#housingbythenumbers

Where is the Leadership on Housing?

15 August 2024 1 Comment

Over the past 3 weeks, I’ve had conversations with individuals who you might expect to be leaders in the ongoing housing debate. Among them were a local Queensland Mayor elected on a platform advocating for change. Then, a Federal Member of Parliament and a popular YouTuber from Punters Politics. Here’s how those discussions unfolded:

The Regional Town Mayor

This first-term Mayor eagerly took our call, recognising that their community desperately needs housing solutions. The local economy is stunted, and it cannot expand or diversify due to the lack of available housing for the workforce. Despite this, and after a decade of attempting to engage with this local government, it seems that even new leadership is still mired in the old council priorities of roads, rates, and rubbish. Meaningful change remains elusive despite every local ratepayer’s outcry over the “cost of living” and the “housing crisis.”

It seems that there is leadership in housing intent. However, intent is not enough to cut through the administration and red tape and effect change.

The Federal Parliament’s Role

With a $10 billion budget making headlines, one would assume that leadership and decisive action would be forthcoming from the Federal Parliament. Yet, in a brief in-person conversation, a Federal Member of Parliament candidly admitted that they are focused on what can be realistically achieved within the current political cycle rather than on ambitious, long-term goals. Their current term ends in 2025, and while they acknowledged the necessity of addressing the housing crisis, they expressed doubt about their ability to support any grand vision before then.

These ambitious people seem to want leadership, not that housing is even on their radar. In such privileged positions and insulated from the common experience, it probably is no surprise that these few do not understand what “housing stress” means.

“We will offer what can be achieved, not what might be a great aspirational goal. We need to work with our system and within the political cycle, so I am not sure I can help with your grand vision. No matter how wonderful and necessary this vision is. Our current term runs out in 2025.”

Insights from a YouTuber Influencer

In the age of declining traditional media, influencers like those behind the YouTube channel “Punters Politics” have stepped in to fill the void.

Yes, these people want leadership, and housing is a key topic. One should ask if they have the necessary experience, resources, and capacity to lead the discussion.

One of their videos, “Why Australia WON’T Fix the Housing Crisis,” presents some compelling arguments. The video discusses how a small percentage of the population—about 1%—holds the power to make key decisions affecting housing. This elite group has crafted a system that benefits them, while the rest of us are left with limited influence over significant areas like defence, major infrastructure projects, and, of course, housing.

Let us Dive into this argument a bit further

The Singapore Comparison

Singapore is often cited as a success story in housing, but it’s not an easily transferable model for Australia. Singapore’s approach involves building thousands of units at a time—something we neither have the capacity nor the need to replicate. Additionally, Singaporean homes are usually small flats of less than 100 square meters, occupied by multi-generational families. This contrasts sharply with the Australian average household size of 2.5 people and our preference for larger homes.

Even if you could convince Australians to accept: –

smaller flats
living with multiple generations
no backyard

Such a shift would be nearly impossible because of one key element.

FINANCE: With no precedence of a new housing type, there are no successful valuations. Therefore, there is no financial approval to purchase a different housing solution.

A Historical Perspective on Housing

Historically, Australia has taken steps toward widespread homeownership. Particularly under Prime Minister Robert Menzies, who promoted the “Australian Dream” of homeownership. The Prime Minister was enamoured with all Australians becoming “little capitalists” to pursue home ownership. This led to homeownership rates reaching a high of 70%. However, those efforts have waned, leaving us far from where we once were.

1970s HOUSING: Was far different to what we expect today

Kids in shared bedrooms
A carport at best
One bathroom
The “outhouse” had only just been removed
No power outlet is required in the bedroom

Who’s Really in Control?

Australia has around 10 million households, but less than 1%—about 100,000 households—hold the real power. This group includes elected officials, corporate leaders, and influential institutions like universities and churches.

To put this in perspective, it is not the income but the power to influence our system.

If you want to understand how our household income is working, you should review our blog. Understanding Housing Stress in Australia.

Elected Officials:

There are 227 seats in the Federal Parliament, 620 in the state and territory parliaments (excluding our island territories), and 5,670 local council positions (see the data here). This represents only some 6,500 households.

Corporations:

The top 500 Australian corporations likely contribute another 2500 influential households (using 5 influencers in each of these corporations). By the time you add in their key decision makers: –

Chairperson
Chief Financial Officer
Chief Executive Officer
Chief People & Stakeholder Engagement Officer
Shadowy consultant (KPMG perhaps)

These companies are governed by a few powerful individuals who shape policies and strategies.

Institutions:

Schools, universities, and churches also play significant roles in decision-making, often implementing changes without broad public input.

What Can We Do?

As elections approach, it’s crucial to consider how we can mobilize a critical mass to bring about change. In my local area, the state seat of Jordan has 46,135 enrolled voters. To secure a decisive win in the upcoming October 2024 election, a candidate would need the support of just over 23,000 voters. Offering secure, stable housing options could be a compelling reason for residents to rally behind a candidate who truly represents their needs.

In this seat of Jordan, we’re dealing with significant issues:

700 people are experiencing homelessness.
1,800 households are affected by domestic violence.
50% of households are experiencing housing stress.

These figures should be more than enough to drive meaningful change. If you’re a local leader looking to engage with the electorate in Jordan, Queensland, we’re here to help you craft a message that resonates with voters. We desperately need leadership in housing in every electorate. Let’s focus on solutions that benefit everyone, not just the 1% who are satisfied with the current system.

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What is the Housing Australia Future Fund

8 August 2024 Leave a Comment

Investment Returns and Alternatives

What the HAAF?

The Australian government introduced the Housing Australia Future Fund (HAFF) to address housing affordability and supply issues. This long-term initiative is designed to finance the construction of new affordable housing and support various housing projects, aiming to improve housing outcomes for Australians, particularly those in need. Let’s delve into the HAFF’s investment returns and compare them with two alternative investment strategies to see which approach might yield better results for public housing funds. See more on the HAAF here.

Investment Mandate and Expected Performance

The Housing Australia Future Fund Investment Mandate Direction 2023, issued on 1 November 2023, requires the Future Fund Board to target a long-term benchmark return of the Consumer Price Index (CPI) plus 2.0% to 3.0% per annum, net of investment fees. With the CPI currently running at an annual rate of 3.6% (as of July 2024), the HAFF should aim for a performance band of 5.6% to 6.6%.

These are rather modest goals for a $10 billion investment!

Current Economic Environment

1. Investment Strategy

The HAFF’s returns depend on its investment strategy, which likely includes a diversified mix of assets such as government bonds, equities, and other investments to balance risk and return.

2. Management

The effectiveness of the fund’s management team in navigating market conditions is crucial for achieving the fund’s objectives.

3. Market Conditions

Broader economic conditions and market performance significantly impact the returns of the fund’s investments.

4. Goals vs. Returns

While the HAFF’s primary focus is on addressing the housing supply, its financial performance must also be considered to ensure the effective use of public housing funds.

Early Performance and Evaluation

According to the Department of Finance, the HAFF’s early investment returns were a nominal 1.9% for the quarter ending 31 March 2024. This equates to an annualised return of 7.6%, which falls within the targeted range but raises questions about the adequacy of these returns for public housing funds.

Option 1:

Investing in Australian Property Trusts

An alternative strategy could involve investing the HAFF in Australian property trusts. The Residential Real Estate Investment Trust (REIT) industry in Australia is dominated by companies like GPT Group (GPT), Stockland (SGP), and Mirvac (MGR), which own and manage residential properties across the country.

The reported performance of these companies typically shows higher returns than the HAFF’s early performance. For example:

GPT Group (GPT): Historically stable with periodic high returns.

Stockland (SGP): Consistently delivers solid returns with moderate volatility.

Mirvac (MGR): Known for strong performance and resilience in market downturns.

While these REITs have demonstrated the ability to outperform the HAFF’s returns, they also come with higher volatility, which might not be acceptable for public housing funds. The recent “unprecedented” times have shown significant fluctuations in real estate markets, suggesting that such investments might expose public housing funds to undue risk.

Option 2:

Direct Investment in Residential Property

Another viable alternative is direct investment in residential property. With $10 billion, the government could purchase 10,000 homes at an average cost of $1 million each. This approach leverages the dual returns of rental income and capital gains, which have historically increased at higher rates than these early HAFF results.

Direct investment in residential property can provide steady rental income and capitalise on property value appreciation. Given the current market trends, this strategy could reasonably be expected to outperform the HAFF’s early returns of 7.6%. However, managing a large portfolio of residential properties involves significant administrative efforts and potential property management and maintenance challenges.

Before conclusions can be drawn, we need to step back and ask a key question:

“To increase public housing supply, this mechanism aims to take public funds and maximize their impact.”

Does this current strategy achieve this aim?

Is investing in producing income and then using that ongoing income to make a difference the best return on funds in this strategy?

In Summary big goals is this the right plan?

The Housing Australia Future Fund is a promising initiative to address the housing crisis, but its early returns have sparked debate on its financial performance. Comparing the HAFF with alternative investment strategies, such as Australian property trusts and direct residential property investments, reveals that while these alternatives might offer higher returns, they also come with increased volatility and management challenges.

Ultimately, the best approach depends on balancing the need for stable, reliable returns with the primary goal of increasing housing supply and affordability. A diversified strategy that combines elements of these options might offer a robust solution, ensuring the effective use of public housing funds while addressing Australia’s pressing housing needs.

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China Investors Leaving Australia as Property Crisis Deepens

4 July 2024 Leave a Comment

The Exodus of Chinese Developers from the Australian Market

If it has been so good for Chinese investors, we have to ask, “Chinese investors leaving”, WHY?

Over the past decade, top Chinese property developers like Country Garden, Greenland, and Wanda have been major Australian real estate market players. They have been snapping up prime development sites nationwide. However, the tides have turned, and these developers are now selling off their Australian assets or downsizing their operations amidst a worsening property crisis in China. The question has to be asked why are Chinese investors leaving?

According to Mark Weisel, the decision-making process for these Chinese developers has been “very sudden and very quick.” Now (2024) Chinese investors are leaving. Between 2009 and 2016, these Chinese developers amassed over $8 billion in development sites in Australia. However, with the troubles emerging at home, an exodus of these foreign investors from the Australian market has begun.

The Bursting of the Chinese Property Bubble

The Chinese property sector has been a significant driver of the country’s economic growth. Some reports say that this economic activity of property development accounts for more than a quarter of its GDP. However, in recent years, Beijing has introduced measures to crack down on the sector, including limiting the amounts developers can borrow. This has caused the Chinese property bubble to burst. This sector contracting since the second half of 2021 – the longest downtrend since the late 1990s.

The impact of this crisis has been felt by the major Chinese developers. Country Garden, the world’s most indebted property developer, recently posted a record first-half-year loss of $11 billion. This specific developer is at serious risk of default. Greenland, once a major player in the Australian market, has lost more than 99% of its share value.

The Exodus of Chinese Developers from Australia

As these Chinese developers face a cash crunch at home, they have been selling their Australian assets to raise funds. Greenland has sold a site in Erskine Ville, Sydney, for $350 million,. Country Garden is selling off portions of its Wilton Greens and Windermere Estate projects.

These sales will undoubtedly impact the number of new homes coming to the market. These large capacity Chinese developers have historically been adept at building high-density dwellings, such as apartment towers. Analysts predict that there will be less of these types of developments over the next two to five years.

The Impact on the Australian Economy

The exodus of Chinese investors from the Australian property market is a significant development. Australia has historically been the largest importer of millionaires. The departure of these deep-pocketed investors is likely to have a ripple effect on the Australian economy. The flow on effects will be evident in both in the real estate and construction sectors.

However, the Chinese government has clarified that it wants these developers to turn their focus back to China’s own property sector, which is crucial for the country’s post-pandemic recovery. This shift in priorities will likely continue to impact the Australian market in the coming years.

The Changing Relationship Between Australia and China

The Chinese investors leaving the Australian market also reflects the broader changes in the relationship between the two countries. The covert inquiry, trade sanctions, and sharp exchanges over international security issues, including Taiwan, have strained the bilateral relationship.

However, there are signs that the relationship may be improving, with reports that Chinese President Xi Jinping has decided it’s time to re-engage with Australia. The upcoming visit of Australian Prime Minister Anthony Albanese to Beijing is seen as a potential opportunity to reset the relationship, although there are still risks and challenges that need to be navigated.

What does it all mean?

The exodus of Chinese property developers from the Australian market is significant. This development reflects the broader challenges facing the Chinese property sector. It is reflected in the evolving relationship between Australia and China. As the Chinese developers turn their focus back to their home market, the impact on the Australian economy and real estate sector is likely to be felt in the coming years. However, the potential for a reset in the Australia-China relationship may offer new opportunities for both countries to navigate these changes.

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