TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH MORTGAGE CHOICE LIMITED
(ASX:MOC) CEO, MICHAEL RUSSELL
Emma Pearson: Hello Emma Pearson reporting for the Finance News Network. Joining me today from Mortgage Choice to share his thoughts on how to tackle the problem of housing undersupply and affordability is CEO, Michael Russell.Michael welcome to FNN. Now this has been an issue that’s been with us for a number of years now and despite Government incentives it’s getting worse. What is the size of the problem in terms of undersupply?
Michael Russell: At the end of 2009, the National Housing Supply Council estimated it to be about 178,000 dwellings short of the present demand for housing.
Emma Pearson: And on current trends is this expected to get better or worse?
Michael Russell: Worse. Obviously with our rising population and immigration, the Supply Council estimated in three or four year’s time that this’ll increase to over 300,000 dwellings.
Emma Pearson: Now affordability is a function of supply, yet in a country as big as Australia it seems inconceivable that land supply is an issue, how have we got into this situation?
Michael Russell: It’s crazy isn’t it, I agree. Look it’s a number of mitigating issues from the supply perspective. It takes far too long in this country to bring green field or infill land to market, so it’s certainly the time that it takes and it can be anywhere from ten to twenty years for a developer to bring this to market. There’s also a pretty heavy burden in terms of costs to develop and to supply the necessary infrastructure to bring this land to market. And there’s a lot of bureaucracy, there’s a lot of bureaucracy and a lot of red tape that’s just slowing this process down. So that’s the supply. From a demand perspective, we’ve had a real cultural shift that certainly, you know first homeowners for example are wanting to live near transport and near where the job opportunities are. So they’re wanting to live closer to the centre of town and as I mentioned previously the - you know the immigration and rising population at the moment, is outstripping the pace at which new dwellings are being brought to market. So both those pressures have caused us to have this massive undersupply problem.
Emma Pearson: With our population running at 2.1% faster than most other nations, do we need to accept greater density living to alleviate the problem?
Michael Russell: Absolutely we do, I think developing up and outwards into the suburban areas needs to be the key. Obviously young folk are saying that they do want to live - and there is a bit of a generational shift that’s occurring, but young folk do want to live closer to the city. And they’re not prepared - twenty or thirty years ago, people were prepared to buy their first home; you know twenty or thirty kilometres out. Young Gen Y’s are not prepared to do that. But by the same token, we’ve got this conflict that Mortgage Choice ran a first home buyers’ survey recently and we had 67% of our first home owners say they want a house and so that creates some issues as well.
Emma Pearson: Now you suggested a more attractive savings option for first home buyers given the core response to the First Home Saver Account. Now how many accounts have been opened and what was the target?
Michael Russell: Look it was recently estimated that – and this was a matter of weeks ago – that around about 15,500 accounts have been opened. This is well short of the Government’s desirable target of around 0.75 million accounts. Look I think personally it’s a terrific initiative that the Government have embarked on, you know with putting something in place where they will co-contribute 17% per annum up to a contribution threshold of $5,500 a year. They’ve already indexed – so they indexed this threshold and they indexed the maximum account balance to CPI. So the threshold moved from 5,000 to 5,500 in July and the account balance 75 to 80, they contribute 17% which is tax free, you know for the first home buyer. So it’s a terrific initiative.There are two reasons why it’s basically been a failure. One is the requirement that the first home owners must keep the account for four years. So if they want to – if they have a need to break the account within the four years, the money is automatically dumped into their superannuation which really doesn’t assist them at all. And the second thing is that if they do find a house and they find they can qualify for a loan within the four years, they can’t use that money towards the house purchase. They’ve got to wait until the four years expires and then that money must be applied as a mortgage repayment.So this four year restriction is a prohibitive factor. People - young people don’t – I think while they understand the need to save for a house deposit, they just don’t like having their money tied up for four years. So that’s something that must be addressed because all of our evidence is that that’s a huge deterrent.
Emma Pearson: Now another change you put forward is to index a First Home Owner Grant to median house price growth and to back date to its first anniversary July 2001. Approximately how much extra will this add to the Grant?
Michael Russell: Well look we feel very strongly about this issue as well. It just makes absolutely no sense to bring a grant of $7,000 in, in2000 when the median house price was $220,000 and not index it each year. The median house price now is about – the March quarter of this year, the median house price was $518,000. So if you apply the percentage pro-rata increase, the Grant should now be around $16,500. And again, I can’t understand the, you know, the notion of not indexing it.Again a great, great idea, a great assistance to first home owners to contribute towards the costs associated and we’re talking in particular, you know the statutory costs to buy a home in this country are significant. And that extra – what $9,500 – would go a long way to getting first home owners into their first home far quicker.
Emma Pearson: Last question. What chance to you give either proposal being fully addressed by the new Government?
Michael Russell: Look we think there’s a great opportunity for, you know, the new Government to really take a good hard look at the policies that they’ve got in place. As I’ve said the Labor Government’s put in place a couple of wonderful initiatives to address housing undersupply and housing affordability. Unfortunately their affordability – the National Rental Affordability Scheme and the Social Housing Scheme haven’t been taken up, so with respect to the Grant and First Home Saver Account, great opportunity for the incoming Government to make some decisions.
Emma Pearson: Michael Russell thanks for sharing your views today.
Michael Russell: No problems, thank you.
