Fact checking Australia’s housing affordability and supply issues

Fact checking Australia’s housing affordability and supply issues

By Kylie Davis

As Australians struggle with the challenges of affordable housing, the cliches of greedy landlords, sleazy real estate agents and dodgy builders are dredged up repeatedly. And now there’s a new one – discriminatory proptech. 

They are unhelpful narratives that seek to assign blame onto the many, based on the behaviour of a very few, thereby avoiding dealing with the structural issues in housing, construction and investment in this country that are unique to us as a nation and – with the current crisis as evidence – are inherently broken.

So let’s fact check. 

Residential property is Australia’s biggest asset class

CoreLogic data shows residential property is a $9.3 trillion dollar asset class in this country. It is our favourite way to build wealth holding 57.3% of our money. Unlike Americans who put the bulk of their wealth into stocks, bonds and shares, Aussies love the idea of spending on a roof over our heads because it literally makes us feel psychologically safe. It’s more than eight times bigger than the commercial property sector at $1.3 trillion where the big end of town play. But big business is not currently incentivised to invest in housing. We’ll discuss that shortly. 

Yet it’s run by cottage industries

You’ve got to admit its quirky that while the issue of housing security and supply is one of national importance, the way we build, buy, sell, renovate and manage our most important financial and psychological assets in this country is decided individually by individual small businesses owners and governed at a state level. Housing approvals go right down to local government. 

According to the REIA, there are 46,793 real estate agencies in Australia – 99% of them small businesses – employing around 130,000 people. These include sales agents, property managers, principals, office managers and in sales and marketing roles. And there are 425,600 construction businesses.  

So what’s the best process for managing property rentals, running a sales team or effectively managing a building site? Who really knows? Every week hundreds of thousands of agents, property managers and builders work that out in their businesses for themselves – or they don’t. 

Does our current system provide freedom to create your own mark as a business? Yes. Does it let consumers shop around for someone who they think best meets their needs and budget? Yes. Does the competition encourage price cutting? Totally. 

Does it create consistent experiences? Well, yes. Sadly, it too often creates consistently suboptimal or stressful experiences as customers bear the brunt of poor processes and requirements to deliver a service under economic pressure and industry workers struggle to deliver to expectations in straightened circumstances. Thirteen out of 100,000 real estate agents die annually by suicide. The figures in the construction industry are even worse at 26.6 per 100,000. Work and financial stress are recognised as major factors in these figures. 

So is our current system efficient? No. Does it cost us all more to do it this way? Yes. Both financially and in a tragic human cost. And the current system generally assumes labour is low cost or free – especially the labour undertaken by renters and buyers in doing their own research and due diligence.

The majority of property investors are mums and dads

ATO figures have identified 2.22 million tax payers who own 3.25 million of the 10.8 million residential properties in Australia. That’s 30% of housing stock that is available to rent. However, while the word “landlord” derives from the 14th century when the lord of the manor really did have absolute life or death rights over the many tenants who worked his lands, 71.5% of today’s modern Australian landlords own just one investment property. A further 18% hold two properties while just over 10% own three or more. (By way of interest less than 1% own 6 or more). 

In this way we are unlike the US or Europe where the majority of apartment buildings are owned by corporates or large-scale investors. 

The overwhelming majority of Australian property investors are mums and dads using the country’s favourite asset class to build their family’s wealth and many of them are highly leveraged to do it. A growing sector are “rentvestors” – first time buyers getting onto the ladder by purchasing in an area where they can afford and renting where they want to live. When interest rates and cost of living rises, this directly impacts the ability of many to hold the asset. 

Policy, not conspiracy drives behaviour.

There is no evil conspiracy of property investors rubbing their hands with glee as they increase rents. There are just normal Aussies sitting at the kitchen table with a calculator asking “Can we afford this?” When the answer is “no” or “it’s touch and go” they call an agent, put up a for sale sign and exit the system. 

Because of the individualised nature of our property ownership structures, it is market forces – not a cabal – that drives behaviour of investors. And it is governments and their policies that have the biggest impact. Economic realities that make property investors anxious include interest rate rises, cost of living, employment and inflation.

But proposed policy also increases anxiety such as announcements by the ATO that it will be reviewing investor bank accounts or considerations of rental freezes. The best example of the damage governments can do was seen last year when  the Queensland  Government was forced to abandon it’s policy to tax landlords based on their national property holdings after investors started to rapidly exodus the system. And it should not be forgotten that the ALP and Bill Shorten’s defeat in the 2019 Federal election was largely attributed to it’s unpopular proposed changes to taxing property investors.

Government has failed to manage its own backyard

The Liberal NSW government sold off more than $3.5bn in public housing during its time in office, ostensibly to reinvest. Except it didn’t. It stripped out 4205 homes, promised 23,000 new residences to meet a list of more than 50,000 households needing accommodation and delivered just 2393 properties. 

An audit of Queensland public housing shows consistent under investment and a shortage of 36,000 homes while in Victoria, just 74 new properties were added to social housing totals across four years as the wait list soared over 62,000 people. 

Instead of baying to the dog whistle and blaming investors for the current rental housing crisis, we should be putting pressure on governments into doing what is within their power to control – increasing housing supply and investing in public housing – and holding them to account when they do not. 

There is no recognised national structure for providing property investment advice

The provision of financial advice in Australia is rigorously regulated nationally by ASIC. You cannot be licenced to advise consumers on the correct mix of stocks, bonds or financial products without meeting strict criteria, undertaking ongoing education and training and regular checks to be judged a fit and proper person. This is people’s hard-earned money, after all. 

The Financial Services and Credit Panel (FSCP) is a pool of industry participants that has statutory functions and powers, advises the federal minister and is convened by ASIC. It responds to claims of misconduct, can suspend licences, issue infringements and has the power to recommend that ASIC commence civil penalty proceedings.

Given we’ve established Australia’s favourite and biggest investment class is property, what are the rules that govern property investment advice? Surely, they are just as strict? 

Ah! No. 

Buyers agents – who it is estimated represent less than 5% of property buyers – need state-based real estate licences and face different training levels – most pretty low – in each state. But anyone can put out a shingle and claim to advise people on how and where to buy property as well as  how much to pay. 

This is not to disparage buyers’ agents who work hard for their clients. But to point out that the different regulation requirements in each state system is failing us. Good work is being done by PIPA (Property Investment Professionals Australia) and PICA (Property Investors Council of Australia) to push the federal government for national standards but the difficulty of harmonising the many layers of state and federal law – and its politics – has so far defeated common sense or good policy. 

Good buyers’ agents and qualified property investment advisers are members of PIPA and adhere to PIPA’s professional standards and code of conduct. But these are volunteer bodies with codes of conduct that are not legislated. Government at all levels needs to get behind national standards and create minimum education standards at the very least.

Dollar for dollar your consumer rights getting a haircut are better than when buying a property. 

“Caveat emptor” – buyer beware – is the rule that applies when purchasing property across the country. Buyers are out on their own when making the single biggest purchase they will usually ever make in their lives. And too many buyers fail to realise that real estate agents are in fact obligated by law to represent the interests of the seller, not the buyer because they are a seller’s agent responsible for bringing the stock to market and negotiating the highest price for the vendor.

Unless you specifically hire a buyer’s agent, it’s not the job of a typical agent to help you find a place to live or negotiate a price you can afford. Renters have even less power. 

Consumer affairs or fair-trading legislation at state level gives property buyers the same rights as you have getting any small business service such as a haircut, a tattoo or a funeral – all services that cost at the most 0.001% of the median price of an Australian property. 

To be an agent, you need a licence, sure, but in real estate you can do your training pretty much over a weekend after which time you can start selling million-dollar assets. And some states don’t require ongoing training of agents to maintain that licence. Let that sink in.

Corporate Australia is not incentivised to invest in housing

Big commercial property owners, superannuation funds and developers are keen to embrace build-to-rent and multi-family residential but point out that they need economies of scale for the numbers to work. Small scale, individualised and locally driven industry that Australian housing is, the current regime makes it difficult for them to meet their return commitments to their shareholders so they’ve stuck to known property investment options like commercial, retail, industrial and REITs.  

But a recent report by the Property Council of Australia and EY has identified that the build-to-rent market is currently worth $16.8 billion and has the potential to expand to $290 billion and deliver up to 350,000 new apartments if Federal Government gets behind tax and policy changes that will incentivise investment. To be fair, commercial property owners are mainly interested in top end homes, not affordable housing, but with supply being one of the biggest issues driving up prices for both buying and rental, addressing the volume of housing available is an integral part of any solution.  

Levelling the investment playing field for build-to-rent (BTR) homes could deliver 150,000 new apartments in 10 years which would not just meet the 79,300-home deficit to 2033. To achieve this though Australia needs better planning, more land supply, proper housing targets and a national strategy on build-to-rent – and that requires federal intervention and legislative harmonisation at all levels of state and local government.

The Federal Government’s national housing plan called the Housing Australia Future Fund announced both at the election and in last nights Budget is a step in the right direction yet still needs to pass parliament. It’s a $10 billion investment fund that will use up to $500 million a year to create affordable and social housing projects. But the Greens are opposed to it on the basis that – while it’s better than what we currently have (which isn’t much at all) – they want further improvements.

So let’s summarise. 

Our current housing system is disparate, small-focused, locally controlled and based on individual rights and obligations. Despite the high financial and emotional stakes buyers have less control, transparency, service and security than they get ordering a pizza on their phone and renters are reliant on investors who choose to run the gauntlet anyway. Big business knows this and is staying away until the situation changes. 

State governments have been busy pointing fingers, failing to invest in the system and going slow on changes that could support better outcomes. Instead we have a culture of blame where the actual constituents who could help them better achieve their goals are threatened, causing even great housing shortages. 

Add to this the latest accusations of discriminatory proptechs claiming that technology that makes property transactions more secure, less stressful, easier to understand, time saving, affordable and transparent are somehow part of the conspiracy to keep housing unaffordable.  

Proptech isn’t perfect but it solves more problems than it creates.

The Australian proptech industry boasts more than 450 innovative products and businesses that for the past 20 years – and rapidly accelerating over the past five – are working to solve pain points in property ownership, building, buying, selling, renting and renovating for buyers, sellers, renters, real estate agents, property managers, strata managers, property owners, builders and developers. And as we’ve seen, there is a LOT of pain points. 

When the industry started, it was focused around efficiency and cost savings but it is rapidly accelerating into very big data sets, AI, internet of things and ESG solutions, while increasingly unlocking the value of neglected assets, making new business opportunities possible and empowering under represented stakeholders in property – namely buyers and tenants. 

While the customers that we serve most often have their focus on local markets and how they solve immediate issues, Proptech has a longer-term focus and vision, drawing inspiration from the tech developments we see across all aspects of our lives and asking “how could this be applied to property?” And “How can we make buying, selling, renting, building etc easier? Less stressful? More transparent? More secure?”

Do we get it right all the time? No. Many of these businesses are small scale innovators and trying revolutionary new ideas and are trialling new concepts that take time to perfect. But like all good and responsive tech we are quick to adapt and correct when customers point out issues.

And in an environment as diversified, inconsistent, burdened by legacy rules, haphazard behaviour and opaque processes, our ability to manage complexity and make it simple, secure and transparent is extremely valuable.

Unlike our industry customers or governments who can be slow to change and are bogged down by manual systems, focused on local issues and wide battle fronts (that’s intended not as a criticism but a statement of fact), proptech can fast track adoption of best – or at least better – practice than the industry exhibits currently.

The tech development skills that allow a business to incorporate the rules and regulations of eight different states and territories or 537 local councils, is the same skillset that allows a proptech to scale into international markets and Australian proptech has impressive export credentials.

So if you want to convert 130,000 real estate agents to become compliant, you can do the work to either run an extensive education and training campaign across eight states and territories backed with penalties to drive behaviour and inflict further manual processes and cost onto an encumbered system, or you can work with key proptechs who make compliance easy for their customers, have a share of the market nationally and support raising standards more effort 

The recent Choice article examining renter Proptech solutions raised valid questions and issues that are worth reflection. But government response needs to be done with consideration of the context of “how do we do it currently without this tech and how does THAT work for renters, investors, agents and landlords?” 

The answer is it obliges everyone in a property transaction to do more manually, send highly confidential and private information over email and rely on the disparate cyber security standards of small business to protect us. Under such a lens, the addition of user pays for a different or more empowering experience can be a positive option for many renters and buyers who are time poor and who, in every other aspect of their lives, are able to pay a premium to receive a better service experience. 

Rather than rolling back, we need to consider better guidelines and rules for moving forward. That can only occur when we all commit to stop slinging mud and campaigns of distraction and work within our areas of expertise, influence and control to make substantial and much needed change to a system that needs cooperation and collaboration across industries, levels of governments and borders to address. 

The Proptech Association Australia is committed to working with all stakeholders across the property sales, rental, management and building landscape. We passionately believe that buying, selling, renting, building and renovating property doesn’t need to be as hard, scary or expensive as it currently is. Because nothing, truly, can beat the feeling of home.

  • Kylie Davis is the President of the Proptech Association of Australia and is a commentator and speaker on all things proptech and the real estate industry. See more here.