How Housing Became So Broken

Chris and Alan Kohler talk about the housing crisis that is shaping the Australian economy. It's a puzzle, so Chris made Alan a crossword - can he crack it while simultaneously explaining why nobody can afford homes anymore? 0:00 Intro 5:05 Supply 17:30 Demand 24:00 Density 26:30 Auction 30:50 Incentives 34:05 Transport 42:30 Investor & Rent 55:00 Summary

• 0:00Speaker 00

  This episode, I want to talk about housing. I don't think there's a single asset that's changed the world as much in the last two decades or so. And I'm lucky because on top of having covered the housing market and economics for years, my dad is probably the best known finance and economic journalist Australia has ever produced. He's not 100% sure on that. I think that's the case. Alan Kohler is his name. He's someone I'm very proud of. He recently wrote this book, which I think is definitive on the topic of how housing became so broken. So naturally, because this is a podcast called How We Got Here, and housing is an issue that spans generations, and because he's an expert, I'm bringing my dad into today's episode.

• 0:44Speaker 00

  It's the first time we've done something like this together. And he'll be sitting down with me right over there after this message from our partners.

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• 2:25Speaker 00

  Hello, Dad.

• 2:26Speaker 01

  Good day, son.

• 2:27Speaker 00

  Thank you for coming on How We Got Here.

• 2:29Speaker 01

  Thank you for having me. I'm delighted to be here.

• 2:31Speaker 00

  This is, this is the first time we've done this before.

• 2:33Speaker 01

  Yeah.

• 2:34Speaker 00

  I said that you're Australia's best known finance and economics journalist, and I may be speaking as a son there. You told me you're not sure about that. Well, I think it's the case.

• 2:42Speaker 01

  Okay.

• 2:43Speaker 00

  The reason I say that, and we do have a couple of listeners overseas who might not know that much about you, but a brief backstory for you is you've been doing this for, I think, 57 years?

• 2:55Speaker 01

  Fifty-six and a half.

• 2:59Speaker 00

  Okay.

• 3:00Speaker 01

  I'm 74. I did start when I was 17, but I quite quickly turned 18.

• 3:08Speaker 00

  Okay, fair enough. I'm glad we're not nitpicking off the top.

• 3:12Speaker 01

  Well.

• 3:13Speaker 00

  Fair enough, but you started off as a copy boy in newspapers. You stayed in newspapers for a really long time. By the time you were my age, which is 37, you were editing the Financial Review, I think.

• 3:22Speaker 01

  I had been editor of the Financial Review.

• 3:25Speaker 00

  Beating me already.

• 3:26Speaker 01

  At, at that point, um, yep. And I became editor of the age after that.

• 3:31Speaker 00

  Editor of the age when I was a little kid. You stayed in newspapers, shantically a columnist. You moved to the ABC, 730 report covering finance and economics. And then of course you became the ABC finance guy and have been doing that for decades.

• 3:46Speaker 01

  Yep.

• 3:47Speaker 00

  And to embarrass you a little bit more, you've been doing it so well that you are now Alan Kohler AM, all over Australia.

• 3:52Speaker 01

  That's it, yeah.

• 3:54Speaker 00

  So that's great. And so obviously.

• 3:55Speaker 01

  Thanks to you.

• 3:57Speaker 00

  I didn't do that. But no, you wrote this book as well about housing. And so that's why I thought that it would be so appropriate to talk to you about all this sort of stuff. But the other thing, I know, I mean, I know a lot about you. One of the many things I know about you is that you quite like a crossword. So I've made you a crossword.

• 4:11Speaker 01

  Yeah, very good.

• 4:12Speaker 00

  I made you this crossword.

• 4:13Speaker 01

  I think it's amazing. You've done a great job. I think crosswords are hard to make and you did it.

• 4:18Speaker 00

  Throughout my childhood, you were doing a lot of crosswords. You're doing the cryptic ones and the ones that I've never since, still can't do. So I think you're going to find this one pretty easy, but I went onto a.

• 4:29Speaker 01

  Now I do Wordle.

• 4:31Speaker 00

  You do, you do Wordle. You do Wordle while we're watching the footy, actually.

• 4:35Speaker 01

  Yeah.

• 4:35Speaker 00

  It's okay. The, yeah, I just went onto a teacher's aid website and it just spat this one out for me. But I thought that this would provide a good scaffolding because the problem is you and I talk about housing and, and related issues and we kind of ping pong in all different directions. And I thought as we go through this crossword, you can answer one of the clues and then we can talk about that issue.

• 4:57Speaker 01

  Okay.

• 4:58Speaker 00

  You think it works?

• 4:59Speaker 01

  Oh yeah, let's do it.

• 5:00Speaker 00

  Let's do it. Okay, well, you know, I'm in your hands here. You've got the crossword in front of you.

• 5:04Speaker 01

  Three across. Not enough, price is high, too much, price is low.

• 5:10Speaker 00

  Six letters.

• 5:11Speaker 01

  Six letters. Got to be supply.

• 5:14Speaker 00

  Supply. Yep, I'm writing it in.

• 5:16Speaker 01

  I'm writing it in too. So supply.

• 5:19Speaker 00

  Supply.

• 5:20Speaker 01

  So that is the key metric that the government is now focusing on.

• 5:24Speaker 00

  Australian government.

• 5:25Speaker 01

  The Australian government is focusing on supply. And it's been doing that since, in particular, since 2022 with the National Housing Accord, which was a, an agreement between the Commonwealth and the states and a few super funds and the housing industry, the Master Builders Association and the Housing Industry Association. So they all got together and they did this agreement and they agreed in 2022 to build, that they needed to build a million houses over five years, beginning from July 2024. So 2024 to 2029.

• 6:07Speaker 01

  Six months later, that was like early then 2023, the government, the Commonwealth government added 200,000 to that. So I made it 1.2 million. So that's the target of the housing accord.

• 6:19Speaker 00

  And these weren't just any houses. They stipulated that it'd be well located, didn't they?

• 6:22Speaker 01

  That's right, they did. And so, um, and I think it's worth pointing out that the, that that housing accord is all about zoning or at least planning approvals, right? Cause that's really all the governments can do. They can't, they don't build houses. So what the, all the, what happened therefore was that that 1.2 million was divided up among the states. So each of the states had an allocation. And then the states divided that up among the councils, right? So each of the councils has got a number.

• 6:55Speaker 00

  Big number, I presume.

• 6:57Speaker 01

  Well, yeah, it's, it is a big.

• 6:58Speaker 00

  Like some of them have to double the number of houses they've been building, right?

• 7:01Speaker 01

  Exactly. The councils can't build houses either, right? So all they can do is approve applications for, um, you know, for houses to be built. And so that's what they've agreed to do.

• 7:13Speaker 00

  So they're green lighting a lot at the moment, good team.

• 7:16Speaker 01

  That's right.

• 7:17Speaker 00

  But so this whole housing accord, we're a few years in now because we're speaking in mid 2026, and they've been undershooting that, that target since it began. And am I right in saying that if they had have built 1.2 million houses over five years? I mean, that's not a silver bullet. That's not going to fix the housing affordability crisis, right? That, the, the target wouldn't have solved really that much. And they're undershooting it?

• 7:40Speaker 01

  The target is a political round number, right? It's a, it's a million, right? So that was not, that didn't have any relationship to any predictions of what was required. It was simply a round number. It was a million. Sounded nice politically, it was good on a press release. So that's what they did. And then they added, as I said, one, another 200,000. So it became 1.2 million, another round number. And it actually happens to have, be the same number of houses that were built in the previous five years.

• 8:11Speaker 00

  Oh. Okay, so they can't replicate what they did in the previous five years.

• 8:16Speaker 01

  Oh, in fact, what's happened is that the housing completions have declined. So, um, what, what they were, what they were aiming to do was to do the same in the next five years as they did in the past five years, but they, they're not doing it. In order to achieve 1.2 million over five years, obviously they need 240,000 houses a year and they're running at about 180,000 a year at the moment.

• 8:41Speaker 00

  Right.

• 8:42Speaker 01

  And have done from, from the beginning of the accord, right? So they're, um, you know, they're like a 110, 120,000 short at this point. When challenged on this stuff, the Housing Minister and the Prime Minister and the Treasurer always say, well, look, it's an aspirational number. It's an ambitious number, you know? We, we don't apologize for being ambitious. Okay, fine.

• 9:07Speaker 00

  Yeah. I mean, I suppose internationally though, the question of whether or not the solution to housing affordability is, you know, build more of them. I mean, everybody knows in economics, there's supply and there's demand. Like we've got a pretty good graph here. I know you love a graph.

• 9:24Speaker 01

  We do.

• 9:24Speaker 00

  And we're going to put it up.

• 9:25Speaker 01

  What a good graph this is.

• 9:26Speaker 00

  Look, this is hard because if you're listening to this on, on audio, we're going to have to describe the graph, which is a challenge. But basically what it shows, and it came out from the Grattan Institute, uh, I think last year, it shows number of dwellings per 1,000 people, and it marks it from 2,000 and then it checks in again in 2021. So it's kind of like how it was then and how it was, well, now, but a few years ago. And what it shows is.

• 9:50Speaker 01

  And it shows that you should say that it shows it for a whole lot of countries.

• 9:53Speaker 00

  Whole lot of countries, right? So down the list, and if you are driving and you want to pull over and have a look at this, by all means, Rob's going to pull this up. France, Portugal, Bulgaria, Finland, Spain, like everybody is on this list. Now Australia, between 2000 and 2021, the number of dwellings per 1,000 people has actually gone backwards slightly.

• 10:14Speaker 01

  That's right. And in fact, there were some, some countries have done really well, you know, led to a huge increase in houses per 1,000 people. Cyprus, for example, massive increase, um, big increase in Latvia, big increase in Bulgaria and so on.

• 10:31Speaker 00

  What do you think it, it is about Australia and? Chechnya, Iceland. Why, why are we one of the only ones going backwards?

• 10:40Speaker 01

  Yeah. So there's five countries going backwards. Australia, I mean,

• 10:46Speaker 01

  given the sort of the nature of statistics, you could probably say Australia is kind of the same roughly. But still, it hasn't increased the number of houses per 1,000 people. And why is that? Well, the two, two main reasons. One is that there's, there has been a zoning issue. There has been a, a planning problem of not enough houses, not enough places being approved by councils. And secondly, that the, um, we've got a shortage of construction workers, which we'll get on to in a moment.

• 11:15Speaker 00

  Labour.

• 11:15Speaker 01

  Which is a, which is a big part of the supply problem.

• 11:18Speaker 00

  Hmm.

• 11:19Speaker 01

  But it's worth noting that I, I, you know, I looked into the experience of these countries that have, that have both increased their supply of housing per 1,000 people and gone backwards. And there's no real trend, there's no real indicator as to how that refers to prices. Prices have gone up and down for all sorts of countries, whether they've increased the supply of housing or decreased the supply of housing.

• 11:47Speaker 00

  Well, that makes it murky, doesn't it?

• 11:49Speaker 01

  It does.

• 11:50Speaker 00

  You know, like you want it to be linear.

• 11:52Speaker 01

  It is not linear.

• 11:53Speaker 00

  Yeah.

• 11:54Speaker 01

  It's all over the place. And the reason for that is simply that there are other, a lot of other factors.

• 11:58Speaker 00

  Hmm.

• 11:59Speaker 01

  And supply is one of the factors, but it's not the only one. And, and you do, you need to do more than supply.

• 12:06Speaker 00

  It's the one that you hear a lot about from politicians. I suppose that means we should move along to some of the other ones. Should we move along?

• 12:12Speaker 01

  Am I allowed to talk about construction labour? Well, no, but I, I just think it's worth pointing out.

• 12:19Speaker 00

  Yeah.

• 12:19Speaker 01

  Because one of the things I've been looking into is the difference between now and the 50s and 60s, when there was a massive increase in supply of construction labour, which was deliberate on the part of the government at the time. And there was the Immigration Minister, Arthur Corwell, and the Housing Minister at the time, whose name was Nelson Lemon, who doesn't get anywhere near the credit he deserves.

• 12:45Speaker 00

  Nelson.

• 12:45Speaker 01

  In my opinion.

• 12:46Speaker 00

  Nelson.

• 12:47Speaker 01

  Nelson Lemon.

• 12:47Speaker 00

  Come on.

• 12:49Speaker 01

  This is under the, this is under the Chifley government, right?

• 12:51Speaker 00

  Yeah.

• 12:51Speaker 01

  Ben Chifley is the Prime Minister of Labour, Labour Government in 1945. And they actually decided to increase the number of construction workers in Australia because they knew they needed to build a lot of houses. And they basically went around, they, the government set up, uh, offices around Europe and recruited construction workers. And they, uh, and you might have heard of the, um, the, the immigration programme called Ten Pound Poms?

• 13:21Speaker 00

  Yep.

• 13:22Speaker 01

  Very famous.

• 13:23Speaker 00

  Hmm.

• 13:25Speaker 01

  English people could come out here for 10 pounds. They're called Ten Pound Poms. And that was largely to do with construction, to get construction workers into Australia. It was also part of a broad programme to increase Australia's population.

• 13:40Speaker 00

  Yeah.

• 13:41Speaker 01

  But, um, it was specifically aimed at construction, but also the, um, the Snowy Mountains Scheme, which was being built at the time. And they actually were trying to get workers for that as well.

• 13:54Speaker 00

  Your dad was a construction worker at the time, right?

• 13:57Speaker 01

  He was. That's right. He was a, he was a carpenter. He wasn't, uh, he was already here.

• 14:02Speaker 00

  Yeah.

• 14:02Speaker 01

  So his parents emigrated. And my grandfather was a flour miller who decided to become a builder.

• 14:12Speaker 00

  But this is, but this is the period where it's an attractive, what you're saying, there's a lot of growth in the construction sector, which makes sense.

• 14:17Speaker 01

  Huge.

• 14:18Speaker 00

  You go into it.

• 14:19Speaker 01

  That's right. Cause Australia's population was growing massively at the time, needed a huge number of people, huge number of houses to be built. So that they were very focused on getting the right number of construction workers.

• 14:30Speaker 00

  Yeah.

• 14:31Speaker 01

  If you look now at the Australian immigration system, it's absolute nightmare. I mean, the, um, the number of, uh, the number of construction workers coming in is minimal. And the reason for that is because they have this tiered system. So they have tier one, two, three, four for skilled migration. And, um, that determines how many people can come in under each profession, right? And construction is on tier three, which means that the number of construction workers coming in is minimal. Now, the, the Master Builders Association and the Housing Industry Association are saying, well, we need to get construction up to tier one.

• 15:15Speaker 01

  So you get more construction workers coming in.

• 15:17Speaker 00

  Seems reasonable.

• 15:18Speaker 01

  Sounds reasonable. Government says, oh, well, you know, we, there's nothing to do with us. It's all to do with this organisation called Jobs and Skills Australia, which determines where things go. So there's these technocrats who make these decisions. And it's not a political decision, right? Anyway, it's quite clear that the, that a big part of the reason we have a very, very solid limits on construction workers coming in through migration is the CFMEU, which doesn't want it. And they campaigned, have been campaigning against a lot of, uh, construction migration into Australia. And, uh, that's been quite successful. They don't want a lot of construction workers coming in

• 16:01Speaker 01

  because it would lead to lower wages and give them less power.

• 16:05Speaker 00

  Hmm.

• 16:06Speaker 01

  So, uh, the, the.

• 16:09Speaker 00

  I got a cold chill. I'm, I'm worried that we're going to get beat up.

• 16:15Speaker 01

  No, well, look, I don't know. Maybe, who knows? We, we, look, we're truth tellers around here.

• 16:20Speaker 00

  Yeah, yeah, yeah.

• 16:21Speaker 01

  We don't care about that.

• 16:21Speaker 00

  We don't care about any of that. No.

• 16:22Speaker 01

  I know, but, but the, the, um, the Master Builders Association CEO, um, Danita Warren says that there is a shortage of 115,000

• 16:36Speaker 01

  workers in residential construction. Overall construction, 300,000. So that's the shortage of

• 16:43Speaker 00

  Yeah.

• 16:44Speaker 01

  construction workers we have, which the CFMEU is very happy about.

• 16:48Speaker 00

  Of course, this affects everybody in lots of different ways. I mean, it keeps, um, house prices relatively high because there's, uh, an issue with, uh, supply. But even if you own a home and you want to do a renovation, I was looking at some numbers from the Housing Industry Association that said the amount, the average amount borrowed to do a renovation went from 2024 to 2025 up 19% in one year. And that's enormous leap in the amount that it costs you to do a renovation, whether it's an extension or a do up or whatever. So this is

• 17:19Speaker 01

  That's right.

• 17:20Speaker 00

  Massive.

• 17:20Speaker 01

  Massive. Okay. What, what next?

• 17:23Speaker 00

  You're in charge of the crossword.

• 17:25Speaker 01

  All right. Okay.

• 17:25Speaker 00

  I can, you know, make suggestions if you like.

• 17:28Speaker 01

  Yeah. One down?

• 17:31Speaker 00

  Yeah. A bossy order or the market's collective desire.

• 17:36Speaker 01

  Oh, it's the opposite of supply, which is demand.

• 17:39Speaker 00

  Let us demand. Also good. All right. Demand. Geez, we're, we're not going to be able to do it for as long as we did supply.

• 17:44Speaker 01

  Okay. All right. Well, let's just say, um, uh, there's two elements to demand, investment demand and the number of people.

• 17:51Speaker 00

  Yep.

• 17:52Speaker 01

  Investment demand was boosted in 2000, the year 2000, which is where the graph starts.

• 17:57Speaker 00

  Yeah.

• 17:57Speaker 01

  Uh, by the halving of the capital gains tax with a 50% discount. Howard Government did that.

• 18:03Speaker 00

  Yep.

• 18:03Speaker 01

  On the recommendation of a, a business tax review, which recommended that in order to get people to buy shares. Invest in shares. A few months after that, the stock market crashed. Nobody wanted to buy shares. Everyone bought housing instead as an investment.

• 18:23Speaker 00

  Sure.

• 18:24Speaker 01

  Invest in, and, and then the following three years, house prices rose 45%. So there's a clear connection between the capital gains tax discount and the increase in, uh, housing investment, which drove housing prices.

• 18:38Speaker 00

  So I was in the federal budget lockup in May and they had in, in the budget papers, just a whole lot of information about how that plus negative gearing had distorted the, the housing market and the prices. And, and it was clearly an issue that has led to, um, a lack of affordable housing. And so now they're winding it back.

• 18:58Speaker 00

  There's been a huge amount of commentary, a lot of angry people about, about this. What do you reckon?

• 19:03Speaker 01

  The anger is all about the fact that the capital, the change to the capital gains tax from the 50% discount back to the previous regime of adjusting it for inflation applies to businesses and shares as well as property. So it's all the business people who are complaining about it. They are asking for, for it to be separated, for business to be carved out.

• 19:27Speaker 00

  And is the reason that it's not just to get more money? Like, it makes a lot of sense that you should, you should pull things back on housing, but.

• 19:33Speaker 01

  No, there's, there's a legitimate, uh, concern that it'll distort, you know, people will kind of make their decisions about what they invest in according to tax, you know, like, and also the people who use a, a business structure to invest in property. You know what I mean?

• 19:50Speaker 00

  Mm hmm.

• 19:50Speaker 01

  I mean, don't forget, by the way, we're not talking about a 50% discount, uh, being removed and you're paying full capital gains tax 100%. It's going from 50% discount to inflation adjustment, which may or may not be more or less than 50%.

• 20:05Speaker 00

  Yeah.

• 20:06Speaker 01

  Like it's, it's not, it's not that big of a deal.

• 20:08Speaker 00

  Yeah. I'm inclined to agree with that. I, I think the investment landscape is, is a landscape. You can't too look in too specifically at one thing. Cause you know, there, there was nothing said about franking credits and that now looks a little bit brighter, I think. You know, there's a lot of incentives that remain.

• 20:24Speaker 01

  Yeah.

• 20:25Speaker 00

  Obviously. But okay. So demand.

• 20:27Speaker 01

  And the other one is, is numbers, right? The big increase, we've had a big increase in house prices over the past five years. In 2022, the budget, uh, in Treasury, in the budget papers predicted that the, um, immigration of the following 12 months would be 180,000, right?

• 20:47Speaker 00

  Hmm.

• 20:48Speaker 01

  Turned out to be 500,000.

• 20:51Speaker 00

  Whoops.

• 20:53Speaker 01

  Year after that, the budget paper predicted 230,000, turned out to be 460,000.

• 21:02Speaker 01

  So over to, so what that tells you is-

• 21:05Speaker 00

  People need houses, people need to live somewhere.

• 21:08Speaker 01

  That tells you, not only is the government did the event and probably now not control the level of immigration, it didn't even know what was going on.

• 21:19Speaker 00

  Yeah, well-

• 21:20Speaker 01

  So over two years, a million people came in roughly, which was a massive blowout in immigration.

• 21:26Speaker 00

  Yeah.

• 21:27Speaker 01

  Led to a housing shortage, massive housing shortage. Immigration since then has come down, it's now running at 300,000, but it's still more than Treasury is forecasting, right? Which is 225,000 for this year and then 260,000 next year. I went, well, 225,000 next year. And I think the government ought to just make that a target. They don't seem to control it, you know?

• 21:50Speaker 00

  Yeah, but of course, we're talking about housing here, but that huge amount of immigration drove a lot of economic growth broadly. We would have been in a recession without it.

• 22:00Speaker 01

  Yeah, sure, but you know, what we're talking about there is GDP, right? Which is, and a recession is when your GDP goes backwards for two quarters in a row.

• 22:08Speaker 00

  Yeah.

• 22:08Speaker 01

  That's makes a bad headline, but it doesn't matter to anyone. Like it's-

• 22:11Speaker 00

  People don't like recessions, dad.

• 22:13Speaker 01

  Yeah, I know, but who cares?

• 22:15Speaker 00

  You know, like, don't even with recessions. You, you've been through a couple of recessions.

• 22:20Speaker 01

  Sure.

• 22:21Speaker 00

  They're ugly, if I'm not mistaken.

• 22:22Speaker 01

  No, but, but it's not the GDP that matters. It's the fact that unemployment goes to 10%.

• 22:28Speaker 00

  Yeah, I know, it's like saying, okay, I got punched in the face, but actually it was the broken nose that really hurt.

• 22:33Speaker 01

  Exactly, exactly.

• 22:34Speaker 00

  Okay, fine, well, yeah, it's all the same though.

• 22:37Speaker 01

  Okay, but so yes, it is true that without the immigration, you know, it would have been a recession because per capita GDP actually declined for 18 months in a row, mind you.

• 22:48Speaker 00

  Yeah.

• 22:48Speaker 01

  I mean-

• 22:49Speaker 00

  That was bad.

• 22:49Speaker 01

  I mean-

• 22:50Speaker 00

  Good on you, by the way, I, you know, I got into the property market at a tricky time. You could have played that, that parental generation card of being like, well, when I was young, it was 17% interest rates and you kind of didn't really do that. So I thank you.

• 23:05Speaker 01

  I might have mentioned it to you.

• 23:06Speaker 00

  You mentioned it, mum mentioned it too, but that's okay. Because I'm sure it was hot. Just before we move on from demand, this is really, really quick because as I said before, we might have somebody listening in from overseas. And if they haven't switched off by now, I thank them for that because we have been talking about Australia. But the point is, our policies of discounts on capital gains tax and negative gearing, no inheritance taxes, no capital gains on primary residences, these are, this is a unique situation in Australia.

• 23:35Speaker 01

  Sure.

• 23:36Speaker 00

  They don't have this stuff overseas.

• 23:37Speaker 01

  But it is true that there are housing affordability problems elsewhere.

• 23:40Speaker 00

  Yeah, but they might not be-

• 23:42Speaker 01

  As bad.

• 23:43Speaker 00

  Yeah.

• 23:43Speaker 01

  No, no, Australia's bad, Australia's among the worst in the world.

• 23:46Speaker 00

  But I think that's important bit of context and historical context too, because you know, as we mentioned, these policies have not been around forever. So let's move on though.

• 23:56Speaker 01

  Number five, five across, how packed is your suburb?

• 24:01Speaker 01

  Third letter is N from demand, so it's got to be density.

• 24:04Speaker 00

  Density. I told you you'd smash this, you're good at cryptic crosswords and this is very uncryptic.

• 24:10Speaker 01

  This is not cryptic, no, no, no. But, okay, density is the solution to supply that a lot of people come up with, led by the Grattan Institute.

• 24:20Speaker 01

  And that's fair enough.

• 24:21Speaker 00

  Can you just give us a sense of what is density?

• 24:23Speaker 01

  Density means high-rise apartments-

• 24:26Speaker 00

  Yeah.

• 24:27Speaker 01

  In suburbs, existing suburbs.

• 24:29Speaker 00

  Yep.

• 24:30Speaker 01

  And the, the reason the government's going for that as part of, as their solution to meeting the requirements of the housing accord that they've all signed up for, is that it means that they can use existing infrastructure. They don't have to build new transport infrastructure and water and sewerage and all that. Cause they've already got it there. And so the whole answer is that they're creating these zones around train stations, allowing much greater height limits.

• 25:01Speaker 00

  Yep.

• 25:01Speaker 01

  That's the, that's the density solution.

• 25:06Speaker 01

  You know, I mean, when I wrote the book, I kind of examined that and thought it didn't, wouldn't work. They're going to have to do better transport, you know, to regional areas, faster trains to, to allow more sprawl because I didn't think density would work.

• 25:24Speaker 00

  I wrote the same thing, but I didn't, it wasn't like I was looking over your shoulder, I promise.

• 25:29Speaker 01

  Okay. No, but thing is, people firstly, people don't want high-rise in their suburbs.

• 25:35Speaker 00

  Yeah.

• 25:36Speaker 01

  Generally, people don't want to build, bring up families in apartments on the whole.

• 25:41Speaker 00

  You know what's another big problem?

• 25:42Speaker 01

  What?

• 25:42Speaker 00

  They don't perform as well as assets.

• 25:44Speaker 01

  They don't.

• 25:45Speaker 00

  That's a huge problem.

• 25:46Speaker 01

  That's right.

• 25:46Speaker 00

  If you're trying to sell these things, you're having a harder time selling one of these because over the last eight to 10 years, these things have not, for the most part, given you much capital appreciation at all.

• 25:55Speaker 01

  Part of the problem is that they're shoddy.

• 25:57Speaker 00

  Well, yeah.

• 25:58Speaker 01

  Often, cause if not well-built.

• 26:01Speaker 00

  Not enough good builders.

• 26:02Speaker 01

  Not enough good builders.

• 26:03Speaker 00

  Like your dad.

• 26:04Speaker 01

  Like my, well-

• 26:04Speaker 00

  My pop.

• 26:05Speaker 01

  My dad, wasn't the world's greatest builder, I gotta say.

• 26:08Speaker 00

  He was a good builder, how dare you?

• 26:09Speaker 01

  He was a good man.

• 26:10Speaker 00

  He was a good builder and a good man. All right, show me you, two, two down. Two down is highest bidder wins the keys and it is one, two, three, four, five, six, seven letters.

• 26:23Speaker 01

  Second letter, U, fourth letter, T, got to be auction.

• 26:27Speaker 00

  Auction.

• 26:29Speaker 01

  Okay. So Australia is relatively unique, not, not entirely unique, but very unusual to sell much of its houses via auction.

• 26:40Speaker 00

  In the street.

• 26:41Speaker 01

  Yeah, in the streets.

• 26:42Speaker 00

  Standing at the front, yelling numbers out.

• 26:44Speaker 01

  I know, amazing. Well, but most, most countries, they just advertise the price and then they negotiate. Someone comes and says, you know, I'll give you 10% less or something.

• 26:54Speaker 00

  Yeah.

• 26:54Speaker 01

  And that's how most countries go about selling houses. Australia does an auction and I think actually part of the reason for that is, that is because, because house prices have been going up so rapidly, you tend to get a better price because everyone gets a bit panicky.

• 27:11Speaker 00

  FOMO and other feelings.

• 27:14Speaker 01

  At auctions.

• 27:16Speaker 00

  Yeah, it's really weird. I did a video, a satirical video on this a little while ago where I said, this is kind of how we do it in Australia and all these people overseas are going like, you what?

• 27:25Speaker 01

  I know.

• 27:25Speaker 00

  That's the most absurd thing I've ever heard.

• 27:27Speaker 01

  I was at, I, I bid on one house at an auction. I was bidding and it was, you know, you might've been like two years old at the time.

• 27:35Speaker 00

  Yeah.

• 27:35Speaker 01

  And I was bidding against one other guy and he came over during the course of the bidding and he stood in front of me, staring at me and did his bidding staring at me.

• 27:47Speaker 00

  Jesus, that's really aggressive.

• 27:51Speaker 01

  It was so aggressive.

• 27:52Speaker 00

  So he was obviously trying to intimidate you, did it kind of work?

• 27:55Speaker 01

  Yeah.

• 27:59Speaker 01

  I gave up. I said, I said, oh, Christ.

• 28:01Speaker 00

  Fuck, you can have it.

• 28:03Speaker 01

  It's fine.

• 28:04Speaker 00

  Was it a house that you really wanted? I mean, you were bidding.

• 28:07Speaker 01

  No, no, look, I think we ended up with a better house.

• 28:09Speaker 00

  Yeah, yeah.

• 28:09Speaker 01

  It was fine.

• 28:10Speaker 00

  Well, so, I mean, this is, that, look, you're not one to fight, neither have I. I've never been in a fistfight, but-

• 28:17Speaker 01

  It was so bad.

• 28:17Speaker 00

  But that's, if he had picked someone who was more inclined, they could have come, it could have been a brawl.

• 28:24Speaker 01

  Yeah.

• 28:24Speaker 00

  That's bad.

• 28:25Speaker 01

  It was really bad.

• 28:26Speaker 00

  So there are rules, that possibly rules came in after that, you're not allowed to behave like that at auctions, but the point is-

• 28:32Speaker 01

  But no, there's a law, isn't there?

• 28:34Speaker 00

  Yeah.

• 28:35Speaker 01

  No standing in front of someone staring at them.

• 28:37Speaker 00

  No impeding, you know, no, basically don't be a dick rule has been implemented. But I'm surprised the auction, you let that get sort of, let him get away with that. Cause he, like your bidding stopped.

• 28:49Speaker 01

  Yeah, yeah, that's right. Yeah, he, he would have got a higher price.

• 28:52Speaker 00

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• 30:00Speaker 00

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• 30:37Speaker 01

  Six across.

• 30:38Speaker 00

  You're getting into this now, I can tell.

• 30:40Speaker 01

  Yeah, I am. Show me the blank and I'll show you the outcome. Obviously, this is a quote from Charlie Munger.

• 30:46Speaker 00

  It might not be obvious to everyone. You and I know this quote well.

• 30:50Speaker 01

  Charlie Munger being Warren Buffett's outsider, now deceased, R I P.

• 30:54Speaker 00

  R I P. Love Charlie.

• 30:57Speaker 01

  And his saying was, show me the incentive, I'll show you the outcome.

• 31:01Speaker 00

  Such a good quote.

• 31:02Speaker 01

  Yep.

• 31:02Speaker 00

  Such a good quote. And I think it applies so broadly across the investing in economic landscape. We're talking about housing. So I suppose this kind of comes back to what we were talking about with regard to demand. But what would you say? Well, incentives are crucial, right?

• 31:20Speaker 01

  Yeah, of course.

• 31:23Speaker 01

  No, I'm just trying to, I'm just trying to remember what I was going to say about incentives.

• 31:26Speaker 00

  Well, I mean, to be honest, we kind of covered it with density. I mean, we can move on if you'd like.

• 31:32Speaker 01

  Well, the incentives in housing were and are still negative gearing. And, you know, I mean, the fact that the primary residence is tax free.

• 31:46Speaker 00

  Yeah, that's a big one.

• 31:47Speaker 01

  Which is a big incentive, like.

• 31:49Speaker 00

  We take it.

• 31:50Speaker 01

  We had a neighbour, I don't know if you remember this guy, we had a neighbour who lived in the house that renovated the house two doors up from us and moved out again. And, you know, while he was there, we discovered that he does this every two years. They move, he moves the whole family into this house, they renovate it, they sell it.

• 32:12Speaker 00

  Yeah.

• 32:14Speaker 01

  Capital gains tax free. So his entire life.

• 32:17Speaker 00

  He's in a renovation zone.

• 32:19Speaker 01

  Yeah, his life is about taking advantage of the capital gains tax free for primary residence.

• 32:25Speaker 00

  You know, I remember that guy. Nice guy. But.

• 32:29Speaker 01

  Bill.

• 32:30Speaker 00

  Bill.

• 32:33Speaker 00

  You and I have got way more context for each other's lives than other people who are on podcasts together, I think.

• 32:38Speaker 01

  Exactly.

• 32:38Speaker 00

  But just on that, I used to cover auctions every weekend. I used to go to an auction, I used to go to a couple of auctions every single weekend, just to sort of get us together for the news. And one of the things that I noticed was that increasingly, the interesting story was, hey, look at this house, it's falling apart. There's holes in the floor and it's, you know, cold and there's mice running around. And it's going to sell for like two million bucks. And then out the front, there's an auction and everyone's going berserk. But of course, a lot of the time, what was going on is that there was someone living in that house until like a month ago, when they passed away. Not in very nice conditions, they were always old. And the lack of incentive for them to sell that house and move somewhere more appropriate for them

• 33:18Speaker 00

  is really significant. And it became this thing that I really was acutely aware of. Because I felt bad for the people who were living in these crappy, but two million dollar houses. And I think really, that's just about incentives and holes in that incentive network that don't work for people.

• 33:35Speaker 01

  Yeah.

• 33:35Speaker 00

  I mean, okay, if I have a really expensive house and I'm 80 years old, I sell that house, I take the capital which I've made, don't get taxed on that, but I have to put it somewhere where it is likely to attract some tax, whether it's an interest in a bank account.

• 33:49Speaker 01

  Yeah, and also the stamp duty. And so that's a disincentive, right?

• 33:53Speaker 00

  Totally.

• 33:53Speaker 01

  So you can have, you can have four down disincentive, but that isn't right.

• 33:58Speaker 00

  We could crudely put that on.

• 34:00Speaker 01

  Four down is trains and buses that make a suburb livable transport. Right? Transport.

• 34:08Speaker 00

  Yes. Yeah, okay, fine. Back to the, for people who are listening, we are rapidly burning through this crossword. Six across was.

• 34:17Speaker 01

  Incentives.

• 34:17Speaker 00

  Incentive, z. And then four down was the trains and buses that make a suburb livable. The answer to that is transport. You touched on it before. Road and rail, fast rail in fact.

• 34:29Speaker 01

  Yeah, so I spent a fair bit of time on the road between Melbourne and Geelong. It's always acres and acres, hectares of open space. Geelong is a big regional city, but there's kind of nothing much between it, between Melbourne and Geelong. I mean, this is just a very regional statement here, but.

• 34:55Speaker 01

  And the train from Melbourne to Geelong and beyond is a, what's called a V line country train. V line trains are not commuter trains, you know.

• 35:05Speaker 00

  They're increasingly becoming commuter trains.

• 35:07Speaker 01

  Well, they have to because, but, but they're not suited, you know, they're not, they're not built for that. They don't run often enough. I mean, the whole system of transport

• 35:18Speaker 01

  between Melbourne and regional cities, and I think the same goes for Sydney and other Australian cities, is not built for commuting large distances. The trains are too slow, they don't run often enough. So the whole thing doesn't allow for the land to be developed. I mean, it's not just transport that has to be done for these places. They've also got to have water and sewage, which is expensive.

• 35:42Speaker 00

  Yep.

• 35:44Speaker 01

  And I get that, but still.

• 35:46Speaker 00

  So when we talk about fast rail in this country, we tend to talk about it as a way to get from one major city to the next.

• 35:53Speaker 01

  Yes.

• 35:54Speaker 00

  As a way to compete with, you know, airfares being high.

• 35:59Speaker 00

  You and I both think that's the wrong way to look at it, right?

• 36:01Speaker 01

  Yep. So I wrote part of that book when I was in Italy, as it happens.

• 36:06Speaker 00

  Very nice.

• 36:08Speaker 01

  And we were travelling around by train in Italy. The trains are fantastic, you know, like they're just, they're fast. I mean, they're not like 300, 400 Ks an hour or something, but they're quite, they're quite quick. They're very efficient and you can get from Rome to Florence really quickly.

• 36:25Speaker 00

  Yeah.

• 36:25Speaker 01

  You know, so I was very taken with all that. And, and I did catch a fast train from, I think, Paris to Barcelona or something. It was a TGV or something. And it was, it was really fast. So yeah, look, I mean, and, and now China has the largest fast rail network in the world. They've got more kilometres of fast rail than the rest of the world combined now.

• 36:51Speaker 00

  Well, they can build stuff efficiently and without it blowing out to a squillion dollars, which we struggle with. But on that front, it comes to me, this is a conversation about work as well. Because we found out through COVID that people were quite willing to move out of the capital cities, out of the big ones, go regional, go coastal. But then COVID ended and all of a sudden the bosses said, well, you kind of have to be back at work probably three days a week. And then they were stuck on these V line trains or driving for hours and hours, which kind of became a problem. And so people were caught. And I think what that taught us is that if you make it so that you can get from one of these regional coastal places to a capital city in 45 minutes instead of an hour and a half, then that makes it viable.

• 37:34Speaker 00

  And, and in so doing, you take the pressure off the capital city housing market and you pump it into a regional and established city, somewhere with good houses, hospitals, schools. I mean, this, I think, should probably be the number one priority. Problem, of course, is price tags. As discussed in China, you can do it pretty well. Here, not so much. But if you were in charge, if you were Prime Minister, say, and you said, okay, everyone, I've got a plan for how we're going to fix housing affordability. And it is that we are going to spend like half a trillion dollars on fast rail. Because we're really behind on that and we need to sort that out. And these are all the reasons we're going to do it.

• 38:17Speaker 00

  I mean, is that, you know, like, it's a huge amount of money, but it would effectively correct the housing affordability crisis, right? Would it not?

• 38:27Speaker 01

  Of course, it would. And I think it would do, I think it would do it better in a, in a more effective way than building high rise apartments around train stations in the city.

• 38:42Speaker 01

  Yeah, I, I, I do think that, as I say, there's more than transport required, but, you know, it would be very expensive. There's no doubt about it. The way, the way things work at the moment, the infrastructure costs of developing new suburbs goes on to the developers. They have a developer contribution, it's called, that they have to pay for the infrastructure. And that's a relatively recent impost, which has basically made, I mean, it goes on to the price of the housing. But what it does is makes the, makes the whole project, the whole business model of, of developing

• 39:23Speaker 01

  housing like that less viable. So it makes it harder for the, or the, and so developers are less likely to do, to do housing estates because of that extra cost.

• 39:36Speaker 00

  They get a hard time, housing developers, but they've got a lot to worry about. They've got a ton to worry about.

• 39:42Speaker 01

  Yeah, that's right. I mean, and, you know, obviously, one, another difference between now and the 50s and 60s is that in those days, a big part of the housing stock was built by governments themselves. Now governments are completely out of the game. They don't build, they only finance, or at least

• 40:02Speaker 01

  the whole housing system has been privatised fully. So even social and affordable housing has to be built by private sector developers as a part of their obligation. And Four Corners recently just had a, the other day, had a expose on this, which was quite interesting about how, you know, this isn't really working.

• 40:24Speaker 00

  Yeah.

• 40:24Speaker 01

  Now, I mean, the, the, the social, there isn't a, there isn't a good enough definition of what affordable housing is. How affordable is it? Also, the definitions tends to be for affordable housing, that it's a 25% discount against market rent. But when the market rent is really high, as it is in Sydney and Melbourne, a 25% discount still leaves rent high.

• 40:47Speaker 00

  Yeah. It, I want to talk to you about rent in a minute, but I was reading in the, in your book the other day, as I reread it sometimes, that by the late 1970s, really, social and affordable housing, as we kind of always knew it, had been fully dismantled. One of the interesting things about social and affordable housing is the access to opportunity as well. I mean, you want to live in a nice place, you know, a place where you can get a good job. That's kind of crucial. And once you dismantle that, it becomes, it becomes an issue that kind of feeds through everything. Which I suppose is the issue with housing, is that you can't really get a grasp on how extensive the issues are.

• 41:27Speaker 01

  Yep. Now, a lot of people, including your mother, were brought up in housing commission.

• 41:31Speaker 00

  That's right.

• 41:31Speaker 01

  Houses, as they were called, which were built by the state, funded by the government, the Commonwealth government. And Menzies dismantled, began the process of dismantling that.

• 41:44Speaker 00

  Yes, the government did that. But you know, the other thing that used to seem to happen is that major employers used to build houses for people to live in. My first house in Melbourne was a worker's cottage that was right near a matchbox factory that was built for people to live in there. That seemed to have been a thing because people, like employers understood, well, okay, fair enough. You need to live fairly close.

• 42:08Speaker 01

  That's right. Absolutely did that. That was a big part of what used to happen, but it does not happen anymore.

• 42:14Speaker 00

  Absolutely does not happen.

• 42:15Speaker 01

  Does not happen.

• 42:17Speaker 00

  I want, if I can make a suggestion, read a crossword here as we've got two more to go.

• 42:22Speaker 01

  Two more to go.

• 42:23Speaker 00

  Can you, can you answer them both? Because I feel like they're both connected.

• 42:27Speaker 01

  They are. So eight across.

• 42:30Speaker 01

  One who buys to grow wealth and not to live in, obviously investor.

• 42:36Speaker 00

  Yep. And then seven down.

• 42:39Speaker 01

  Seven down. Write me a monthly cheque to stay put.

• 42:43Speaker 01

  And third letter is N. Four, four, four letters. It's rent. So.

• 42:49Speaker 00

  Done the crossword.

• 42:50Speaker 01

  We've done the crossword, right?

• 42:51Speaker 00

  Okay. Well, we've just, you've, you've filled in rent and investor, which obviously those are two sides of the same coin.

• 42:57Speaker 01

  So with investor, it's worth noting that in Australia, the investor, property investors are largely individuals because of negative gearing.

• 43:08Speaker 01

  Negative gearing enables individuals to outbid institutions. Whereas in other countries, rental housing tends to be owned, particularly in the US, by institutions.

• 43:22Speaker 01

  That's not the case in Australia because of negative gearing. Now, the government is keen to turn that around and is trying to encourage Australian super funds in particular, but other institutions, other institutional owners to do what's called rent to, build to rent.

• 43:36Speaker 00

  Yep.

• 43:37Speaker 01

  As opposed to built to buy. And built to rent basically means that an institution would build an apartment building usually, which they would continue to own and rent out as part, just as an investment, a super fund, you know, pension fund investment.

• 43:56Speaker 00

  Yep.

• 43:57Speaker 01

  And in order to encourage that, what they've done is they've increased the depreciation allowance from two and a half percent to 4%, which is quite a solid tax break. Basically, they, you know, they get to deduct depreciation each year of 4% of the value of the, of the property against their income.

• 44:19Speaker 00

  That's an important thing because the thing about superannuation is that it's everybody's money for retirement. The government can't just say, hey, you should invest in this.

• 44:26Speaker 01

  That's right.

• 44:27Speaker 00

  It has to really stack up. And so I suppose the question is, do you think that that will? Do you think that we will see a shift in Australia where super funds or major, you know, institutions start buying, you know, thousands of houses?

• 44:37Speaker 01

  We are starting to. Yeah, we're starting to. But the trouble, the trouble with housing is that the, the income yield tends to be quite low. I mean, if you, if you invest in the share market, you could expect to get 4%, maybe 5% dividend yield from your shares, maybe more.

• 44:59Speaker 01

  And also it's franked so that there's this kind of tax break for franked dividends.

• 45:06Speaker 01

  Whereas, you know, residential housing yield tends to be 2% or 3%. So, you know, you really got to count on the capital gain from housing to, to make a return rather than the, rather than rental yield.

• 45:18Speaker 00

  Yeah. Well, I mean, this is, this is kind of, to me, this is the forest that we all live in from the seeds that were planted 20 years ago with the whole negative gearing and capital gains tax discount. The thing is like, people who are renters, I think there's a misconception that they're dealing with somebody, their landlord owns 10, 15 properties. For the most part, it's, that's that person's main investment and they need it to be a good return and they need it to have solid liquidity options. They need to be able to sell it if they need to. That's why you only tend to see 12 month lease agreements in Australia, whereas in overseas places, places where they have those institutional investors, 10 years, 20 years.

• 45:58Speaker 01

  But also it's worth pointing out, I think, that when you have a lot of individual landlords,

• 46:05Speaker 01

  the, the experience of tenants tends to be more patchy.

• 46:09Speaker 00

  Yeah.

• 46:10Speaker 01

  You know, because, because a lot of landlords, a lot of individuals are dickheads. So, you know.

• 46:16Speaker 00

  They are, but.

• 46:17Speaker 01

  A lot of, a lot of them are great, wonderful landlords. A lot of them are not. But when, when it's, when it's institutions, it tends to be a continuing culture to the institution that sort of is beyond the influence of individuals.

• 46:32Speaker 00

  Yeah, there's been a real problem implementing minimum standards across rentals, which mightn't be the case with large funds. But that also goes back to our mate Charlie. What's the incentive for a landlord to improve the property? What, what is the dollar that comes back into their pocket? It's unclear.

• 46:50Speaker 01

  That's right.

• 46:50Speaker 00

  Kind of have to create an incentive if you want an outcome.

• 46:53Speaker 01

  Well, that's right. And the incentive they need or would want is higher rent.

• 46:57Speaker 00

  Yeah.

• 46:58Speaker 01

  And.

• 46:58Speaker 00

  Or, or some sort of cash back.

• 47:00Speaker 01

  Which, which gets us to seven down.

• 47:03Speaker 00

  Yeah.

• 47:03Speaker 01

  Which is rent. Which, a couple of points about rent is that house prices have come down this year, particularly in Melbourne and Sydney, falling. The growth rate in Brisbane, Adelaide and Perth has declined to the point where it's kind of zero now. And so there, those cities are obviously now going to fall. So the, the, the level of house prices, the value of houses is declining across Australia, but rents are still rising. Rents have not.

• 47:34Speaker 00

  Why is that?

• 47:35Speaker 01

  Peaked. It's because, it's simply because the vacancy rate across the country is still 1.6%.

• 47:43Speaker 01

  Which is, you know, very, very small. And in some places, you know, places that matter, it's, it's like still like not much more than 1%. So it's the, the vacancy, there's still is, and also investors are starting to get out now because of the capital gains tax change.

• 48:01Speaker 00

  Yeah.

• 48:01Speaker 01

  Even though it's not much of a change, they're all kind of panicking and chucking up their hands and getting out and so on.

• 48:07Speaker 00

  Can I just ask, is Airbnb an actual issue here?

• 48:11Speaker 01

  I think it is, yes.

• 48:12Speaker 00

  Or is that overblown as an issue?

• 48:14Speaker 01

  Look, I think it's overblown, but it is an issue.

• 48:16Speaker 00

  This, that is to say that people are switching their long-term rental properties into short-term holiday rental properties because they're chasing a better return.

• 48:23Speaker 01

  It's a better return.

• 48:24Speaker 00

  Sometimes.

• 48:26Speaker 01

  Yeah. Well, you certainly get a per, you get, you get a higher rate per night.

• 48:30Speaker 00

  More admin.

• 48:31Speaker 01

  You just don't rent it out as often, but you get more control.

• 48:36Speaker 00

  Yeah.

• 48:36Speaker 01

  I mean, if you sign a lease with somebody for 12 months, you know, you're stuck with them.

• 48:40Speaker 00

  You're a rental provider, you're a housing provider.

• 48:43Speaker 01

  If you, but with Airbnb, you know, you've got much more control. So I, you know, that's, that is an issue, I think.

• 48:48Speaker 00

  Hey, as we come to the end of this chat, this crossword, we've gone through supply, demand, density, transport, incentives, auctions, and then investors and rentals. Seems to me that as an onion, every layer of our country's housing is kind of in crisis.

• 49:12Speaker 01

  It does to me, yeah.

• 49:13Speaker 00

  Is that a fair statement?

• 49:14Speaker 01

  I think so.

• 49:15Speaker 00

  So it's not, it's not like we've got one issue. It's that there are so many issues.

• 49:22Speaker 01

  But, but also that it's fundamental to the way society operates, you know? I mean, the fact that, the fundamental fact that the house price to income ratio has gone from between three and four 25 years ago to between eight and 10 now, so doubled, at least doubled, has changed society. It just means, you know, that young people can't really get a house now unless they've got a parent who can, who can give them an early inheritance of some sort.

• 49:53Speaker 00

  Inheritance is great if it, if it can happen. Not everybody can do that.

• 49:56Speaker 01

  That's right. So what it's done is widened inequality.

• 49:58Speaker 00

  Totally. And it will continue to do so. But I think the other thing is the difficulties that it creates for families as well, because there's no scaffolding for these chats. There's no, like, it, it can tear families apart if done wrong. You know, how siblings are going to be able to handle things together, whether or not the, the parent with the assets is inclined to feel like they want to help them out. It's all totally up in the air. People talk about it as a conversation, but really it's kind of one-sided in a way. I think.

• 50:31Speaker 01

  So, so when I wrote the book, I, I said that, you know, what we don't want is for house prices to fall 50%, which is what you'd need in order for the house price to income ratio to go back to what it was, you know, because a 50% fall in house prices would result in a depression and be catastrophic. So the only real way to, to deal with it is for house prices not to change for 20 years to allow incomes to catch up. And I wrote recently, and I think that it's possible that we are heading into that situation. It may, I'm starting to feel a bit optimistic. I was. I mean, that, you know, we will get a period, a long period of time when house prices don't change. Obviously this year

• 51:13Speaker 01

  they're falling and that's really neither here nor there because house prices do tend to go up and down. What you want is 20 years of no change. And I do think that that's possible.

• 51:26Speaker 01

  But then I spoke to the chief economist of the Housing Industry Association, Tim Reardon, and he said, no, no, this year is actually a massive buying opportunity for property investors because there is not enough construction labour.

• 51:42Speaker 00

  Yeah.

• 51:42Speaker 01

  To turn it around. There won't, so he, his point of view is that house prices are going to start rising again. As soon as this correction is finished, house prices are going to keep rising because there isn't going to be enough supply because there aren't enough tradies.

• 51:55Speaker 00

  Yeah.

• 51:56Speaker 01

  And so, okay, I think.

• 51:59Speaker 00

  It's hard to know what issue to put at the centre of, of the whole thing.

• 52:02Speaker 01

  Well, I think.

• 52:03Speaker 00

  Because you push one out and another one comes straight in.

• 52:05Speaker 01

  No, I think the National Housing Accord was fine. That was good. And they're, they're off and running. The other factor is interest rates. That's the main thing that causes house prices to go up and down is interest rates.

• 52:15Speaker 00

  And access to debt, which we have a lot of debt.

• 52:17Speaker 01

  We have a lot of debt. But look, interest rates are not going to go back to the low levels they were between 2015 and 2022. I mean, it just isn't going to happen. So we're in a higher, a structurally higher interest rate environment now, which might lead to, you know, a suppression of house prices.

• 52:38Speaker 00

  Yeah.

• 52:39Speaker 01

  And so then what needs to happen, you know, if, for Tim Reardon's prediction to be false, is for the government to focus on construction immigration. To actually try to go back to the 50s and 60s of how immigration worked then, where they actually did focus on making sure we got enough tradies.

• 53:03Speaker 00

  So would that be your big suggestion if they, if the government came to you and said, what can we do?

• 53:09Speaker 01

  You have to reform the immigration system in such a way that we prioritize construction. Yep, that's what we have to do. And that is not happening. So that, you know, like, there's a lot of things happening and they're going well with it. But I think that that's the thing now that needs to change.

• 53:28Speaker 00

  Can I, I think that's a great point and one that we'd like to have sort of resonate. But if I could just ask, if you look into the future, you've got six grandkids, two of them are mine. Are you hopeful that they're going to have a better go at this property market? Or is it going to be just awful all the way through? Is it never going to get any better? Or is there a way that they might have a good, a better go?

• 53:55Speaker 01

  I suppose I'm not going to be hopeful unless the, the immigration system changes. I don't mean, I don't mean just on the numbers, although I think that, you know, the numbers have been too high in recent years. There needs to be, you know, I think the target of the prediction, the forecast of 225 probably needs to be turned into a target.

• 54:17Speaker 00

  Just quickly on that, this immigration issue has become a left, right issue. But you're saying to cut through the middle of it, you just need to, you just need to tweak the type of skilled labour that we're targeting.

• 54:28Speaker 01

  Well, you need to do two things. I mean, you need to make sure that you don't get that ridiculous blowout that occurred in 2023 and 2022. That can't happen again. But also, you're right, we need to rework the system to ensure that we get enough tradies here. I mean, because at the moment, you know, we've got a huge increase in, you know, a lot of immigration's occurring, but they're not, they're not building their own houses. I mean, they're not actually, the people who are coming in are not construction workers. And part of the problem is that although we theoretically recognize the trade skills of China and India, which are where the most of the immigrants come from, and Philippines

• 55:13Speaker 01

  and so on, the Asian countries where most of the people coming to Australia now come from. The practical fact is that it's very difficult for them to get work, but for tradies in China and India to get work here. It's very difficult. It's the, the, the bar, the bureaucratic form filling and everything is so difficult for them that it basically doesn't work.

• 55:39Speaker 00

  So we're talking now about intervention and creating a solution, but market economics dictates what I said before, the fact that a renovation's gone up 20% in price over the last 12 months. That should mean that, okay, lots of money's getting made here. Lots of people are going to head into becoming builders out of high school. They're going to go to TAFE, they're going to get a trade and they're going to go and do it because the money's there. Is that not going to happen?

• 56:03Speaker 01

  Well, it isn't happening. I don't know. I mean, there's money being made elsewhere.

• 56:07Speaker 00

  Yeah.

• 56:07Speaker 01

  And, you know, I mean, in order to become a trader, you've got to do an apprenticeship.

• 56:13Speaker 01

  You know, the apprentices aren't paid enough. You know, there's only 50% of apprentices are finishing their apprenticeship.

• 56:20Speaker 00

  It's all right.

• 56:21Speaker 01

  50%. And part of the problem is that, you know, when, when the apprenticeship system was set up, people were doing it when they were 16 and they were living at home and they didn't have a car.

• 56:31Speaker 00

  Yeah.

• 56:32Speaker 01

  But now everyone's not living at home anymore and they've got a car. So they, they can't actually afford to live on apprenticeship wages. So they do it for a year or two and they go, this is hopeless. I'm getting out of this.

• 56:44Speaker 00

  And they see their bosses are very stressed out trying to run a business.

• 56:48Speaker 01

  Sure.

• 56:48Speaker 00

  When they can't get labour and materials are expensive and clients don't understand that the price has gone up. That'd be stressful too.

• 56:55Speaker 01

  And the builders are all on fixed term, fixed contracts.

• 56:59Speaker 00

  Yeah.

• 56:59Speaker 01

  Which, you know, they get caught.

• 57:03Speaker 00

  Dad, I get to the bottom, we do this all the time. We get to the bottom of these chats and we kind of like, oh God, I'm, I'm guilty of this in some of the content that I do, that it's really grim. And I feel a bit grim after having this chat. I don't know what to do about that. I don't think there's anything to be done. We decided to have a chat about housing and it's a bit grim.

• 57:28Speaker 01

  Yeah, it's a bit grim. But, you know, look, there are signs, I mean, you know, that the government is, and I say to people who ask me whether they should invest in housing, I say, well, yeah, sure. But just remember, if you invest in housing right now, you're betting against all of the Australian governments. The Australian governments are trying to make housing more affordable, right?

• 57:49Speaker 00

  Yeah.

• 57:50Speaker 01

  They might fail, but if you buy housing, if you buy a house as an investment.

• 57:55Speaker 00

  Yeah.

• 57:55Speaker 01

  You're betting against them.

• 57:56Speaker 00

  Well, we love a bet in Australia, don't we?

• 57:57Speaker 01

  And, you know, I don't, I don't think I'm going to do, I wouldn't bet against them.

• 58:01Speaker 00

  Yeah, fair enough.

• 58:02Speaker 01

  You know?

• 58:04Speaker 01

  So I think that's the positive note.

• 58:07Speaker 00

  Okay.

• 58:07Speaker 01

  To end on.

• 58:09Speaker 01

  The Australian governments are trying to fix it.

• 58:11Speaker 00

  Yeah, okay. Well, good.

• 58:12Speaker 01

  They're trying to fix it.

• 58:15Speaker 00

  Hey, I've enjoyed this.

• 58:17Speaker 01

  Me too.

• 58:17Speaker 00

  I've had a good time. I liked, I think that for all of my, I mean, in our, the crossword actually played. I think it worked. Do you think it worked?

• 58:25Speaker 01

  I do. It was great. Good on you.

• 58:26Speaker 00

  I think, get ready, I'm going to start hitting you up with more crosswords because I know you like them.

• 58:31Speaker 01

  I think you're an actual podcaster.

• 58:33Speaker 00

  Do you think so?

• 58:33Speaker 01

  Oh, yeah.

• 58:34Speaker 00

  This is huge because you've been a podcaster for many, many years.

• 58:37Speaker 01

  I have, yeah. But, you know.

• 58:40Speaker 00

  Well.

• 58:40Speaker 01

  I've been playing around. You're.

• 58:42Speaker 00

  Yeah, no, you haven't. No, I see our rankings in the business on Spotify and we're, we're wrestling.

• 58:49Speaker 01

  Are we?

• 58:49Speaker 00

  Yeah, we are.

• 58:50Speaker 01

  Hmm.

• 58:50Speaker 00

  I don't, I didn't want to bring that up. If I, if I invited you back on for another chat, not about housing, but on, because you know, how we got here is usually historical business stories and the sort of the how we got here of the, that pocket of the economy. If I asked you back for another chat, would you do it?

• 59:07Speaker 01

  Of course. And what will we talk about?

• 59:10Speaker 00

  I don't know. We'll figure it out. We'll, we'll talk off mic and we will, we'll land on one. But I look forward to having you back onto this podcast, Dad, Alan. Thank you.

• 59:20Speaker 01

  Thank you.

• 59:23Speaker 00

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