Should we be more worried about the sharemarket, or housing?

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Is the housing sector so pumped full of credit it is about to explode? Or is the business sector so credit starved it is about to die?

Data sourced from today’s RBA financial aggregates.

There has never been a better time to kill negative gearing.

Talk about killing negative gearing is like elevator music in our national debate. It is ever-present and we’ve tuned it out.

But there will never be a better time than now to rip negative gearing from the tax code. That’s because right now investor activity in the housing market is a major macroeconomic problem.

The RBA would love to cut official interest rates – if it weren’t for the strength in housing. It is worried trimming the interest rate even more could create further mad results, like this terrace house around the corner from me that sold for $1.96 million.

This is what Glenn Stevens said last month.

“A situation where:

  • prices have already risen considerably in the two largest cities (where about a third of our population live)
  • prices are rising, at present, faster than income by a noticeable margin, and
  • an important area of credit growth has picked up to double-digit rates,

should prompt a reasonable observer to ask the question whether some people might be starting to get just a little overexcited.”

The strength in housing is very much on the investor side, not the owner-occupier side.

investment housing
Source: ABS catalogue 5609.0 Housing Finance Australia September 2014


The share of lending going to investors is at historic highs.

And the rest of the economy is in a morass with unemployment moving sluggishly higher.

Source: ABS Catalogue 6202.0 Labour Force, October 2014


If the strength of the housing market was more in line with the rest of the economy, rates would fall like a tonne of bricks. Reducing investor demand for housing could give the RBA the freedom it needs to cut rates to the point where the economy picks up.

rates, unemp
Traditionally, if the red line is rising while inflation is controlled, the RBA will make the blue line fall. But house prices are impeding them. (Data: RBA. ABS Labour Force)


In summary, this is what the experts call a policy window.

If there was ever a time where scrapping negative gearing (on existing homes at least) was going to fly, it would be when the topic is macro-economically important.

Negative gearing has haunted the Australian policy landscape since 1985, doing much to enrich property investors while having an altogether ambiguous effect on the social outcome it was designed to address – housing affordability

A brave treasurer would reach back to the Henry Review and say, ‘ in order to reduce the policy bind the rba finds itself in, it’s high time we looked at this recommendation.’

The Treasurer would find plenty of backing in the Henry Review. It did not argue that cutting negative gearing would cause an immediate reversal in house prices. But it did point out that the policy represented a big fat subsidy, and recommended something a lot more modest.

“When negatively geared, asymmetries in the treatment of expenses and  receipts give rise to a more favourable treatment (see Chart A1–20). This asymmetry ranks  amongst the greatest tax induced biases to the savings choices of households. “

henry graph negative g
Source, Henry Review, page 419

The beat of the drums against negative gearing will never be louder than now. Let’s see if policy makers can hear them.

Adult kids living at home? Chances are they’ll still be there in ten years time.

Australians are living with their parents longer and longer, and prospective empty-nesters might be pulling their hair out if they saw the latest data.

Just 48.2 per cent of people aged 18-24 in 2001 moved out of their parents home by 2011. And what’s more, 8 per cent of those aged 25-29 in 2001 had moved back in with their parents by 2011. 

The data come from HILDA, an absolutely amazing study by the good folks at the University of Melbourne. It follows thousands of people through their life, to deliver data that are richer than the regular snapshots from the ABS. 

The trend is global and its causes are probably economic. The ratio of minimum wage to rent suggests moving out of home is hard.


I would have done the above graph for house prices too, but the line would go down so fast you’d have to scroll a long way to see it all, and I don’t want my readers getting RSI in their scrolling fingers. 

Anecdotally, high house prices pin kids to the parental home in another way too. To buy a house you need a deposit. The best way to save for a deposit is to stay at home for a long time (or return home – this generation is called the boomerang generation for a reason). 

That’s not all. While trying to save, kids are also worried about student debts. The cost of university has also doubled in the last ten years, far exceeding the rate of inflation.


Incidentally, the price of beer has shot up too, and given how much of my student budget went on that, I’m glad I attended university over a decade ago.


For wealthy people from wealthy families, living at home is a simple matter of balancing material comfort against mild embarrassment. Kids who choose to live at home are a grand source of humour and pensive Guardian opinion pieces.

But really, the option is a blessing for those of us whose parents have stable housing situations. Not everybody is so fortunate.

That’s why policies like the Government’s plan to force under-30s to look for work without the dole is so ignorant. Not everyone has a spare room to go to, with their pictures still hanging on the wall.