Treasury Secretary, John Fraser, has given some useless advice to first home buyers (FHB), effectively telling them to ‘suck eggs’. From The ABC:
If you’ve been struggling through auction after auction because of an inflated housing market that’s made homeownership a distant dream – well, the head of the Treasury Department has a message for you: maybe it’s your mindset that’s getting in the way.
John Fraser has been in the role since the start of 2015; he’s also a member of the Board of the Reserve Bank of Australia; and today he was asked in a Senate hearing whether his department had figures on young people and homeownership.
“The data is not great,” Mr Fraser admitted. “You try to draw conclusions. You’ve also got to make a number of assumptions. The behavioural aspects are different.”
At my age, when I was buying a home in the ’70s, I probably had a different mindset to what a lot of younger people have at the moment.”
Mr Fraser acknowledged that those were “simpler times”, but continued by questioning whether young people’s hopes were set a bit too high.
“You have to make assumptions about what is ‘reasonable aspirations’ for a house…”
It’s always hilarious being lectured on housing expectations by a baby boomer who purchased a home in the 1970s – the most advantageous time in Australia’s history to do so.
Let’s recall that Australian housing was incredibly cheap back then, unlike now:
And let’s recall that Australian workers enjoyed huge nominal pay increases back then, versus minimal pay rises now:
As well as negative real mortgage rates – that is, where mortgage interest rates are below the rate of inflation:
In short, Fraser enjoyed the good fortune of:
- Purchasing a home at a cheap price; and
- Having his mortgage debt eroded away quickly by the combination of both rapid nominal income growth and high inflation.
Today’s FHB faces the opposite dilemma of:
- Record home prices; and
- Near record low nominal income growth and inflation, which makes paying-off today’s mega mortgage much more difficult.
Hence, Fraser has no right to lecture FHBs on expectations.
If Fraser actually cared about housing affordability and inter-generational equity he would instead be advising the Government to:
- cut Australia mass immigration program, which he himself has admitted is problematic;
- unwind property tax distortions (e.g. negative gearing and CGT);
- tighten enforcement of property foreign ownership rules and implement and implement anti-money laundering rules as they pertain to real estate gatekeepers; and
- provide incentive payments to the states to free-up land supply and planning.
But, hey, empty words are easier than action.