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Veronica: [00:00:00] In this episode, we are joined by Eliza Rowan, and we are gonna zoom out on Australia's housing mass. 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 choker.
Veronica: 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.
Veronica: Well, what a conversation this is going to be.
Veronica: [00:01:00] Our guest today is Eliza Owen. Until recently, head of Research, a totality formerly called Logic, where she spent more than a decade dissecting affordability, credit conditions, and policy shocks for banks, governments, and the real estate industry.
Veronica: Eliza has analyzed 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.
Veronica: It's really great to see you again.
ELIZA: [00:02:00] Thanks for having me. Great to be here.
CB: Eliza, we always enjoy chatting with you. You're one of our long-term friends of the show. You probably are most,~ uh,~ appearances as a guest. I reckon. I haven't done the tally, but you're up there. ~Uh, Um, uh,~ obviously you've got a bit of a change coming up in terms of a new start after fatality, which ~we'll, ~sort of, I get~ get ~in future episodes once you're on the other side.
CB: But, this 5% deposit scheme, and it's obviously come live on the 1st of October. ~Um, ~they increased the caps, they, you know, removed income thresholds and really any first home buyer pretty much should be able to make it happen with a 5% deposit. ~Um, ~the treasury said like a one or 2% increase in prices.
CB: Was that, you know, and we've seen that in a month. I mean, what's your thoughts on it? ~Um, ~it's been pretty powerful.
ELIZA: Yeah, it's another demand side, acceleration, right? So, ~uh, ~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 [00:03:00] short term will be able to take advantage of this scheme.
ELIZA: 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 are eligible for a loan. And so from that perspective, it's been hard to quantify just what the impact to demand would be. ~Uh, ~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.
ELIZA: 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.
ELIZA: 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 [00:04:00] their money because it's gonna be increasing demand pressures up to the caps of the schemes. especially when you take into account rival rental costs, I think it totally makes sense for individuals.
ELIZA: 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 wanna be addressing housing affordability.~ ~
CB: ~Does it, ~does it frustrate you? what's the emotion it evokes in you?
ELIZA: It is frustrating. I don't know how many economists have to bang their heads against a wall. How loudly for how long before government stop. Inflating the demand side of the housing market. ~Um, ~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,~ um,~ planning and applications of property, easier from both the state and federal and, local governments.
ELIZA: ~Uh. ~What we are 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. ~Um, ~I don't know, but I, really [00:05:00] hope we see, government that is brave enough to start talking about the demand side.
Veronica: 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 ~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.
Veronica: 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 that artificial manipulation, if you wanna call it. What do you see happening now?
ELIZA: Well, ~it's, ~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.
ELIZA: Are looking further down the property [00:06:00] value spectrum in order to afford something, and that's part of where we talk about this mismatch of buyers ~and ~and property prices. So within that, you know, ~we, ~we have this amazing analytics team at totality and,~ uh,~ 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.
ELIZA: ~Um, ~the price caps introduced in October. So for example, he created a whole new so that we could track the market in Sydney above and below 1.5 million. And what we found in October was that. ~Um, ~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,~ um,~ 2025.
ELIZA: So at this stage it's a little bit hard to delineate whether there's been significant impact ~of, ~of the scheme on the demand side. And like I say, ~there are, ~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.
ELIZA: so maybe overall it would have [00:07:00] a modest effect on price. But again, ~it's, ~it's just not the right approach ~ that, ~when it comes to housing.
Veronica: interesting to see the behavior of buyers though, because certainly before the scheme was. Increase on the 1st of October. As you say, we've seen increases in that lower price brackets, and there's 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 rush to get in the market before that.
Veronica: Commencement date. And so that has actually resulted in an increase, you know, like 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 Home Buyer guide podcast because ~he, ~he did some,~ some, ~videos on.
Veronica: 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 [00:08:00] these other first time buyer incentives. And if you go over that where you're not getting that in, that you sort of effectively gotta save 10% 'cause you've gotta save costs plus your five, and then you've gotta be able to fund a 95% mortgage.
Veronica: You know, and in Sydney, his calculations on a single income. For example, if you are going to be buying to the cap, you've gotta 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, ~it's good for the government to come out and go, look, we are helping first home buyers.
Veronica: 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.
ELIZA: Yep. That's a great point. ~Um, ~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 too young professionals working full time. When we talk about median income households across Australia, we're looking at about $105,000 a year that includes the whole household spectrum from like two [00:09:00] retirees to single parents ~to ~to that double income couple scenario. So $105,000 an affordable purchase price with a 20% deposit and average owner occupy mortgage rates right now would be about 575,000. The median dwelling value in Australia is nearly 875,000.
ELIZA: So the market becomes more concentrated with buyers either selling well. To repurchase in the market. ~Um, ~The median resale from,~ um,~ profit making homes across Australia is about $300,000. Right? ~Uh, ~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.
ELIZA: 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,~ um,~ 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.
ELIZA: ~ It, ~It, pushes everyone down the whole housing [00:10:00] 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. The federal government is pursuing that. That's a great initiative, right.
ELIZA: But it also comes from cooling demand. it was interesting as well, I don't know if you guys saw a PR this morning, announced that they're gonna 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,~ um,~ have high debt to income ratios, that's the kind of.
ELIZA: I guess,~ um,~ person with access to a lot of wealth ~that ~that might curb a little bit of demand at the edges, but ultimately they do that for financial stability, not housing affordability.
CB: 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. ~Um, ~and I wouldn't say it's. their policy, not people that even knew about it to be honest. ~Um, ~you know, it was all quiet in the media and it wasn't until sort of August, sort of September, people were like, oh my God, this is actually coming around next [00:11:00] month.
CB: 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 1st of October and there was quite a bunch at the start of November. And so I think people were just. You know, it is like not everyone's property obsessed like us, right? So they're not really reading it, but it's gonna start.
CB: And then if you get this sort of, oh actually, like if I bought three months ago when I first used the scheme in October, we would've bought maybe 5% cheaper. I've gotta 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. ~Um, uh, ~sorry James, but I think it's a bit too,~ um,~ conservative that number.
CB: It's probably more around like, you know, a couple earning sort of 300 would probably get to the cap.
Veronica: No, he did say that couples have to earn less because they've got interest. they're, we got ~the, ~the tax free thresholds, whereas at an individual. Has to earn more because they only get one tax ~free, free, ~free threshold.
CB: Oh yeah, but it's still probably 400. I reckon it's probably close three 50, so, but that's
Veronica: Still a lot, right?
CB: But that's a, you know, a single stretching to the 1.5 is probably not possible, right? Like a lot of singles we probably be [00:12:00] spending under a mill, 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, ~they're maybe focused on lifestyle in their twenties and, you know, first time buyer, average age is 34 now, right?
CB: 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. ~Um,~
Veronica: But what
CB: I think what you're f.
Veronica: 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, but anyway, we,
ELIZA: working as~ ~
Veronica: ~we,~
ELIZA: 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.
ELIZA: ~Um, ~it's affordability is deteriorated really badly in the past five years in particular. And I think, we are 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.
Veronica: And [00:13:00] that's Sydney
CB: And so ~the, ~the counteract to that is go hard on development Right. And go hard on releasing supply ~ and,~ and so I guess that's what New South Wales are doing. Right. So what's your thoughts on the way that Chris Mins and the government are doing it? and you know, there's a lot of people say, oh look, they're not gonna build stuff that's affordable and which is true, right.
CB: by creating supply at one end for Downsizers and you know, you are creating more dwellings, right? So how ~do you, ~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.
ELIZA: So I think what they're doing is good. I like the vast,~ um,~ 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. ~Uh, ~especially because over the decades, some of the development around new infrastructure for.
ELIZA: House and land greenfield development has fallen more to [00:14:00] the private sector as well. So if the financial conditions aren't right,~ it's,~ 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 gonna come back to things like material,~ uh,~ input costs, interest rates,~ um,~ levels ~of, ~of demand ~and, ~and income.
ELIZA: So you know, 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,~ um,~ tax and incentivize property purchases and property investment,~ this,~ 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 rather than stimulate access to credit for first home buyers could be ~a, ~solution that is maybe missing ~in a, ~in a [00:15:00] policy package.
CB: So the 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's like under 10%.
ELIZA: It's
CB: gotta have, yeah.
ELIZA: 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?
ELIZA: Which is maybe a little bit of a risk for the policy, but what they're doing is they're trying to get ahead as potentially,~ uh,~ 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, ~for the future,~ mm-hmm.~
CB: Yeah, and it doubled down on trust lending. ~Um, ~I think ~the, ~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 [00:16:00] 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.
CB: And they sort of, they looked, so, hang on a sec. We are really sort of allowing investors to sort of leverage up,~ um,~ just because we're not doing enough,~ um,~ checks around whether they can really afford these loans and we're exposing ourselves. And so I think that's. Played through plus APRA's doing this.
CB: But you know, there is still a lot of investors that are, you know, can't afford their home or first homes, they buying investment or they never bought an investment property and they aren't gonna upgrade their homes. So they're entering the market. I think it's hard though, when you start putting.
CB: 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. ~Um, ~then it went down to sort of six, six and a half. Now it's ~sort of like ~five, you know, and a lot of the banks are saying, you know, I wish we spoke about at the start, ~it's, ~it's, it's already really hard to even get the loan to buy the property you want.
CB: So if you start to even. Restrict lending It's only gonna make affordability worse, I feel, for the people trying to transact now. I don't know. ~What's your, ~what's your take on [00:17:00] that?
ELIZA: That's a good point, and maybe we do need to think about hitting a. ~Uh, ~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 a BS lending indicators data. 'cause they have the, they report on the portion of first home buyer loans that are purchasing investment properties.
ELIZA: It's up to about 9% ~in, ~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,~ uh,~ speculation, and investment approach to the market.
CB: Eliza, the CoreLogic, or the Ali, sorry,~ uh,~ 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 was 10 trillion, 11 trillion.
CB: That's 12 trillion. Like,
Veronica: Well, it's basically, it's been a billion a month for like the last two years, hasn't it? Yeah. Yes.~ ~
CB: ~Uh, ~if not more. Right. ~Um, ~and so how do you reconcile like someone if I was in a, you know, in an airport and chatting [00:18:00] to you and said, Hey, you know, it's multiple of 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 a affordability report five years ago is still saying it was unaffordable.
ELIZA: This is a great question, and the question is fundamentally, if housing is so unaffordable, who's buying it? Right, so that's,~ 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.
ELIZA: Is sort of creeping a little bit lower. It's sort of about historic average of~ 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 market.
ELIZA: Now, in terms of why the market just doesn't crash at these [00:19:00] unaffordable levels. Despite all the talk that we've had about, you know, in investment purchases and potential pockets ~of, ~of risky lending emerging, at the end of the day, Australia has a very conservative lending environment. ~Um, ~like you say, going high.
ELIZA: ~Um, ~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.
ELIZA: 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 downwards. People are empowered to restrict supply when price signals are weak. And that's, you know, the same when we talk about developers doing that, individuals do the same thing and that means that they can restrict supplier, they can stave off the downturn.
ELIZA: And I think that goes [00:20:00] some fair way in explaining how the property market continues to rise amid this lack of affordability.
Veronica: Such a good point because I never actually thought about it as a turnover rate. I mean, I just see ~the, ~the raw number, you know, it's usually about 500,000 properties sort of a year, or like 111 million properties. In total. So ~it's, ~I see that turnover ~it's, ~it's, it's a small percentage poten, you know, of the whole.
Veronica: Amount of properties, and if that were to go up, you know, markedly, then obviously there's gonna be some severe downward pressure on prices. But what would cause that to happen? And I certainly see, ~a, a, a, ~a high rise building that has a bunch of first home buyers in it that have a really high debt to equity ratio ~and, and, ~and then become under pressure, can't pay their mortgage.
Veronica: They're all gonna have to sell, they're all got similar products. Then there's gonna 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.
Veronica: ~And, ~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 [00:21:00] someone who's been there 10 years, someone who'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%.
Veronica: You know, and there's ~this, ~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 gonna have that same pressure. So only one house comes on the market, so it's that diversity of ownership ~and, ~and, ~um. ~Tenure. That makes a big difference.
Veronica: So it's sort of interesting that Sydney's ~um, ~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 gonna be more expensive than anywhere else. imagine ~that ~that's something, ~I mean like ~there goes ~to your, ~to your stamp duty argument.
Veronica: If stamp duty was removed, if that's a bit of a hand break or you know, taken off, could that make our property? This is a question I haven't given you a notice, but could that make our property market more volatile?
ELIZA: I don't know if any of the questions have been.
Veronica: No, none of these questions are on notice. So we didn't even say let's talk about stamp duty. But do you know, like if you took that handbrake away,~ um,~ and made it [00:22:00] 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.
ELIZA: 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, ~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.
ELIZA: So what you really need to do, and what a lot of economists argue,~ um,~ is not just abolishing stamp duty, but replacing it with a broad based land tax. So you can still basically,~ um,~ have a. Progressive taxation on the property market ~that ~that kind of keeps a lid on growth.
CB: Yeah, I think what would happen ~if, ~if Sam Judy 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.
CB: The owners would probably wanna buy something else. So if we want every [00:23:00] property on the market, you're gonna get equal demand and they're just gonna release all this pent up demand in upgraders,~ um,~ that will all want to get into a bigger home. 'cause you know, while their income's stopping them, it's also just that transaction costs really burn them.
CB: And then I think obviously when markets are booming, you get more supply, but prices are still going up,~ um,~ because the demands. 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 well prices, well, no, it's actually the marginal buyer theory, right?
CB: And. 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, ~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 [00:24:00] 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,~ uh,~ homes longer and longer, which means that less and less properties are coming on the market.
CB: 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 if, because it's like a run on the bank. If there's a run on the back and, you know, a thousand properties came on the market, then yeah, absolutely prices would fall.
CB: But it's because there's just always constant restriction on people selling.
ELIZA: Yeah. And another way that we can think about it, which my colleague,~ um,~ in the US SNA hep,~ um,~ she looks at sales to population. So there's the turnover rate, but you also considered that Australia's population rate has. ~Um, ~come up so much over the past few years, but the turnover rate's just been sitting in average levels of stock.
ELIZA: So I've done a little bit of work on that as well. So the number of sales,~ um,~ for every 100 households, this was, think it was quarterly data that I did it on, but basically the historic average is 1.4. Sales a quarter per 100 [00:25:00] households. And that's down to,~ uh,~ 1.1 at the moment and it's been trending lower over time.
ELIZA: 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,~ um,~ transaction activity happening. And you know, that's something that the industry should be concerned with as well. Like if they wanna keep up volume. maybe value is more important, I don't know.
ELIZA: But,~ um,~ if we wanna keep up volume, then affordability is important from that perspective as well.
Veronica: That sort of leads to your great mismatch research, doesn't it? Because you know, I think what you've come You know, we are 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.
Veronica: So this is something that always gets me when you get that argument. No, but every household ~that a, ~that a landlord sells gets sold to a first home buyer. That's net.~ net ~It's like, not necessarily,~ um,~ you know, so I guess what is locked in this sort of [00:26:00] mismatch and what levers do you think would genuinely shift housing stock toward really what people actually need?
ELIZA: 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. ~Um, ~but also making sure that you're establishing just smaller accommodation for people that wanna age in place.
ELIZA: ~Um. that's all, ~that's all that research was kind of pointing to. I know it got blown up into a lot of other,~ um,~ headlines that weren't, you know, necessarily based on the original research, but that, the basic idea.
Veronica: So are you talking then about basically a compositional ~um, ~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 in the upper North Shore in Sydney. Well, until recent years, there's really been no apartments.
Veronica: Built there and ~then ~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 gonna be a diversity of stock that [00:27:00] allows, you know, you don't just move in into multimillion dollar house like you can actually start in the area, upgrade in the area, and then downsizing the same area.
Veronica: Is that the sort of thing you're talking about?
ELIZA: 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.
ELIZA: but. ~It's, ~it's gotta be an important part of getting people to right size,~ uh, even, ~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,~ um,~ 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.
ELIZA: I mean, clearly it's a big challenge, but I think it was just a cool thing, I think to compare that. A [00:28:00] BS data on household sizes and housing stock. I always find that kind of data is good. 'cause I had no idea that 60% of Australian households were only one or two people. That, kinda blew my mind.
ELIZA: 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.~ ~
CB: ~um,~ you talked about this mismatch on the rental. Side as well. I mean, ~that, ~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.
CB: ~Um, ~Pippa's done lots of reports on this. So, 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 rents, 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.
CB: How do you feel about that?
ELIZA: Yeah, I would agree. I think that rental affordability it's a growing problem, first of all, because more Australians are missing out on [00:29:00] home ownership. So the private rental market becomes their alternative. ~Um, ~it's people at, at.~ at, ~The lower income. ~Um, ~end of the spectrum that then have to compete with these higher income households that are missing out on home ownership.
ELIZA: And what we've seen in that re-acceleration of rent growth that you're talking about, so ~the, ~the rents have continued to grow year on, year, on year, but ~the, ~the pace at which they 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.
ELIZA: 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.
ELIZA: So it's not necessarily all bad. The problem is that the distribution of that income growth is not [00:30:00] even so people like, as you say, it's like ~Um, ~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.
ELIZA: Probably the normalization, like the de-stigmatization of social housing as well. ~Um, and, ~and affordable housing, which ~I think ~I think we have with affordable housing to an extent. and also, you know, the boost to Commonwealth rental assistance and the. guess greater protection of tenants rights to protect more vulnerable households as well.
Veronica: have you done work on the volume of available property at that higher end? Because anecdotally, as prices rise. and also, you know, people that have owned,~ uh,~ 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 to getting close to retirement or they might be getting close to, try and do help their kids and their grandkids to get onto the property market.
Veronica: And some of those properties start to transact and actually sell. There's not another investor who's not gonna spend $4 million, you know, buying a house. And so as, because of the, a lot of these [00:31:00] properties are worth a lot of money, so then there's less and less available at that upper end of the market, but larger homes and I just plug 4 million outta the year.
Veronica: But, you know, lucky, you know, it's not unusual to see a house in Sydney that's worth 4 million being offered for rent, but would've been owned by the same family maybe for 20, 30 years. ~Um, ~and so ~there's, ~as properties get more experience, they're gonna be less and less of those larger properties available for rent, I would think have you done any work on that?
ELIZA: 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.
Veronica: 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. ~Um, ~we just see that on the ground anyway.
CB: Eliza, you are going to leave ality and we'll probably post this similar when your exit date is around Christmas. ~Um, ~ Obviously when you leave certain organizations you get access to, you know, obviously ip, but also data. What are the things you're gonna miss? What are the things where you're just gonna go, ah, like the access that you get to.
CB: That's very hard unless you're [00:32:00] on the inside club of totality.
ELIZA: 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. You don't get the same access to people. ~Um, ~we have an amazing analytics team here that are so brilliant, supportive, innovative, and ~uh, ~have really helped us to explore cool research.
ELIZA: 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 home 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.
ELIZA: I'm gonna miss access to uppy data. I may end up just becoming a subscriber. And I'll be,~ um,~ subscribing to our Economist Pack, which is a monthly summary of price movements across Australia and the capital cities. so that's the home [00:33:00] value index that you see,~ uh,~ come out each month. So yes, some data that ~I, I'll, ~I'll just have to pay for now, but,~ um,~ that's okay.
ELIZA: ~It's, ~it's well worth it. So, ~um, ~The data, the people, the culture. ~Um, ~I'm gonna miss all of it.
ELIZA: I'm on a personal mission to help more people make better property decisions. You know, most people don't realize 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, which offer masqueraders simple questions like, should I sell my investment property because the interest re payments are hurting, or should I buy before I sell?
ELIZA: Or the other way around. You could connect with me and access all of the tools that I've created to help you make better property decisions at Veronica Morgan dot com au. And there you'll find resources for first home buyers, details about my buyer's agent mentoring program. You could connect with my Sydney based property management and buyer's agency teams, Australia wide vendor advocacy.
ELIZA: Or ask me for introduction to the [00:34:00] small group of buyer agents that I would personally recommend across the country. That's Veronica Morgan dot com au.
ELIZA: If you're considering a property move, which is buying your first time, upgrading, renovating, or investing, the team here at Alcove would love to help you think through your decision and get the finance right.
ELIZA: Please go to cove.com au to reach out.
CB: Yeah, I mean the ability,~ um,~ just come up with a. An idea, how's the school zone gonna affect prices? And then, you know, be able to say to your analytics team, Hey, can you guys back this up? Or find if it's working or not. Like, ~that's pretty, ~that's pretty cool, you know, to be able to,~ um,~ have the team to do it.
CB: cause obviously you have to, in those situations you are trying to search that and find it and build the model and it's just impossible ~to, ~to sort of do. And, when you think about the global context of cata or even just. You mentioned before around the,~ um,~ the sales per, you know, a hundred or a thousand people or whatever it was.
CB: ~ um,~ you know, what were some of the other global learnings ~you've, ~you've sort of had that you can apply to the Aussie housing market ~Um, ~I mean, I was just reading a macro business article yesterday just quickly and. know, one of the final graphs on it, you know, Pete sent it to me and it was just about like the [00:35:00] global problems in property prices all over the world.
CB: You know, like Iceland probably the only country that's gone backwards over the last five years, but, you know, Netherlands and, you know, new Zealand's having a bit of a correction now, but, so like there's always a global perspective that we forget about,~ um,~ that's not just an Australian problem. Like what were some of the learnings ~you, ~you find when you speak to them?~ ~
ELIZA: ~Um, ~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,~ um,~ 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, ~uh, ~Fannie and Freddie and ~their, ~their government sponsored institutions,~ uh,~ 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,~ um,~ major economies like the US and Canada, compared to [00:36:00] Australia.
ELIZA: 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.
ELIZA: 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, ~their challenge is because so many, uh.~ uh. ~Americans are on a long-term fixed rate, they can't get stock moving ' cause people don't wanna lose those rates.
ELIZA: So they're starting to talk now about things like a portable mortgage, which might help to get their ~um, ~properties selling again. But yeah, I think we are ~very, ~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,~ uh,~ even though it does lack some [00:37:00] flexibility, what it's meant is that our property market has always remained very stable.
ELIZA: we haven't had the same blowout in arrears and we haven't seen, great housing market downturn in, in terms of value. So, hopefully that continues.
Veronica: 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, ~the prices of property. ~Um, ~and we have to be very flexible in these conversations, don't we?
Veronica: But, you know, in the American market, for example, is there the same interest in investing in property from individuals and moms and dads as there is in this country?
ELIZA: Ah, so that's ~a, ~a big difference actually, is a lot of the investment overseas is institutional. And it's
Veronica: where
ELIZA: affordability pressures in a lot of countries can be.
ELIZA: unlimited in a way because you have these vast,~ um,~ pools of capital that can invest in property, and we're just not structured in the same way, particularly
Veronica: from a tax [00:38:00] perspective.
ELIZA: in Australia.
ELIZA: So you get a lot more individual investment ownership here. ~Um, ~whether that's good or bad, I think kind of depends on
Veronica: your.
ELIZA: perspective. ~Um. I, ~I think there is the potential for Australia to open up more of that institutional investment. And you start and you see conversations happening from a government perspective around
Veronica: tax breaks
ELIZA: for institutions, the rise of build to rent.
ELIZA: but whatever we go forward with, you've gotta make sure that. Either is a good landlord to an increase in population of renters, especially if institutional investment crowds out ownership of individuals.
Veronica: And it's not gonna solve ~the, ~the affordability end of the market anyways, that they need a return on their investment. And the simple fact is our governments have been steeply declining their investment ~in, ~in housing for decades. which has been a big contributor to our current situation. Right.
Veronica: Before we ask you for a Dumbo, 'cause we will get there soon I am curious, you know, that 20% deposit benchmark, you know, it's,~ it's, ~largely irrelevant to how real [00:39:00] buyers behave. So what would you think is a more accurate way to measure true affordability?
Veronica: And, you know, I guess, ~which of ~which of the sort of major stress points is doing the most damage right now?
ELIZA: 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 aprada on new loans secured on, loan valuation ratios, and that's in part because they're selling a home to buy a home,
Veronica: Oh, right, yeah, but not for first home buyers. so if you are upgrading and you're buying a home, then yeah, you are using equity in the home you just sold. ~Um, ~but first home buyers. ~Mm mm ~Because that's how we were really measuring it. Is it like, if you're already in the market, are we worried about affordability?
Veronica: We, or it was affordability? Something that we sort of refer to first time buyers.
ELIZA: So ~it's all, ~it's all about. The relative measure, right? So even if you look at you 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 are looking at is [00:40:00] the change in that metric over time and the mismatch between what.
ELIZA: The time to save actually is, and realistically what time to save ~a, ~a buyer wants. So another one that we get a bit of,~ um,~ criticism around is the portion of income required to serve as a mortgage, which is 45%. It's not realistic, and hopefully no one is actually taking out loans that require 45% of their income.
ELIZA: If you look at,~ uh,~ 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's pointing out the distortion in the market and how the distribution of income compares.
ELIZA: To the distribution of property value. So when the numbers start to look crazy or unrealistic, ~ uh, we, we, ~we,~ um,~ need to keep that in mind I think for,~ um,~ where the market should be.
Veronica: I guess if our journalists explained it that way, it'd be more relevant. But they don't necessarily do they, there's,~ there's,~ certainly a lot of [00:41:00] sensationalism around, basically you can't save a 20% deposit in under 10 years now in anywhere in Australia. I think that was the last headline I heard.
Veronica: sorry, Chris had a question there.
CB: No, I was just gonna go to, you know, and it's with a property, Dumbo. ~Um, ~and yeah. ~What, ~what's, have you got any new stories or tales that you can share with us? I know we've asked you these questions so many
ELIZA: gonna 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,~ uh, for, ~for housing. ~Um, you know that, ~you know that story well.
Veronica: Yeah. Yeah. ~You, ~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.~ ~
ELIZA: ~Not, ~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. ~Uh, ~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%.
ELIZA: and it's just an emotional journey that they have to go through when they show up to these [00:42:00] auctions and they show up to these, try and negotiate for a home. I had to go through the process myself. And I'm a property market researcher, right?
Veronica: Wishful thinking kicks in because people think, oh God, if I could get it for that, you know, that'd be great. and you know, I know it myself, like I know these intimately, I understand price guides and it is dangerous to say just add 10 or 20%, by the way, because sometimes they get it. The age agents get it wrong too.
Veronica: So you do need to do your price research and really es establish what you believe it to be worth and then work out what your limit is. But yeah, assuming it's gonna sell for that is. sad, but it's a huge mistake I see a lot of people make. ~Um, ~interestingly enough, both the Victorian government and the New South Wales government have come out ~very, ~very recently with some moves on under quoting.
Veronica: I've been part of the round table of the Office of Fair Trading for some time now. ~Um, ~on under quoting. It's been a very interesting journey working with them on that. ~Um, uh, ~so New South Wales got new legislation coming in. ~Um, ~that may or may not work. We'll see. ~Uh, ~Victoria's,~ um,~ recent announcement, which is a classic to say that vendors have to provide the written reserve to buyers.
Veronica: ~Um, ~a week out of the auction I [00:43:00] think gotta 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.
Veronica: Often they have 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, I'll be, ~I'll be, I've got some theories on what might play out there, but,~ um,~ we shall watch with interest. To see if they can crack the nut.
CB: Absolutely. Eliza, we'll chat to you again in the new year onto your new gig, whatever that might be. appreciate your, all your efforts over the years as well. ~Uh.~
ELIZA: Thank you so much guys. Thanks for the chat.
ELIZA: If you have a question that you'd like us to answer in an upcoming q and a episode, you can send us a voicemail or written question via the website. The elephant in the room.com au. Or you can email us directly at questions at the elephant in the room.com
ELIZA: au.
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