Eliza Owen On The Real Choke Points In Housing Affordability

In this episode, we're joined by Eliza Owen and we're going to zoom out on Australia's housing mess. Record low affordability, lower priced homes suddenly leading the growth league table and a housing stock that simply doesn't match the way people actually live.

We'll unpack why the industry keeps quoting years to save 20% deposit as an affordability metric, even though almost nobody saves that way anymore and how that headline distracts from the real choke points. We'll also tackle the uncomfortable truth about government first home buyer incentives.

They sound helpful, but by funneling demand into narrow price brackets, they push prices up and leave many first-timers no better off or even worse off.

Add to that the blowout in servicing ratios, renters handing over a third of their income or more, and cheaper homes rising faster than the broader market, and you've got a system that's creaking under its own contradictions. What a conversation this is going to be. Welcome to the elephant in the room.

This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Our guest today is Eliza Owen, until recently head of research at Cotality, formerly CoreLogic, where she spent more than a decade dissecting affordability, credit conditions and policy shocks for banks, governments and the real estate industry.

Eliza has analysed everything from COVID volatility to the rate hike cycle to the great mismatch between shrinking households and oversized dwellings we keep building, all the while tracking the long-term supply constraints now shaping the market. Welcome, Eliza. We always have a wonderful chat with you. It's really great to see you again.

Thanks for having me. Great to be here.

Eliza, we always enjoy chatting with you. You're one of our long-term friends of the show. You probably are most appearances as a guest, I reckon. I haven't done the tally, but you're up there.

Obviously, you've got a bit of a change coming up in terms of a new start after Catality, which sort of I get in future episodes once you're on the other side, but this 5% deposit scheme and it's obviously come live on the 1st of October.

They increased the caps, they removed income thresholds and really any first home buyer pretty much should be able to make it happen with a 5% deposit. The treasury said like a 1% or 2% increase in prices. We've seen that in a month. I mean, what's your thoughts on it? It's been pretty powerful.

Yeah, it's another demand side acceleration, right?

So expanding the scheme, I think looks good for the government of the day because there's a lot of pent up first home buyer demand of people who have been trying to save a larger deposit, a 20% deposit, who in the short term will be able to take advantage of this scheme.

It's worth noting that obviously there's a filter that comes from within the banking sector. Just because you are eligible for the scheme doesn't mean you're eligible for a loan. And so from that perspective, it's been hard to quantify just what the impact to demand would be.

Westpac, for example, did some analysis on this earlier in the year and estimated that around 400,000 Australians would be eligible for the scheme. But from the sounds of things, the

uptick that has been seen by Housing Australia for applications is kind of in line with the more modest uplift in applications. I think it was getting to around 70,000 a year. And obviously, from a demand perspective, you're increasing access to credit. And whenever you do that, you

basically increase housing values. And so while it's good for those that can take advantage of it in the short term, it means that down the line, first term buyers will be able to get less for their money because it's going to be increasing demand pressures up to the caps of the scheme.

Especially when you take into account rival rental costs, I think it totally makes sense for individuals. It looks great for the government of the day in terms of boosting first home buyer numbers. But long term, it's not how we want to be addressing housing affordability.

Does it frustrate you? What's the emotion it evokes in you?

It is frustrating. I don't know how many economists have to bang their heads against a wall, how loudly, for how long, before governments stop inflating the demand side of the housing market. We've seen great initiatives on the supply side.

We've seen a government that is committed to making the National Construction Code easier to navigate, making planning and applications of property easier from both the state and federal and local governments. What we're not seeing is anything on demand.

And any economist will tell you that a market is influenced by both demand and supply. And I think a lot of people feel the same way. Maybe people are feeling a little bit more emboldened to talk about it.

I don't know, but I really hope we see government that is brave enough to start talking about the demand side.

I also think, too, there's something with the caps. Like it's sort of spreading that demand underneath a pretty heavy lid, you know. That means that properties really become overvalued or overpriced, shall we say, up to that point.

But it also means it's forcing people to go further afield or to find other places where they might be able to find properties under the cap. And then there's this big gap, so you've got this sort of lack of demand to that magnitude anyway over the cap.

I mean, you've done a lot of research on that over the past in terms of what happens to the artificial manipulation, if you want to call it. What do you see happening now?

Well, it's a little bit hard to tell the impact right now because the lower end of the housing market has been outperforming for the better part of two years.

probably because of affordability constraints, probably because we're at a point in the market now where middle and higher income buyers are looking further down the property value spectrum in order to afford something. And that's part of where we talk about this mismatch of buyers and property prices.

So within that, you know, we have this amazing analytics team at Kotality and one of our analysts, Tom Clarkson, he just went ahead and built these whole new indices that were above and below the price caps of the scheme, the price caps introduced in October.

So for example, he created a whole new index so that we could track the market in Sydney above and below 1.5 million. And what we found in October was that those below the price cap, so eligible for the scheme, increased by 1.2%. compared to 1% above the scheme.

Now that's a pretty unusual outperformance, 20 basis points, but it's not unusual for 2025. So at this stage, it's a little bit hard to delineate whether there's been significant impact of the scheme on the demand side. And like I say, there are filters from the actual banking side of things.

Like there will be a lot of people who might be eligible for the scheme who just don't qualify for the loan. So maybe overall it would have a modest effect on price, but again, it's just not the right approach when it comes to housing.

It's interesting to see the behavior of buyers though, because certainly before the scheme was increased on the 1st of October, as you say, we've seen increases in that lower price brackets.

Anecdotally, a lot of people on the ground have been saying that they feel like a lot of those buyers who were in a position to buy without needing to rely on the 5% deposit guarantee rushed to get in the market before that commencement date.

And so that has actually resulted in an increase, a preemptive increase in prices under the cap. James Wrigley, who's a financial planner, we've had him on the show.

And in fact, I interviewed him recently with Megan on Your First Homebuyer Guide podcast, because he did some videos on really how much money you need to be earning in order to be able to take advantage of the 5% deposit guarantee if you're going to the cap.

So if you're going above where you get stamp duty concessions, for example, every state and territory generally offers these other first-time buyer incentives. And if you go over that where you're not getting that, it sort of affects that we've got to save 10% because you've got to save costs plus your five.

And then you've got to be able to fund a 95% mortgage. And in Sydney, his calculations on a single income, for example, if you are going to be buying to the cap, you've got to be earning over $400,000 to be able to qualify. So

What you're talking about there is the filter being the banks. And this is the thing that, you know, it's good for the government to come out and go, look, we're helping first home buyers. You know, the biggest thing is the deposit hurdle. But that's not really the truth of it, is it?

The biggest thing there is income. Yep. That's a great point. So we've done a little bit of work on what an affordable purchase price might be for the median income household. And to be fair, the median income household might not be two young professionals working full time.

When we talk about median income households across Australia, we're looking at about $105,000 a year. And that includes the whole household spectrum from like two retirees to single parents to that double income couple scenario.

So $105,000, an affordable purchase price with a 20% deposit and average owner-occupier mortgage rates right now would be about $575,000. Median dwelling value in Australia is nearly $875,000.

So the market becomes more concentrated with buyers either selling well to repurchase in the market. The median resale from Australia profit-making homes across Australia is about $300,000, right?

It would be people with more than a 20% deposit, so not just resellers but maybe people who are getting a big chunk of inheritance, they're coming from a more wealthy background, they have a higher income like you say, or it's that people don't buy the median anymore and they do have to look further afield, they do have to look to

you know, maybe regional areas. But that's also not fixing the problem, it's just kind of a spillover of demand that goes all the way, it pushes everyone down the whole housing spectrum.

So the answer lies in developing more social and affordable housing for those at the bottom end of the housing spectrum that get pushed into more precarious situations. federal government is pursuing that. That's a great initiative, right? But it also comes from cooling demand. It was interesting as well.

I don't know if you guys saw APRA this morning announced that they're going to be putting a 20% limit on high debt to income ratios and that at the margin have an impact on the demand side as well.

People with really big property portfolios who have high debt to income ratios, that's the kind of I guess, person with access to a lot of wealth that might curb a little bit of demand at the edges, but ultimately they do that for financial stability, not housing affordability.

Yeah, I mean, the 5% deposit scheme, so we see it quite early, right? As brokers, we see where the clients come back to us, we see new inquiry. And I wouldn't say when their policy, not people even knew about it, to be honest.

know it was all quiet in the media and it wasn't until sort of august sort of september people like oh my god this is actually coming around next month i didn't i kind of forgot about it there was no media around it then there was lots of media around it like on the first of october there was a quite a bunch at the start of november and so i think people just you know it's like you know everyone's probably obsessed like us right so they're not really reading it but it's gonna start and then if you get this sort of

Oh, actually, if I bought three months ago when I first used the scheme in October, we would have bought maybe 5% cheaper. I've got to get in. There's always a natural January. I think James's numbers aren't right, to be honest, Veronica. I haven't watched his videos.

So sorry, James, but I think it's a bit too conservative, that number. It's probably more around like, you know, a couple earning sort of 300 would probably get to the cap.

No, he did say that couples have to earn less because they've got interest. They've got the tax-free thresholds, whereas an individual has to earn more because they only get one tax-free threshold.

Oh, yeah, but it's still probably 400. I reckon it's probably close to 350, but that's okay. It's still a lot, right? But that's a, you know, a single stretching to the 1.5 is probably not possible, right?

Like a lot of singles would probably be spending under a mil, but, you know, a couple earning 300, you know, particularly when they're buying something, they've gone and traveled or they've got their jobs and they're maybe focused on lifestyle in their 20s and, you know, first time buyer average age is 34 now, right?

So, you know, a $300,000 salary for a capital city is, you know, when you're in that part of your career is totally doable.

But what you're buying at the cap is not a lot. Like if you're at that age, you're thinking about kids, you know what I mean? Like if you're trying to buy for 1.5 in Sydney, you're not buying a family home.

And if you're working as a teacher or a nurse or, you know, even if you've got a relatively good professional job, it's so hard to keep up with the market. And I don't know about you guys, but I'm feeling it. I'm seeing friends move away.

I'm seeing colleagues struggle to find decent accommodation near work. It's affordability has deteriorated really badly in the past five years in particular. And I think we're definitely feeling it even at a relatively comfortable professional white collar level. Right. So you can imagine people that are lower down the income spectrum. Yeah.

And that's Sydney.

The counter-react to that is. Go hard on development, right? And go hard on releasing supply. And so I guess that's what New South Wales are doing, right? So what's your thoughts on the way that Chris Minns and the government are doing it?

And, you know, there's a lot of people say, oh, look, they're not going to build stuff that's affordable, which is true, right? But by creating supply at one end for downsizers and, you know, you are creating more dwellings, right? So how do you think this is the right move?

And it's what we absolutely need to be doing, you know, not just in Sydney, but across the board.

So I think what they're doing is good. I like the vast upzoning of precincts around good existing transport infrastructure. Part of the challenge, though, is that the government can only influence so much of what is ultimately the private sector's job.

especially because over the decades some of the development around new infrastructure for house and land greenfield development has fallen more to the private sector as well so if the financial conditions aren't right it's very hard to establish new housing even with the government trying to aid some of that productivity and ease of process it's still going to come back to things like material

input costs, interest rates, levels of demand and income. So there's a lot of challenge there and it doesn't happen overnight. And that's why I think if you do look at the demand side, if you look at the way that we tax and incentivize property purchases and property investments,

This is why in 2017, the 30% cap on interest-only lending, it was the trigger for the downturn. It had such a quick impact on the market. And again, I'm not saying that was introduced from a housing affordability perspective. It wasn't.

But it's interesting how, you know, maybe policies that actually cool access to credit for certain types of buy-in rather than stimulate access to credit for first-term buy-in could be a solution that is maybe missing in a policy package.

The APRA change, it's pretty pointless, to be honest. You know, they made it this morning around DTI incomes over six. I mean, the percentage of lending going over DTI six at the moment is like under 10%.

It's five and a half percent in aggregate. Yep. But what they're saying is that for some lenders, it is higher towards the cap of 20%. I would imagine what's happening is that you have people turning away maybe from the majors and looking to smaller lenders for more flexibility.

Could even push demand into non-bank lending, right? Which is maybe a little bit of a risk for the policy. But what they're doing is they're trying to get ahead of potentially risky lending. And a lot of those higher DTIs come from investors as well. So I get what you're saying.

It won't have the same kind of impact as the interest-only cap, but it's still a good preventative measure for the future.

Yeah, and it doubled down on trust lending. I think the banks have all been told off behind the scenes. You know, they haven't done it through a post online and say, hey, we're changing, but you know what? We're really worried that there's the Macquarie got in trouble, I guess.

I reckon behind the scenes and CBA did and they sort of, they looked to hang on a sec. We're really sort of allowing investors to sort of leverage up just because we're not doing enough checks around whether they can really afford these loans and we're exposing ourselves.

And so I think that's played through plus APRA is doing this, but You know, there is still a lot of investors that are, you know, can't afford their home or first homes. They're buying investment or they never bought an investment property and they aren't going to upgrade their home.

So they're entering the market. I think it's hard though, when you start putting pressure on restricting lending for home buyers, because it's already really tight When I started backing broking, you were talking like seven and a half, eight times your income you could borrow.

Then it went down to sort of six, six and a half. Now it's five, you know, and a lot of the banks are saying, you know, which we spoke about at the start, it's already really hard to even get the loan to buy the property you want.

So if you start to even restrict lending, it's only going to make affordability worse, I feel, for the people trying to transact now. I don't know what your take on that.

That's a good point. And maybe we do need to think about hitting a balance between limiting potentially risky lending and offering some flexibility for home buyers. It's interesting you mentioned the rise of the kind of rent investor as well.

I was looking at the ABS lending indicators data because they report on the portion of first home buyer loans that are purchasing investment properties. It's up to about 9% in New South Wales. But that's all symptomatic of a lack of affordability.

Like people feel they don't really have another option to get into the market. So it's an interesting consequence of affordability as well, that it potentially creates a little more speculation and investment approach to the market.

Eliza, the CoreLogic, or the Catali, sorry, came out last month, hit $12 trillion, right? At the same time, you're releasing an affordability report. So you're saying like unaffordable, but then it keeps going up. It was $10 trillion, $11 trillion, that's $12 trillion, like...

Well, it's basically, it's been a billion a month for like the last two years, isn't it? Yeah.

If not more, right? And so how do you reconcile? Like someone, if I was in an airport and chatting to you and said, oh, you know, it's multiple incomes 10 times, like it's got a crash.

Like how do you reconcile while the property market has keep increasing in values at a time when if you did an affordability report five years ago, it's still saying it was unaffordable.

This is a great question. And the question is fundamentally, if housing is so unaffordable, who's buying it, right? So that's what I was saying before, like this massive gap between what is affordable and where property prices actually are. The answer is that an increasingly concentrated, wealthy pool of buyers.

And you see it in turnover as well, even though property prices are rising. Actual sales turnover is sort of creeping a little bit lower. It's sort of about historic average of 5.1%. But in a city like Sydney, for example, it's quite a bit lower. I think it's about 4.8% for the turnover rate.

And I think we'll continue to see that concentration play out in the industry with fewer people just being able to participate in the markets.

Now, in terms of why the market just doesn't crash at these unaffordable levels, despite all the talk that we've had about, you know, investment purchases and potential pockets of risky lending emerging, at the end of the day, Australia has a very conservative lending environment.

Like you say, going high DTI lending is often, you know, it is pretty rare overall. And what that means is that people are well placed to afford their mortgages when they do take them out. So if selling conditions start to deteriorate, people can stop selling.

And we see that with a correlation between property values and listings volumes and sales volumes over time. If you look back historically, the biggest the property market value has ever fallen since the 1980s by our data is a peak to trough of 8%. But on average, sales volumes fall 25% during downturns.

People are empowered to restrict supply when price signals are weak. And that's the same when we talk about developers doing that, individuals do the same thing. And that means that they can restrict supply, they can stave off the downturn.

And I think that goes some fair way in explaining how the property market continues to rise amid this lack of affordability.

Such a good point because I've never actually thought about it as a turnover rate. I mean, I just see the raw number. It's usually about 500,000 properties sort of a year. We've got like 11 million properties in total. So I'd see that turnover as a small percentage of the whole amount of properties.

And if that were to go up markedly, then obviously there's going to be some severe downward pressure on prices. But what would cause that to happen? And I certainly see a high rise building that has a bunch of first home buyers in it that

have a really high debt to equity ratio and then become under pressure, can't pay their mortgage. They're all going to have to sell. They're all got similar products. And then there's going to be huge downward pressure. You see that in some housing estates, for example.

So that's why properties can really fall or the property values can really fall markedly in those newer builds areas if there's hardship.

and a downturn but you know I look at an established area and often talk about if you look along one street you've got someone who's been there 10 years someone's been there 15 someone who's paid their house off in full someone who's only got 10% left on their mortgage somebody else that just bought last year and they've got 90% you know and there's this variation and unless you're really under pressure well you might be the only one under pressure not everyone else in the street's going to have that same pressure so only one house comes on the markets.

So it's that diversity of ownership and tenure that makes a big difference. So it's sort of interesting that Sydney's ratio or the turnover rate is so much smaller than their national average. And I guess that does go to the cost as well.

I mean, it's the most expensive city, so therefore the transaction costs are going to be more expensive than anywhere else. Imagine that's something that goes to your stamp duty argument. If stamp duty was removed, that's a bit of a handbrake, right?

you know, taken off, could that make our property, this is a question I haven't given you on notice, but could that make our property market more volatile? I don't know if any of the questions have been on.

No, none of these questions are on notice, but we didn't even say let's talk about stamp duty. But do you know, like if you took that handbrake away and made it easier to trade, that potentially could actually bring more property on the market, right?

Which wouldn't necessarily be a great thing if you wanted to retain values.

Yeah, to be honest, the stamp duty, like in my view, personally, I don't think removing stamp duty works for affordability without also replacing it with another tax. Because if you take away stamp duty, that's just more purchasing power, right?

And the way that our housing market is set up, it's to fuel additional income and wealth back into assets. So what you really need to do and what a lot of economists argue is not just abolishing stamp duty, but replacing it with a broad-based land tax.

So you can still basically have a progressive taxation on the property market that kind of keeps a lid on growth.

Yeah, I think what would happen if Sam's Duty went, right, you would create, unlock a lot of demand in upgraders and a lot of people that would want to upgrade, but just due to the sunk cost.

And so you will find there'll be more properties on the market, but at the same time, there's the owners would probably want to buy something else.

So for every property on the market, you're going to get equal demand, and they're just going to release all this pent-up demand in upgraders that will all want to get into a bigger home. Because, you know, while their income's stopping them, it's also just that transaction costs really burn them, and then...

I think obviously when markets are booming, you get more supply, but prices are still going up because the demand is bigger than the supply increase. The turnover rates is absolutely, that's exactly how I think about it too, Eliza. As soon as you think about what price is it?

Well, no, it's actually the marginal buyer theory, right? And as long as the properties are trading by someone selling, is a buyer willing to pay that price? And unfortunately, you know, the buyer is changed. It's not the buyer that was buying in these suburbs 10 years ago.

It's not the incomes and places are gentrifying. And

unfortunately they're competing over a fewer number of resources every year i think you make the right point not just a national turnover rate not just a city you kind of then go to a sydney housing market and then you go to you know the better streets within those suburbs as well and the turnover rate just really collapses because a lot of people would love you know to move but then they can't the jumps are so big right now so

We're all living in our homes longer and longer, which means that less and less properties are coming on the market. And I think that's often forgotten about. It's just like, obviously people just think, oh, well, you know, there's not enough buyers because it's like a run on the bank.

If there was a run on the back and, you know, a thousand properties came on the market, then yeah, absolutely prices would fall. But it's because there's just always constant restriction on people selling.

Yeah. And another way that we can think about it, which my colleague in the US, Selma Hepp, she looks at sales to population.

So there's the turnover rate, but you also consider that Australia's population rate has come up so much over the past few years, but the turnover rate's just been sitting at average levels of stock. So I've done a little bit of work on that as well.

So the number of sales for every 100 households, this was, I think it was quarterly data that I did it on. But basically the historic average is 1.4%.

sales a quarter per 100 households, and that's down to 1.1 at the moment, and it's been trending lower over time. So that's maybe another indicator that for all the people that are coming to Australia, for all the people that we have here, there's not as much transaction activity happening.

And you know, that's something that the industry should be concerned with as well. Like, if they want to keep up volume, and maybe value is more important, I don't know, but if we want to keep up volume, then affordability is important from that perspective as well.

That sort of leads to your great mismatch research. doesn't it? Because, you know, I think what you've come up, you know, we're structurally overbuilding large homes, despite most households being one to two people. Is that correct?

But also with rental accommodation, like renters typically have more people per household than owner occupiers as well. So this is something that always gets me when you get that argument. Oh, but every household that a landlord sells gets sold to a first home buyer, that's net. It's like not Not necessarily.

You know, so I guess what is locked in this sort of mismatch and what levers do you think would genuinely shift housing stock toward really what people actually need?

Well, I think it comes to providing the right supply and also having the right demand influences. So the swapping out of stamp duty for land tax, I think is a good example of how you could do that.

but also making sure that you're establishing just smaller accommodation for people that want to age in place. That's all that research was kind of pointing to. I know it got blown up into a lot of other headlines that weren't necessarily based on the original research. But that's the basic idea.

So are you talking then about basically a compositional makeup of every suburb that needs more diversity in it? Because, you know, for example, if you age in place, you know, like if you have a house on the Upper North Shore in Sydney,

Well, until recent years, there's really been no apartments built there, then some apartments. And now there's been a lot of rezoning, a lot of controversy around that.

But, you know, so potentially there's going to be a diversity of stock that allows, you know, you don't just move in and to multimillion dollar house, like you can actually start in the area, upgrade in the area and then downsize in the same area. Is that the sort of thing you're talking about?

Yeah, exactly that, exactly that. And it just comes from having a diversity of stock and, you know, anecdotally, when you talk to developers, some of the most profitable work that they are doing is in larger luxury apartments, right? Which speaks to that downsizing segment.

So because I'm not a developer, I don't know exactly how you kind of move forward with establishing that stock in more areas, but it's got to be an important part of getting people to right size.

Even with the tax settings, you know, I was having a look at when the New South Wales government tried to do the swap for stamp duty to land tax, and it just looked so complex and politically how difficult it was for the government to get that over the line.

I mean, clearly it's a big challenge, but I think it was just a cool thing, I think, to compare that ABS data on household sizes and housing stock. I always find that kind of data is good because I had no idea that 60% of Australian households were only one or two people.

That blew my mind. And I think that, you know, just observing that kind of data should give us perspective and maybe add a bit to the conversation about how we look at our housing policy and development.

You talk about this mismatch on the rental side as well. I mean, that to me is like the big mismatch. We could see it sort of changing in terms of where investors were wanting to invest. We could also see a lot of investors bailing, you know, over the last three years.

HIPAA has done lots of reports on this. Coming out of this sort of period, you know, it's not looking great for renters, right? Like particularly in capital cities, right?

And we're seeing a reacceleration of rent, you know, because not only is it unaffordable to buy, but when you can't start to even rent and you just constantly get pushed to the bottom of the pile and never even get a look in, like this is even a greater issue, I feel.

How do you feel about that?

Yeah, I would agree. I think that rental affordability, it's a growing problem, first of all, because more Australians are missing out on home ownership. So the private rental market becomes their alternative.

It's people at the lower income end of the spectrum that then have to compete with these higher income households that are missing out on home ownership.

And what we've seen in that re-acceleration of rent growth that you're talking about, so the rents have continued to grow year on year on year, but the pace at which they're growing started to pick up again in 2025. And it was most concentrated at first at the high end of the market.

So you may have heard that story about the two bedroom apartment in Bondi that was renting for 800 bucks a week that had a line around the corner. And there was a bit of discussion of whether this was signal or noise.

Some economists arguing that it was just noise and that it was a kind of a cheap apartment for that area. And that's why it attracted such a long line.

But when we actually looked at the data, we found that the fastest reacceleration in markets was at the higher end, maybe more luxury rental markets. And that is a reflection of probably higher real income growth over the course of the year. So it's not necessarily all bad.

The problem is that the distribution of that income growth is not even. So people, as you say, it's like creates a spillover of demand that ends up affecting lower income households.

And really that's where you need, again, the boost to social and affordable housing, probably the normalization, like the destigmatization of social housing as well, and affordable housing, which I think we have with affordable housing to an extent.

And also, you know, the boost to Commonwealth rental assistance and the, I guess, greater protection of tenants' rights to protect more vulnerable households as well.

Have you done any work on the volume of available property at that higher end? Because anecdotally, as prices rise,

And also, you know, people that have owned a larger home that's been in the rental market for some time, often they're a lot older, you know, they're older landlords, you know, they might be getting close to retirement or they might be getting close to trying to help their kids and their grandkids to get onto the property market.

And some of those properties start to transact and actually sell. There's not another investor who's not going to spend $4 million, you know, buying a house. And so because a lot of these properties are worth a lot of money,

So then there's less and less available at that upper end of the market, but at larger homes, and I just put $4 million out of the air, but it's not unusual to see a house in Sydney that's worth $4 million being offered for rent, but would have been owned by the same family maybe for 20, 30 years.

And so as properties get more expensive, there's going to be less and less of those larger properties available for rent, I would think.

Have you done any work on that? I haven't had a granular look at the supply levels, no, but that's a really good point. And it's obviously the other thing that could be pushing rent growth higher in those markets.

Yeah. And then also pushing people with higher incomes looking at that sort of next tier because they don't have the option. There's nothing for them to look at. We just see that on the ground anyway.

Eliza, you're going to leave Catality and we'll probably post this similar when your exit date is around Christmas. But obviously when you leave certain organizations, you get access to, you know, obviously IP, but also data. What are the things you're going to miss?

What are the things where you're just going to go, ah, like the access that you get to that's very hard unless you're on the inside club of Catality.

Yeah, that's so true. That's a really interesting point. Like it's always nice to think that you can go off and do independent work or whatever, but the compromise there is you don't get the same access to data. and you don't get the same access to people.

We have an amazing analytics team here that are so brilliant, supportive, innovative, and have really helped us to explore cool research. You know, when the fixed rate cliff was coming up, we looked at three-year resale periods.

We looked at, as I said, the index above and below the price threshold of the first-time buyer caps. We've done the price premium of being in good school zones. So I'm really gonna miss working on those kinds of projects. I'm going to miss access to RP data.

I may end up just becoming a subscriber. And I'll be subscribing to our Economist Pack, which is a monthly summary of price movements across Australia and the capital cities. So that's the home value index that you see come out each month.

So yes, some data that I'll just have to pay for now, but that's okay. It's well worth it. So the data, the people, the culture, I'm going to miss all of it. I'm on a personal mission to help more people make better property decisions.

You know, most people don't realise that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need. And what I do is help people with tricky real estate problems and

which often masquerade as simple questions like, should I sell my investment property because the interest repayments are hurting, or should I buy before I sell, or the other way around? You can connect with me and access all of the tools that I've created to help you make better property decisions at veronicamorgan.com.au.

And there you will find resources for first-home buyers, details about my buyer's agent mentoring program, you can connect with my Sydney-based property management and buyer's agency teams, Australia-wide vendor advocacy, or ask me for introduction to the small group of buyer's agents that I would personally recommend across the country. That's veronicamorgan.com.au.

If you're considering a property move such as buying your first home, upgrading, renovating or investing, the team here at Alcove would love to help you think through your decision and get the finance right. Please go to alcove.com.au to reach out. Yeah, I mean, Bill, just come up with an idea.

How's the school zone going to affect prices? And then be able to say to your analytics team, hey, can you guys back this up or find if it's working or not? That's pretty cool, you know, to be able to have the team to do it.

Because obviously after in those situations, you are trying to search that and find it and build the model. And it's just impossible to sort of do.

And when you think about the global context of Catality or even just, you know, you mentioned before around the sales per, you know, a hundred or a thousand people or whatever it was.

You know, what were some of the other global learnings you've sort of had that you can apply to the Aussie housing market? I mean, I was just reading a macro business article yesterday just quickly. And one of the final graphs on it, you know, Pete sent it to me.

And it was just about like the global problems in property prices all over the world. You know, like Iceland's probably the only country that's gone backwards over the last five years. But, you know, Netherlands and New Zealand's having a bit of a correction now.

But so like there's always a global perspective that we forget about. That's not just an Australian problem. Like what were some of the learnings you find when you speak to them?

Well, there's differences in finance structures, which we learned about through the pandemic as well. So we learned that in the US, for example, they have fixed loan terms for the life of the loan.

They have a little bit more flexibility in some of their mortgage products because the banks there are backed by, you know, Fannie and Freddie and their government sponsored institutions. We have seen differences in net overseas migration.

So the very kind of populist reaction that took place globally to the catch up in overseas migration post pandemic, that's led to much lower rates of overseas migration in major economies like the US and Canada compared to Australia. I think those are some of the interesting differences.

I mean, globally, COVID kind of put a lot of the major Western economies on a pretty synchronized rate cycle. So that's led to a lot of synchronizing of property market performance as a result.

And generally speaking, there was a kind of a lot of these property markets were benefiting from easing policy rates through the start of the year and end of last year. So I guess, yeah, a few similarities and differences.

What's interesting for our partners in the US, their challenge is because so many Americans are on a long-term fixed rate, they can't get stock moving because people don't want to lose those rates.

So they're starting to talk now about things like a portable mortgage, which might help to get their property selling again.

But yeah, I think we're very lucky here in Australia that we have banks taking on their own risk or a little bit more of their own risk, lending fairly conservatively, even though it does lack some flexibility. What it's meant is that our property market has always remained very stable.

We haven't had the same blowout in arrears and we haven't seen great housing market downturn in terms of value. So hopefully that continues.

It's funny how we can have these conversations. We can talk about the challenges of affordability and also how good it is that we don't have great downturns in value, which means that we are preserving the prices of property. And we have to be very flexible in these conversations, don't we?

A bit, you know, In the American market, for example, is there the same interest in investing in property from individuals, mums and dads, as there is in this country?

So that's a big difference, actually, is a lot of the investment overseas is institutional. And it's interesting where affordability pressures in a lot of countries can be unlimited in a

pools of capital that can invest in property and we're just not structured in the same way, particularly from a tax perspective in Australia. So you get a lot more individual investment ownership here. Whether that's good or bad, I think kind of depends on your perspective.

I think there is the potential for Australia to open up more of that institutional investment. And you see conversations happening from a government perspective around tax breaks for institutions, the rise of bill to rent.

But whatever we go forward with, you've got to make sure that either is a good landlord to an increasing population of renters, especially if institutional investment crowds out ownership of individuals.

And it's not going to solve the affordability end of the market anyways. They need a return on their investment. And the simple fact is our governments have been steeply declining their investment in housing for decades, which has been a big contributor to our current situation.

Before we ask you for a Dumbo, because we will get there soon, I am curious, you know, that 20% deposit benchmark, you know, it's largely irrelevant to how real buyers behave. So what would you think is a more accurate way to measure true affordability?

And, you know, I guess which of the sort of major stress points is doing the most damage right now?

So I would actually defend the 20% deposit benchmark. The vast majority of buyers do go in with at least a 20% deposit. If you look at the APRA data on new loans secured on loan devaluation ratios, and that's in part because they're selling a home to buy a home.

Oh, right. Yeah, but not for first home buyers. So if you're upgrading and you're buying a home, then yeah, you're using equity in the home you just sold. But first home buyers? Because that's how we were really measuring it. If you're already in the market, are we worried about affordability?

Or was affordability something that we sort of refer to first home buyers?

I don't know if you... So it's all about the relative measure, right? So even if you look at you have to save a 5% deposit, which by the way, obviously would then mean a much higher mortgage burden, which is another affordability metric that we report on.

Either way, what we're looking at is the change in that metric over time and the mismatch between what the time to save actually is and realistically what time to save a buyer wants.

So another one that we get a bit of criticism around is the portion of income required to service a mortgage, which is 45%. That's not realistic. And hopefully no one is actually taking out loans that require 45% of their income.

If you look at RBA data, it suggests that home loan payments actually make up about 20% of household income in aggregate. But what the measure is telling you is that the median income household cannot afford a mortgage on the median dwelling.

So again, it pointing out the distortion in the market and how the distribution of income compares to the distribution of property value. So when the numbers start to look crazy or unrealistic, we need to keep that in mind, I think, for where the market should be.

And I guess if our journalists explained it that way, it'd be more relevant, but they don't necessarily do that. There's certainly a lot of sensationalism around basically can't save a 20% deposit in under 10 years now in anywhere in Australia. I think that was the last headline I heard.

Sorry, Chris had a question there.

No, I was just going to go to, you know, and it's with a property Dumbo. And yeah, have you got any new stories or tales that you can share with us? I know we've asked these questions so many times.

My Dumbo was going to be the expansion of the 5% deposit scheme, but we've covered it off. I don't think it's a smart approach to policy for housing. You know that very well. Yeah, yeah.

You are part of a cohort of, you know, young professionals buying their homes. Have you seen any of your friends do something and you think, oh, please no.

Well, one thing I would say is like a very general observation is, and this is not really the fault of my friends who are like trying to get into the market, but it's like interpreting listings or price guides on property.

And I keep saying to my friends, like, whatever it is, whatever the listing guide is, add like 10%, add 20%. And it's just an emotional journey that they have to go through when they show up to these auctions and they show up to these to try and negotiate for a home.

I had to go through the process myself and I'm a property market researcher, right?

Wishful thinking kicks in because people think, oh God, if I could get it for that, that'd be great. And I know it myself. I know this intimately. I understand price guides. And it is dangerous to say just add 10 or 20%, by the way, because sometimes the agents get it wrong too.

So you do need to do your price research and really establish what you believe it to be worth and then work out what your limit is. But yeah, assuming it's going to sell for that is... sad, but it's a huge mistake I see a lot of people make.

Interestingly enough, both the Victorian government and the New South Wales government have come out very recently with some moves on underquoting. I've been part of the roundtable of the Office of Fair Trading for some time now on underquoting. It's been a very interesting journey working with them on that.

So New South Wales has got new legislation coming in that may or may not work, we'll see. Victoria's recent announcement, which is a classic to say that vendors have to provide the written reserve to buyers a week out of the auction.

I think got to be some very interesting behavior that comes out of that. Because also in Victoria, you've got two prices. There's estimated selling price. That's what the agent thought it was worth when they launched a campaign. And then you've got the indicative selling price, which is what the vendor really wants.

Often they are very different figures and the agent's job is to bring the two together and hopefully bring buyers along for the ride. So it's complicated. I've got some theories on what might play out there, but we shall watch with interest to see if they can crack the nut.

Absolutely. Thanks so much, Eliza. We'll chat to you again in the new year and do your new gig, whatever that might be. Appreciate all your efforts over the years as well.

Thank you so much, guys. Thanks for the chat. If you have a question that you'd like us to answer in an upcoming Q&A episode, you can send us a voicemail or written question via the website, theelephantintheroom.com.au, or you can email us directly at questions at theelephantintheroom.com.au.

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