Treasury’s Fraser: Can’t afford a house? Aim low

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By Leith van Onselen

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.

It doesn’t.

“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:

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And let’s recall that Australian workers enjoyed huge nominal pay increases back then, versus minimal pay rises now:

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As well as negative real mortgage rates – that is, where mortgage interest rates are below the rate of inflation:

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In short, Fraser enjoyed the good fortune of:

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  1. Purchasing a home at a cheap price; and
  2. 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:

  1. Record home prices; and
  2. 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:

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  1. cut Australia mass immigration program, which he himself has admitted is problematic;
  2. unwind property tax distortions (e.g. negative gearing and CGT);
  3. tighten enforcement of property foreign ownership rules and implement and implement anti-money laundering rules as they pertain to real estate gatekeepers; and
  4. provide incentive payments to the states to free-up land supply and planning.

But, hey, empty words are easier than action.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.