quite it's not complicated at all. I mean, basically what
happened through the pandemic is we had supply chain blockages.
Things like if you're building a house and then a
bas doesn't turn up, then you can't finish the house.
It then slows through to labor challenges, so again, if
you can't find a tiler, you can't finish your house.
(21:51):
And so that increased time. We then start to see
a lot of builders going to receivership. So the availability
of trades continue to be problematic, and even things like
the green energy transition is quite challenging in places like
Wa because very brick dependent and bricks need gas and
gas is expensive and then trying to find brick layers
(22:11):
is really difficult. So we do have an aging trade
trades profile in Australia, so very complicated, but definitely productivity
is low and there's quite amazing numbers of trades that
are required to increase productivity that the hi I have mentioned.
I can't remember off the top of my head, but
(22:32):
it was, you know, tens of thousands of trades are
required to try and fix the productivity.
Speaker 1 (22:37):
So it's I see. So it's a flash flash point
basically in this area.
Speaker 2 (22:42):
Yeah, absolutely, very.
Speaker 1 (22:44):
I did not know that, all right, Thank you, Carl.
Very interesting question. They were. None of this, of course
is advice. It's information only. Terrific Keith, thank you very much.
Narrative Cando spy, very interesting. As always, this government is
an interventionist government. If you're an investor, you're really on
to keep your eyes open as to what is happening
around you. I think is the message from today's show.
(23:05):
We'll talk again fans, great, Thank you Narrador and thank
you folks. The email the money puzzle at the Australian
dot Com dot Au talk to you soon.
Hello and welcome to The Australian's Money Positive podcast. I'm
James Kirby. Welcome aboard everybody. Well, as they say in
the cricket, it's all happening across property market. Just now
we've had a raid cut, we've had a surprise acceleration
of the universal home deposit scheme from the government, and
off the back of the economic we've got all sorts
(00:30):
of things happening on the environmental regulations around housing, some
which will make houses get built faster, believe it or not,
some that will change the whole nature perhaps of housing.
I'm joined today by regular guest Nearada Connor Species, the
chief economist at Ray White. How are you, Nerida, I'm well,
(00:52):
thanks for having me. I think the last time you
were on were probably we were just discussing this that
this was a big step, this universal five percent home
deposit for first home buyers. Anyone in the country can
now buy a house at a five percent deposit if
they are a first home buyer. And it's staggered how
much you can spend. I think like nine to fifty
(01:14):
in Melbourne, a million plus in Sydney. But it's really
going to add that segment of the market is pretty hot.
Already good thing or a bad thing.
Speaker 2 (01:23):
Well, there's two sides to it. On an individual level,
it's obviously a good thing because it does allow a
first time buyer to get in quicker than they otherwise
would and it is one of the key reasons why
Later's housing policy going into the election was so popular.
Speaker 1 (01:40):
We should mention they've actually accelerated. It happened. It was
supposed to start January next year, and Prime Minister Abenez
has just announced it's going to start in September.
Speaker 2 (01:47):
Yeah, okay, yes, So an individual level, very popular. On
an affordability level, not so great, because we know that
when you give people the ability to borrow more money,
we'll give them more money. It does lead to much
higher acceleration of pricing in a constrained supply environment, and
we do have a housing supply issue, and there's not
(02:10):
enough homes particulate those cheaper price points, and this will
lead to an acceleration of those cheaper homes in terms
of pricing.
Speaker 1 (02:17):
So the estibus were up to five percent higher.
Speaker 2 (02:21):
Yeah, it's already happening. I mean, we have a look
over the last couple of years in markets like Sydney.
Sydney pricing has been fairly flat, but it has been
flat mainly at the top end, or even declining at
the top end. If we have a look at sub
a million, we have seen quite strong growth at for
homes priced at that level.
Speaker 1 (02:39):
Yeah, I mean, the argument in favor of it is
that it increases home ownership. And the same report that
said if we push up prices also said it would
increase participation or whole ownership rates from six five percent
sixty six to sixty seven, So more people get to
(02:59):
own a home than would have previously. Is the trede
off worth it?
Speaker 2 (03:05):
The issue is that it will push more homes outside
of that affordable price point. So it is worth it
for those that can get in, and it's worth it
for those that can afford to pay off a loan.
But to put this policy in isolation without looking seriously
at housing supply is a challenge. So I know the
(03:26):
federal government is looking seriously at housing supply, but we
can't just keep giving people access to more funds assuming
that it won't lead to continued strong price growth.
Speaker 1 (03:37):
And that's a challenge we have. So from an investor,
the investors' investors listening and looking at this market. It's
what it means is that a segment of the market,
the first home buyer strata, the million dollar market in
a little bit higher in Melbourne, but a little bit
lower than a million in Melbourne, and then lower again
(03:59):
in the other cities. But something in that region eight
hundred thousand plus across the country, seven to fifty plus
across the country. That's the hottest segment of the market.
Is that fair to see? Is that the investment messages
such to investors, that is the hottest part of the market.
Speaker 2 (04:15):
Yeah, absolutely, it is the hottest part of the market.
So it is really been driven by first home buyers,
but we also know that part of the market is
popular with renters and investors are also in that market
as a result, so it will continue to get strong.
I mean, we've seen it very clearly in markets like Brisbane.
So do you have a look at a market like
(04:35):
It's witch house prices have more than doubled over the
past five years, and it is because It's witch medium
was about four hundred thousand at the start of twenty twenty,
it's now at about eight hundred thousand and really being
driven by affordability, So people buying there as first home buyers,
but also investors too because it was at a price
(04:57):
that investors are pretty happy putting their money into.
Speaker 1 (05:01):
Yes, right, but it's an entry level, isn't it, and
people have doubled their money. It's not interested in the
market that's moving it five percent a year or whatever.
Tell me more broadly, you did something very interesting this week,
a deep dive as you do on these research notes
on what's happening around energy ratings in homes. That's to
put it simply, more broadly, what the government is doing
(05:23):
right is they are suspending temporarily the environmental layer, if
you like, in the new home approval process. But you
were worried about this. I'm not surprised that you were worried.
I just thought that you would be pro supply of
homes as the primary driver over anything else.
Speaker 2 (05:46):
I mean, one of the challenges with housing supply, or
pushing through housing supply quickly is that to do so
the government the main labor that they can is planning.
So we have certainly seen that they have relaxed a
lot of planning around Australia to allow for more development
to take place. The next state. What they're looking at,
(06:08):
which was an outcome from the Federal government's Economic Roundtable,
was a relaxation of National Construction Code, where they've said
no more changes on environmental aspects of the code, so
you know for things such as energy efficiency or you know,
shading or whatever that we know changes for four years.
(06:28):
They will adjust the code for their safety obviously, so
that will continue be adjusted. But their idea being that
they do want to push through more homes. They're doing
it through planning, they're doing it through relaxing the construction code.
Speaker 1 (06:44):
So the trade off is that they will build more
homes and they will not be as environmentally sophisticated as
they might have been.
Speaker 2 (06:51):
Yes, and also the neighborhood might not be as livable.
And so I think that's the other aspect too with
the planning, the relaxation of planning.
Speaker 1 (07:00):
So from an investment point of view, again this is
all in the new home area, isn't it? Broadly from
the summit, Productivity Summit, Wealth Tax Summit as we like
to call it in the Australian tell me looking at
what was said around the table and what the treasure
is set afterwards for property investors what do you think
(07:20):
is coming down the line that property investors should be
aware of.
Speaker 2 (07:26):
Well, I think particularly buying new So it does apply
to new house and land, but it also applies to
new apartments. You do need to be careful as an investor.
You always need to be careful buying off the plan
obviously that even buying a new home in a new area,
that the area does have a high level of amenity,
and also that it does have a certain level of
(07:48):
environmental sustainability, so you know, you don't want to be
caught in a situation. I mean, a really good example
is a flammable cladding issue that came up last decade
that you know leads projects get pushed ahead very quickly.
They may be trying to cut costs and maybe trying
to get them up quickly, and you are left with
a very hefty bill down the track because they do
(08:09):
have to make adjustments. So you know, that's always something
to be wary of. But I think particularly now because
we are seeing an enormous level of development proposed and
as a result, there may be some issues with the
developments that take place.
Speaker 1 (08:22):
Okay, so that is from an investment point of view,
there is the concern that the standards, if they are
suspended or rushed or diluted in any fashion during an
acceleration of the housing target, could cause economic risks that
aren't immediately obvious.
Speaker 2 (08:41):
Yeah, and also I mean even the ability to leave
the property and also the capital growth of that property.
So you know, there's definitely risks associated with investing in
an environment where we are going, you know, ideally, because
that's what the government is trying to do is ideally
get high levels of development taking place.
Speaker 1 (09:00):
We'll take a break because I wanted to talk to
you about this idea again at the summit was that
the big super funds would could should provide housing. Now,
what we've never really discussed on the show is what
would that reality be at the moment this show exists.
And particularly the property dimension of this show is aimed
at people who are investors in property. Most people have
(09:21):
one property, maybe too. It's a backbone of every day
investing in Australia. What if that was replaced by institutional investments?
What would it mean. We'll be back in a moment. Hello,
(09:43):
Welcome back to The Australian's Money Puzzle podcast. James Kirby
talking to narrative Conspy regular guests on the show talks
to us about the big picture in for property investors,
and the big picture having remained relatively stable for a
long time, there is a lot happening policy wise which
is directly relevant to investors just now. I mean, here's
(10:04):
the thing, for instance, narrative, if the big super funds
did get the green light to go into housing, and
by that I mean a green light would be that
they are allowed, they are encouraged, and the deals are
put on the table that they would be keen to
participate in. Tell me what has happened around the world
(10:25):
when big funds have gone into property, private equity funds, etc.
Say in the UK, in the US. What's the experience there?
Is it better? Is it different than market that's controlled
by private investors as we have our market just now.
Speaker 2 (10:40):
So Australia has it had much institutional investment at all.
Is quite different to what we're seeing in the US
and the UK and most of Europe, where we have
seeing tension funds, super innovation funds. We've seen a lot
of private equity getting into housing renting them out. I
think for Australia we do need a bit of a
diversification of who I own rental properties, because at the
(11:02):
moment it's very heavily geared to mum and dad investors,
and we know it's certainly in recent years that if
there's not enough investment in housing from that group, then
we do have rental problems. So this would ideally help
if we see more investment from these other groups and
would ideally help with keeping rental growth calm the problem.
(11:23):
So what are emerging in the US is around very
similar issues to hear that people feel well, So if
you have a look at it, if you have a
good mum and dad investor in Australia, often they're quite
okay with very low rental yields because they're relying on
capital growth. If you have a look at institutional investors,
they need that rental yield to make the development, to
(11:46):
make the projects that come.
Speaker 1 (11:47):
Oh yes, so the year is okay, This is very
important point. Yeah, okay.
Speaker 2 (11:51):
So if you look at an institutional investor, if they
build an apartment building or they buy a whole suburb,
which has happened in the US, they may be they
may quite substantially push up rents to be able to
generate that decent return. So I think there is a
perception in Australia that if we get this institutional investment in,
(12:13):
it will calm rents and it will make it you know,
it will make it cheaper or better for renters. So
I don't think that's necessarily the case.
Speaker 1 (12:21):
You think super funds are institutionalization, but big funds own
literally tracks of the suburbs that actually would push rents.
Speaker 2 (12:29):
Up potentially, yes. And also, you know, we all have
super that if they don't push rents up and they
don't get a decent yield, how do you feel about
that being part of your superannuation balance? Because I think
on one hand, most of us, I mean, most people
feel that housing is too expensive and it would be
(12:52):
great if we could calm rents and calm house prices.
But at the same time, are you willing to take
a hint on your superbalance for that to take place?
And I think that's the that's kind of the uncomfortable
question we have around super funds getting into.
Speaker 1 (13:07):
And it's that the experience overseas that rents did do
go higher when institution investors because the yield is more
the running yield is more important to them. Than it
would be for a moment, Dad.
Speaker 2 (13:18):
Yeah, it has. If you look at the anger around
rental housing the US in particular, it's not anger directed
towards individual investors. It's now anger directed towards the big
funds or the big groups or the big companies that
I that I need properties and the same problems. They're
the same problems around upkeep. They're the same, you know,
(13:40):
they're very similar problems that the anchor now is directed
more to individual investors. Here, it's directed towards large companies.
So it's necessarily solve those problems.
Speaker 1 (13:48):
So the retor, the rector here complains to mister and
missus Smith, but the rent in Chicago complains to Gigantic
Corporation Limited, And it's completely different. Dynamic about bidding at
auction or if you were bidding for the house around
the corner and you were up against amp.
Speaker 2 (14:06):
Yeah, well this is the much statement pockets and then
an individual investor absolutely.
Speaker 1 (14:11):
Yeah, I mean, I digress, but it's true, as you say,
deeper pockets are Remember going I was a property reporter
once upon a time, commercial property, and you would go
downtown there would be an auction city building, you know,
and everyone would stand on the street and the bidding
would start, and if the person from AMP put their
hand up, everyone would just go, oh, hell, ampre here,
you know, because they wanted, if they wanted. It's a
(14:33):
completely different dynamic than the individual investor who's looking at it.
And we've never had that in housing. That's a really
interesting point you make and that you bring up. I mean,
at its worst, I think is the vulture funds, which
of course swoop on housing when there's a crash. This
is a different dynamic. This is we're assuming under normal circumstances,
with a normal, gently growing economy. What would happen if
(14:56):
big funds came into the market just to develop that
a little bit more. Or there's also and it hasn't
been here at all, but we must allow for it.
I think now the sooner or later companies themselves buying
housing in Ireland. At the moment I noticed where there's
a lot of dependence, of course on multinationals companies like
I think it's certainly Ryanair and I think Intel have
(15:18):
been buying housing for their staff and they come out
and they say we cannot get the staff. The staff
can't afford to live in Dublin. So our answer is
we will buy houses for them. We haven't had that here.
It's got to be a potential outcome. Hasn't it our
market sooner or later?
Speaker 2 (15:36):
Yeah, I mean we have had it here. I guess
places like man Easa we're probably originally, yes, traditionally mining
mining towns.
Speaker 1 (15:44):
Yes, there was specific Dunlop houses actually where I lived
at one stage. Once upon a time, Pacific Dunlop had
owned a whole pile of houses. This was, once upon
a time, big conglomerate. But I'm talking about a different
dynamic where the company was not in housing. It's not
patron such. It's an urgency where they say we can't
get the workers, they can't live in the middle of
(16:05):
Melbourne or Sydney, so we've bought houses for them. Do
you think that's going to happen here ever?
Speaker 2 (16:11):
Yeah, well, I think it's happening in a very mile
way in places like Bayer and Bay. You know, you
hear of hospitality companies providing some sort of accommodation, not
on mass you know, it hasn't happened here. But you know,
besides big infrastructure projects or big mining projects where they've
had to provide housing in quite isolated areas. But it's
one option. I mean, if you do need young staff
(16:34):
in Sydney, and young staff in Sydney really find it
difficult to live in such an expensive place, it is
an option to be providing that absolutely.
Speaker 1 (16:43):
Okay, now we've covered favorite ground here. As I said,
there is a It's one of those times for a
policy sometimes doesn't matter an awful lot if you're an investor.
There are ties where it really matters. We have a
fairly active government outlining a policy in front of us
just now. A lot of it is pertinent property and
you can see how they can pull the lever so quickly,
(17:04):
like for instance, accelerating that first home deposit scheme and
opening it up from September on, which will instantly, I think,
feed into the home buyer market. And if you think
the prices are lifting quickly in that strata now where
they can only accelerate it, I would think. Okay. I've
kept some very interesting questions for Narrada right smack in
her area. We'll talk about them in a moment. Hello
(17:33):
and welcome back to the Australians Money Puzzled podcast. James
Kirby here with neared economspy chief economist at the Rape
White Group, someone who's willing to take questions of all
types from all types, which is good because we have
some pretty curly questions for her. First once from Sean.
I often hear of people using renovations as a strategy
(17:54):
to increase equity or the sale price of their home.
This polarized opinion on the merit of this, particularly with
construction labor costs increasing. I know many success stories failed
to account for all the costs in this area. So
are the days of renovating for profit behind this? Hey,
this is really interesting. We had talked through last year
(18:14):
how people were afraid to renovate, but I noticed you've
been doing some work on replacement cost, and that replacement
cost is Could you explain to people what happened and
how that's improving again?
Speaker 2 (18:27):
Yeah, So what happened through the pandemic is that it
became apparent that it was cheaper to buy an established
home then buy a brand new home. So hard to measure,
but we saw it in the outskirts of many capital
cities that when we had to look at house and
land developments, anything that was built in twenty twenty could
be sort of thirty forty percent cheaper then something that
(18:49):
was being built in twenty twenty four and not dramatically
different in terms of quality. And so what happened is
that we've started to see a lot of people moving
into buy homes built in twenty twenty and.
Speaker 1 (19:02):
You don't buy the new one, You're buy the one
that's one year old, because you know, I.
Speaker 2 (19:06):
Think, yeah, like you said, buying a used part. It's
basically it's around replacement costs that if you have a
look at trying to bridge that gap, it was too
why that construction costs have really blown out even their
house parts seen strong growth, we've seen it narrow and
it's not because house construction costs have dropped, they have stabilized.
(19:28):
But what we have seen is that house prices have
now caught up in many areas and as a result
that that gap has substantially narrowed. So I think ideally
a lot of people would have hoped construction costs come down,
but they haven't. That we have seen it increased in
the cost of buying it home.
Speaker 1 (19:45):
Okay, back to Sean, Then in that scenario, are renovations
financially more promising than there would be.
Speaker 2 (19:56):
It depends on what you're doing. And you know, this
is a thing. If you're doing like a really super
unusual backyard sculpture or something, you know, maybe not. But
if you're doing something like painting and it saves someone time,
then you know that would definitely work out. I mean,
at a base level. You know, we generally say the
(20:16):
cost of your home now plus the renovation would equal
the cost you could sell at. But you know that's
not necessarily the case. We know that some renovations do
add a lot more value than others.
Speaker 1 (20:26):
And okay, yeah, but I suppose usefully people that variability
has improved, that sense of oh, having no idea how
much costs would blow out, that period has calmed.
Speaker 2 (20:38):
It has come. And I think the other thing too,
is that when we have a look at properties that
go up for option, a fully renovated family home will
absolutely do a lot better than something that's unrenovated. So
people are taking into account the fact that it is
hard to build at the moment, or still pretty hard
to build and still pretty expensive.
Speaker 1 (20:56):
Yes, okay, so that's still highly valued. That you have
put yourself through the torture of dealing with the spectrum
of treaties as it should be. Okay, final question from Carl.
I was reading the Productivity Commission found that productivity in housing,
measured by dwellings completed per hour, has dropped by fifty
three percent. It made me wonder whether the decline is
(21:17):
due to the increasing size of homes we're building today.
Is that true? The productivity in housing has dropped and why?
Speaker 2 (21:23):
Yeah, so it takes on average six it's gone out
from six months to build a home to over almost
eleven months.
Speaker 1 (21:29):
So there's you know.
Speaker 2 (21:30):
It is taking a lot longer. It's kind of it's
quite it's not complicated at all. I mean, basically what
happened through the pandemic is we had supply chain blockages.
Things like if you're building a house and then a
bas doesn't turn up, then you can't finish the house.
It then slows through to labor challenges, so again, if
you can't find a tiler, you can't finish your house.
(21:51):
And so that increased time. We then start to see
a lot of builders going to receivership. So the availability
of trades continue to be problematic, and even things like
the green energy transition is quite challenging in places like
Wa because very brick dependent and bricks need gas and
gas is expensive and then trying to find brick layers
(22:11):
is really difficult. So we do have an aging trade
trades profile in Australia, so very complicated, but definitely productivity
is low and there's quite amazing numbers of trades that
are required to increase productivity that the hi I have mentioned.
I can't remember off the top of my head, but
(22:32):
it was, you know, tens of thousands of trades are
required to try and fix the productivity.
Speaker 1 (22:37):
So it's I see. So it's a flash flash point
basically in this area.
Speaker 2 (22:42):
Yeah, absolutely, very.
Speaker 1 (22:44):
I did not know that, all right, Thank you, Carl.
Very interesting question. They were. None of this, of course
is advice. It's information only. Terrific Keith, thank you very much.
Narrative Cando spy, very interesting. As always, this government is
an interventionist government. If you're an investor, you're really on
to keep your eyes open as to what is happening
around you. I think is the message from today's show.
(23:05):
We'll talk again fans, great, Thank you Narrador and thank
you folks. The email the money puzzle at the Australian
dot Com dot Au talk to you soon.
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