Most Australians believe that property investment is a surefire way to generate passive income and wealth.
But I feel for our kids and the generation after them trying to get onto the property ladder.
The only way they are going to get onto the property ladder is via the bank of Mum and Dad.
Or an inheritance when mum and dad pop it and go to heaven ….. or in my case, the chances are on the higher side, it will be hell. But an inheritance means our children must wait. That is because they must wait until mum and dad pop it (otherwise, there are taxes to pay), and let’s be honest, with technology and everyone living to almost 100, it could be our kids are in their sixties and about to retire themselves before they get the grubby hands on our assets. But an inheritance is not much good for them at that age.
And it is an irony. That is because our kids will become the wealthiest generation ever – because they will inherit a whopping $3.5 trillion in the next 20 years. But this inheritance is tied up in homes and investments, and although mum and dads will part with some of it during their lifetime, it is unlikely they will give all of it away while still alive.
Most of our kids will have a choice.
1. Do not buy a home or
2. Buy a home with outrageous crushing debt or
3. Live with Mum and Dad until Mum and Dad pop it or become a bank or
4. Become a renter for what feels like almost their entire lives
So, it is not surprising that my younger clients all ask if I ever think house prices will go down. Now, I am not God (who I am told can tell you these things), and since I will be spending much of my time with the devil, I could be cunning and tell a lie. But since I am not with the devil right now, here is my honest take.
I don’t think prices will come down.
There are several reasons why I think this.
1. Immigration
Yes, those pesky immigrants are nicking all our jobs, houses, schools and hospital places.
But saying that is just a way of blaming the matter on a bunch of people who are trying to do their best for themselves and their families. Besides, I am talking about legal immigration, so if you want to blame anyone for immigration, then have a smash at the Federal Parliament’s door, not immigrants themselves. And remember, I am an immigrant too, and I would like to think I have added something to the Australian community. And there are many like me. Not all immigration is bad.
Net immigration over the next 5 years means we will have over 1 million people entering the country, and most will want to live in our capital cities. Do we have a plan on how we are going to accommodate the equivalent of half of Brisbane? Nope.
This then means more people for limited available housing. And from my economics studies at university, I remember something about supply and demand, which said if demand outstrips supply, prices go up.
There’s more.
You see, while our children struggle to come up with a 20% deposit and must save for years, most of the immigrants who have come to Australia are relatively wealthy. They have deposits of 50%, which means they are quite happy to jack up prices by $10K- $50K to get the deal over the line.
2. No Gain for Political Parties
The next reason is our gutless politicians. I have an uncle who always tells me anyone who enters politics because they have failed at everything else in their lives. I’m not sure about that, but any politician who tells you they are in it for the ‘’community’ is probably as good a liar as the devil himself.
The Labor Party and the Coalition have no interest in house prices going down. Here’s why.
The population can be split into thirds. A third of voters own their own homes without debt. Another third is paying their home off via a mortgage, and the rest of voters are renting.
If you are a politician, do you really think pissing off 2/3rds of the population by reducing house prices is a good strategy? A political strategist will always tell their politician paymasters that when a population feels their wealth has gone down, the population blames politicians. Turkeys don’t vote for Christmas. Politicians will never vote for a reduction in house prices, no matter what they say publicly.
Trust me. All those property policies they come up with, they never do anything that allows house prices to become affordable.
There’s more here, too, because we also have stamp duty and land taxes, which are state taxes. Which state is going to want to reduce house prices knowing that by doing so, the state government coffers will go down?
3. Negative Gearing
Aussies love a tax break. And negative gearing is a massive one which benefits the wealthy who want to invest more than the average Joe.
I am not a great believer in negative gearing. In the short term, it works. In the long term? Nope. It never does, and I have the calculations that show it.
But that does not stop accountants, specifically those in the real estate space, from touting it as the best next thing since sliced bread.
Ahh…. But you say there are rumours that the current government will abolish it. They might. But remember when in opposition, the Labor Party proposed that and lost an election they should have won. They can do it mid-government, but I think they may end up with a bloody nose again.
But even without negative gearing, I do not see many landlords selling up and getting out of the market because negative gearing is thrown in the trash bin. That is because many investors are positively geared, and it will not affect them.
And I doubt my advice to clients will change when it comes to property. I will still tell them to buy investment property – only that the ‘next best thing since sliced bread’ is no longer available.
4. We want more!
We live in the age of social media and proving to the world and our friends that we have made it. This then means we need bigger and better homes with lavish kitchens and lounges. This then means we want to upgrade.
My wife has a sensible head on her shoulders. She has a simple view of bigger and more lavish homes. And because she sees me as a 5-year-old kid who is unlikely to use a vacuum for what it was designed for it means she is now in charge of cleaning a bigger home. That, in her mind, is a no-go area, and that means we are still in the home we purchased 16 years ago and are unlikely to move away from.
But lavish homes cost a lot of money to own and upkeep in terms of repairs and upgrades. Which means the buyer must pay for them. Which in turn increases prices.
So, there you have it—my honest opinion about house and property prices. But remember, I am not a financial planner, and I have not considered your circumstances. So don’t do anything without talking to a professional.
We have helped many business owners work less, earn more and build incredible wealth. Buying property may be one way to build wealth, but you may not be sure. If you think we may be able to help you, contact us for a free consultation – https://wowadvisors.com.au/contact-us/
