Kim Macdonald: Your home costs a bomb compared to years ago. But so does every home. Are you really ahead?

Demographer Simon Kuestenmacher and I agree that property is making the rich richer, and the poor poorer, but we disagree on what would happen if values dropped. As he explains, poorer people have traditionally used property to climb the socio-economic ladder, with capital gains and suburb gentrification pushing them — over time — into the middle class. But these days they are locked in permanent housing stress with high rents, unable to save the necessary six-figure deposit or borrow enough to buy a home. The wealthy, on the other hand, have no such problem. It means Australia is increasingly becoming a nation of rich and poor, thanks to the Matthew Effect, an economic term which denotes that initial advantage and disadvantage compounds over time. But Mr Kuestenmacher and I disagree on his claim that most homeowners would punish the Government at the polls if their homes were to lose value. He believes this is why politicians won’t seek to undermine values by reducing taxes such as stamp duty or by focusing on boosting supply. But I believe most voters are not fooled by the price hikes. Your home may be worth a mint compared to five years ago, but so is every other house that you could afford to buy. Property is making homeowners richer, but it will take years — maybe decades — before most realise any wealth from their homes. It will probably come when they downsize to a smaller place or when their suburb outperforms the market through gentrification.. In the meantime, anyone who sells their home to buy another one knows that based on the sale proceeds alone, they would have to downgrade to a cheaper, possibly smaller abode. This is because the proceeds would also have to cover stamp duty and real estate sales fees — worth about $60,000 on a median-priced $840,000 house — and other moving costs. If you were to borrow $60,000 to cover those costs, plus an extra $100,000 to upgrade to a slightly better home, you will end up re-paying $300,000 over 25 years at current rates, about half of which is interest. And for what? An extra bedroom? A bigger kitchen? Unlike a regular market, upgrading to a better house can be cost-prohibitive when said home costs a bomb. While many are enjoying their riches on paper, they know it does little to change their standard of living. They also despair for the standards their children, young relatives and even strangers will have if they are locked out of the market, stuck in rental stress. There is also a genuine fear that intergenerational wealth will one day determine who gets to own a home. Landlords and downsizers aside, would homeowners really punish politicians at the polls if property values dropped? Not if they are smart. We need to give wages a chance to catch up to housing costs.

Kim Macdonald: Your home costs a bomb compared to years ago. But so does every home. Are you really ahead?

The No. 1 source of news for every West Australian

Subscribe

Subscribe