Attitude and help gets young people into the market: Mal James

A number of young (and the not so young) homebuyers will have stopped looking for their dream home in the last few weeks.

This could be a bad situation (for them).

In fact it could well have been a completely counterproductive action if at any stage, in the future, they want to own a family home.

I bought my first home in 1985. Since then I have bought over a 1000 homes and never have I once purchased a home by not giving it my all.

Waiting never works

Never have I seen a friend or a client be in a better position by waiting out of the market for any length of time. Please don’t confuse this statement with passing on buying the wrong home and then continuing to look for the right one.

There are good and bad homes for each and every one of us. Don’t rush (there is no rush, even now). However you won’t find the good homes by not looking.

A number of younger buyers will have been turned off by media talk, Facebook interactions and discussions at work or home.

There is a lot of talk that we are in a bubble and by implication the bubble will burst, home prices will drop dramatically and bargains will miraculously appear.

We at James do not see that – not over the longer term anyway, not unless the population changes dramatically.

To stop the home search, to give up, to lose focus is WRONG, an untruth , a false perception IF your longer term happiness is tied to being in a family situation where you, or you and your partner control your destiny – eg you live in your own home.

Markets will continue to rise in the longer term

No easing of the market will assist you to any noticeable degree.

We did see the effects of the worst financial markets correction since the Great Depression in 2008, the market has bounced back and now much farther ahead than it was in 2007, 2008 or 2009. If you are viewing a home over a “lifetime” investment horizon, there will be bumps, but it will be a strong long term proposition.

Over time the market will/must continue to rise whilst there is population growth.

It’s simple demand and supply. Infrastructure Australia released their report two weeks ago and in it they have projected a 45% increase in population in Brisbane, Sydney, Melbourne and Perth over the next 15 years.  If that isn’t reassurance of continuing property demand, I don’t know what is. 

The government cannot and will not “save” you, the young homebuyers.

The only thing that will “save” you, the young homebuyer, is you (and if you are lucky – good parents).

So, Mr. Hockey might have been clumsy in his words, but his message had some truth.

Perhaps I am being generous, but one of the more helpful statements this last week seemed to be the most controversial.

If you want to buy a good home, get a job that pays. This, in my opinion, was one of the few accurate and helpful comments of this last week – if buying a good home is your main priority.

BUT please, there is more to this than getting a good job. A number of young doctors feel they can’t buy their first home and they have what society deems is a good job.

As a young home buyer, please don’t get caught up in the minutiae or the politics.

Mr Hockey’s statement is a helpful pointer if you take it as meaning:

1. Take action yourself
2. Get the resources you need to get a home

You as young home buyers need to act and take it upon yourselves to control your own destiny.

Theories do not put a roof over your head, practical solutions do

House affordability is a theoretical problem.

Effective house buying is a practical solution.

Your choice as a young homebuyer is to be caught up in the problems – good dinner party chatter or caught up in the solutions, which will put a roof over your family’s head and more importantly build long term security for your family.

First the problems and then we put the VIOLIN away and discuss solutions.

Negative Gearers

As a young home buyer you face negative gearers (AND super funds AND other investment vehicles as well).

If you are looking at an $800,000 home and you are competing against a negative gearer, then a negative gearer can borrow all the money they need and can pay well over $2,000,000 for that same $800,000 home and it will still COST LESS to service than what it would for you pay for your mortgage, even assuming you had a 20% deposit.

The argument that negative gearing and super funds increase rentals is true, but its also BALONEY for you because with SMART BABY BOOMER INVESTORS it increases rentals at the cost of young home buyers buying a home.

So lets get rid of negative gearing, super funds OK. 

Maybe, but please not in a hurry, without thinking it through.

We buy a number of homes for parents who have been reading our blogs for the last decade. If the government or the opposition got rid of negative gearing, then in many cases, all they would be doing, is making it easier for overseas buyers to purchase the stock that you are hoping will be freed up for younger people.

I have teenage children and I need the firepower negative gearing gives me to maintain and buy homes against overseas buyers. I represent many parents and they need the firepower negative gearing gives them to maintain and buy homes against overseas investors.

So do you really think the government is going to alienate the baby boomers. In theory yes, but in practice, I’m not so sure. They may water down negative gearing. However, as you can see from the above maths watering down will have limited effect, as the gap is so great.

Many parents need negative gearing or super funds to compete against Chinese buyers and other overseas buyers and are doing so right now. We know as we are buying for parents.

If the government removed negative gearing, super funds they could suffer a tremendous backlash from many people (with resources) because they would take away a significant tool in competing on the international stage for buying Inner Melbourne Homes for their children.

Possible Solution Number One is to get your parents involved NOW.

If we were talking to Grade 6’s about home buying, the main message we would be telling them is get Mum and Dad out there now looking for a good home for you to rent off them when you’re 30. Of course I would be adding in make sure Mum and Dad know the difference between a good and a bad family home to buy for you.

If you cant beat them, join them. Maybe DON’T hate negative gearing, USE IT.

PROPERTY ORPHANS (no helpful parents) STILL want and need negative gearing, otherwise you will get beaten up by OTHER BUYERS.

Here are some clues (but please talk to us about what to buy, most apartments ARE NOT the things to negative gear).

Possible Solution Number Two: Buy a GOOD home NOW and negative gear with a tenant, then move in when you can afford it.

Possible Solution Number Three: Bit more adventurous – buy a GOOD home and get a friend to buy a GOOD home and use negative gearing, possibly with a solicitor and a formal/informal agreement to live in each other’s homes. Your main purpose is not to avoid tax; your main purpose is to provide shelter, to afford a home. The lessening of your tax allows you to compete against other local and overseas buyers. I would still get some legal advice on this type of set up, just in case.

BUT please this is not the whole solution in itself. This is part thereof, of you taking charge and getting negative gearing to help you, not hurt you.

Overseas Buyers

If not Chinese buyers, then Indian buyers, Brazilian buyers, and Indonesian buyers and so on will be competing on the homes you want to buy.

Overseas buying is unlikely to stop in a hurry as all political parties want population growth and they want it from rich overseas people.

Whether that is right or wrong is not for us to say – but Overseas bidding particularly from China dominates the Inner Melbourne Market – even where Chinese people are not bidding.

Overseas buyers have more money to spend on an $800,000 home than you, particularly while the A$ is as it is.

Lets say in 2010 you as a young person decided to save for a deposit on a then $700,000 home. You were looking to save $140,000 deposit. During this time the main issue IS NOT that your $700,000 has gone to $800,000 or $900,000 but that the Australian dollar has dropped and you are in an international market.

The couple in Beijing who were also saving in 2010, but were saving in US dollars have now effectively $210,000 AUS as a deposit and can fund a $1,000,000 purchase simply because of the exchange rate changes. A 50% drop in the AUS $ vs. US$ in the last 5 years.

So for that $700,000 home now worth $800,000 the overseas buyers could bid to $1,000,000 with the same savings since 2010 as you.

That’s only one part of the equation, there are many Chinese and other international families who don’t need to borrow – they are $800,000 to $8,000,000 cash buyers. As we said recently there are over 2,000,000 millionaire Chinese families looking for homes.

Let’s stop Overseas Buyers from taking our kids homes is the under the breath comment at many dinner parties.

OK how? The FIRB Act (designed to limit overseas investment) is as effective as Airline security – meaning if people want to do it, then they will do it – if they have been allowed to get to the threshold stage.

And besides that, will stopping overseas buyers actually help or hurt you in your quest for a good home in Inner Melbourne close to transport, shops, work, friends and schools?

Think about it, overseas buying has positives.

Chinese buying saved Melbourne property in 2009 from experiencing what almost every other country experienced – a significant and sustained property downturn.

Do you really want to stop Chinese buyers? Do you want a 20 year flattish property market like Japan – which has zero population growth and zero immigration?

And its not just the money – Chinese families have a lot to offer us through their older and more modern cultures.

Maybe we want to be like Japan and shut our borders or Canada who has partially shut them to Chinese buyers.

As a community we will all have to make that decision through our politicians.

I’m not so sure any total lockdown is the way to go. Perhaps a focus into regional areas may be a better alternative – maybe not – it needs discussion and then action, rather than knee jerk reactions.

What is true is overseas bidding particularly from China dominates the Inner Melbourne Market – even where Chinese people are not bidding.

However we have had Chinese buying for 40 years, just never at this level of intensity.

But can you and your children wait? They may have gone from 6 to 16, or 16 to 26, or 26 to 36 while discussions are happening and your children need a home sooner than that.

Real Estate Agents and Buyer Advocates

Agents and advocates are ruining it for young people by pushing the prices up.

Good selling agents do push prices up and bad buyer advocates can hurt young homebuyers with their incompetence. But the real truth is us agents/advocates are not that good – we can’t control markets.

It’s demand and supply that controls markets.

Demand is from population, with wealthy immigration being the main driver; and supply is very restricted on most Inner Melbourne Homes with good position and good land.

So while agents are often their own worst enemy (with regards to their quoting and some tactics), they are not the reason why young homebuyers can’t buy a home to live in.

If we stopped everything

Ok, so lets say in your perfect world we’ve got rid of the Chinese buyers, got rid of the Negative gearers, banned Super Funds from buying homes, stopped immigration and yada yada yada.

Where would that leave you – does that mean you can automatically buy a home much more easily?

Not necessarily.

Wounded Underbidders

Have you been to auctions in the Inner North for instance – you know the single-fronters in need of a reno – the ones you can almost afford?

Are you just competing against negative gearers, super funders and families from Asia?

Well no – you are also competing against WOUNDED UNDERBIDDERS – that is other buyers who have bid before. They have come from Inner Melbourne organic population increases via Inner Melbourne births and Australian intra-migration from Outer Melbourne and Regional wealthier homebuyers wanting to be closer to schools and infrastructure that works.

NOW they are better resourced than you. By better resourced we mean they:

1. Have a clearer focus
2. Have a buyer advocate or other property professional
3. Have done greater research and so on – eg they may have a more competitive interest rate – every dollar counts!

CONCLUSION TO ISSUES for YOUNG HOMEBUYERS

If the government or the army or the media or …….. were somehow able to:

• Stop the overseas buyers coming
• Stop negative gearing and super funds and ….
• Stop other locals competing against you

and all the while:

• Kept the economy buoyant
• So you can keep a job and
• Kept the developers actually building new homes in a negative economic environment.

Where would you be?

Do you really want to buy you first home in Whoop Whoop West and live in a country with a 20 year property market like Japan – which gave you almost no hope of a few good property moves that saw you end up in Hawthorn – near schools in a nice home for not much else than three good decisions?

Me personally – I want a gently rising market for my children 

And I want them to learn how to use the rising Melbourne market to their advantage.

Don’t give up – don’t whine about negative gearing and Chinese buyers, learn to deal with them and get into the property mix.

But please get into the property mix sooner rather than later

Because once you are in, then if you make good decisions and buy well, the market will work for you.

Example: We have bought for families who have moved from $480,000 in Albert Park in 2000 to $880,000 in Sandy in 2005 to $2,000,000 in Bayside in 2015 all with manageable changeover costs. Look at the number $480,000 – isn’t that what you have now?

How do you do that, how do you use this market to your advantage?

The four solution keys

1. Good plan
2. Good professional assistance 
3. Good processes
4. Good decisions

Its all about NOW plus the LONGER TERM, not just the NOW.

Now for young people and by that we mean anybody under say 45, this article may appear lacking in empathy. 

All I can say is I have teenage children and I totally, totally share the concerns re home affordability, BUT………… I share my/our credentials to be able to say what we are saying.

My family has bought two of the needed three homes for our children and we are still paying off those mortgages, just as many other families are. We have used negative gearing. We needed it. Our children are 20,16 and 14. I/we have significant fears that if we had not been working towards this goal our children would have had significant housing problems that would impact negatively on their lives (and that still may happen).

Our family and James Buyer Advocates has been substantial supporters since 2006 of Hanover’s for the Homeless Private Rental Brokerage programme. The work of Hanover has allowed us to see first hand the hundreds and hundreds of families who sleep rough every night because they cannot afford decent housing.

I am a professional buyer advocate, have bought over a 1000 homes and see the current housing affordability situation affecting not only young first homebuyers, but many other people as well. The only generation that has done well from all this is the baby boomers (my generation). In my humble opinion, we as a generation, need to do a hellava lot more in giving back in a meaningful way to help those that follow us; rather than leave some sort of scorched landscape as we depart planet Earth (sorry about the soapbox).

Mal writes weekly auction reports, advice and in-depth market analysis on James' website.