Paying for it: In hock to the greatly outdated Australian dream
Forget negative gearing, Gen Y’s entitlement, the Baby Boomers’ greed, property bubbles and foreign investment. The biggest thing stopping people buying homes in South Australia is that – while the calendars read 2016 – when it comes to housing, it’s definitely still 1956.
It was a good time for South Australia after World War Two. Industry boomed, citizens bred prolifically, state coffers filled and overflowed, and houses – built often by Government for workers – sprung up across the state.
People got married (with no thought for marriage equality at all), they bought a house, had kids (who were raised by Mum, of course, with little more than the occasional harsh word from Dad), and Dad went to work every day, for the same company, for the next 40 (give or take) years.
In completely unsurprising news, six decades later – in 2016 – things are different.
Now, people don’t always get married – they don’t always want to, and some people who want to aren’t allowed.
Couples sometimes don’t have kids, or they have a lot of them. Or they adopt. Or they try IVF. Or they have partial custody of children from an old relationship. Or they look after their grandchildren. Or they have a dog.
Some people still do the nine to five, but there’s less and less of them and most don’t think they’ll be in that job for more than a few years. Some people are self-employed. An increasing amount of people can’t get work at all. A startling amount of people own small bars. A lot of the people referenced in this section are women, certainly more than anyone from 1956 would have imagined.
But despite these wholesale changes, when we close our eyes and think of what our home should look like, more often than not we think of an updated, Miele-appointed version of what the generations before us wanted.
The three-bedroom home with a backyard still holds great allure in the minds of South Australians and that’s because our understanding of a “home” is inherited.
“It’s a picture of a home,” says Søren Kristensen, who bought a three-bedroom house with a backyard in Rostrevor with his wife Jane while they were expecting their second child. “What does a home look like? It’s what you grew up with.”
It’s an understandable attitude, and on the other side of the property coin, a parallel and equally logical throwback is happening.
While buyers are dreaming of traditional family homes, our lending institutions are closing their eyes and imagining the perfect home buyer.
Apart from some cuffed jeans and better hair, that vision also looks very much like it has for decades past. These organisations are searching for a low-risk proposition – someone with a steady income, consistency in career choice, proven savings ability and preferably a few assets already against their name. In other words, they’re looking for the kind of person that was easy to find in 1956, and not so easy to find in 2016.
That’s understandable too – particularly given the house of cards that caused the Global Financial Crisis in the late 2000s was built on a foundation of chancey home loans that became common in the USA.
“Certainly that [lending practices] has been tightened up in Australia, because that’s about protecting the country and the sustainability of the organisations that are doing the lending, but also the person who is borrowing.” says Darlene Mattiske-Wood, deputy CEO of People’s Choice Credit Union.
As explicable as they might be, taken together, these two atavisms are like a one-two punch that conspire to keep homes out of the hands of first home buyers. This is because applying 1956 logic and aspirations to 2016 situations predictably causes all kinds of unfortunate complications.
For a start, in 1956 property in South Australia was seen almost entirely as a place to live. Our ability to see property as part of a ‘wealth accumulation’ share portfolio instead of as shelter didn’t develop until much later in the century, around the ‘70s and ‘80s.
South Australia does not have the issues with housing supply seen on the East Coast where investor appetite has the capacity to push a price of a home up so far it’s well beyond the reach of anyone else. But still, investor activity affects our market because it allows a system meant to equitably offer access to residential and investment buyers to heavily favour one group.
When it comes to getting a home loan as an investor, it’s so easy that financial advisors will encourage you to borrow even when it’s unnecessary.
Photographer Andrew Beveridge and his partner had significant savings in the bank – enough to pay off most of the price of the apartment in which they had decided to invest – but they were given advice not to use that money.
“But if you want to write things off, then anything you buy for the property needs to be with borrowed money,” says Andrew. “We already own our house freehold, so then the bank lets us borrow everything because we have enough equity.”
While Andrew and his wife use their equity to borrow the entirety of the apartment’s price, including the deposit, then pass Go and collect $200 (and more) in tax breaks via negative gearing processes, a first home buyer is stuck at the starting square with only a few (often expensive) ways forward.
Without other significant assets (people with yachts are set) they could borrow against, our first home buyer would be trying to pull together a 20 per cent deposit, which – based on a house price of $445,000 – the median for homes in metropolitan Adelaide as of March 2016 – would be in the order of $89,000.
If that home buyer couldn’t save the $89,000, they could still get a home loan – but that would need to be made lower risk for the lender by the mandatory provision of Lenders’ Mortgage Insurance (LMI), which is usually in the pricey ballpark of $5,000 – $15,000. Saving enough to pay LMI, stamp duty and a decent deposit is becoming more and more impossible, particularly as land prices climb.
Many people claim access to housing for younger people is an issue borne of Generation Y’s penchant for instant gratification, in which they only want to buy homes they consider perfect. They think wistfully of previous generations – like the Baby Boomers – who would supposedly buy what they could afford and be happy with it.
But the numbers show that it’s not Gen Y’s new age attitude that’s the problem. The problem is that what most people can reasonably afford in 2016 is nothing at all.
In metropolitan Adelaide, homes now cost – on average – 28 times more than they did in 1975, while average wages have only risen by about 10 times. Whatever way you cut it, that means it was far easier for a Baby Boomer to buy the family home than it is for the current generation.
As a result of this situation, property developer Andrew Hudson of Forme Projex has seen a downturn in the number of first home buyers purchasing in his projects.
“Back when we did the Halifax Depot, we had first home buyers there that were getting 97 per cent home loans and their first home buyer grant was all they needed as a deposit. They still needed to demonstrate they were credit-worthy… that was 16 years ago,” he says.
“They were different days where a first home buyer didn’t need a 20 per cent deposit… It’s frustrating – I talk to first home buyers who are happy with a one-bedroom apartment or a town house but just can’t get over that deposit hurdle.”
The 1956 mindset permeates our lending practices, our perception of what a home should be and encourages denial of just how unaffordable homes really are. These delusions conspire to prop up a system in which home loans are much more accessible to investors than to first home buyers.
This problem is compounded because work and life are also very different now to how they were in 1956, but home loan criteria are not.
In an increasingly deregulated and casualised labour market, it’s getting harder and harder to tick the boxes on a home loan form designed for the nuclear family of eras gone by.
When artist Amy Joy-Watson approached a mortgage broker about the possibility of buying a home, she was surprised by what she was told.
“He [the broker] chose to not even include my art income on paper because banks would not look favourably on it,” she says. “He just thought it was an added complication we didn’t need.”
With plentiful investors still providing business, banks have little motivation to flex to accommodate people like Amy, and – in many ways – they’re also prevented from doing so by national regulatory bodies like the Australian Prudential Regulation Authority (APRA).
“We can’t have a banking license, we can’t have a credit license if we don’t comply with these things,” says Darlene of People’s Choice.
“So even if we say ‘look, we feel we can take a chance here’ and we continue to do that and enter into risky practices and take lots of chances… we won’t be around to lend to people in the future – so we have to make sure we have sustainability as an organisation to continue to lend.”
Given the weight of these legal requirements and the all-encompassing nature of the cultural assumptions that underpin them, it seems unlikely that lending organisations are going to be able to step outside of the 1956 mindset any time soon.
But while home loans will likely get progressively more difficult to access as we move further and further away from the ways of the world in 1956, there are a few pioneers leading the charge on creating a new housing frontier.
Their innovative solutions prove that sometimes all that’s needed to solve a crisis is determination, ingenuity and an acceptance that living differently doesn’t necessarily mean living worse.
Aforementioned artist Amy Joy Watson did end up buying a house, but she ended up buying it with her sister Olivia.
This non-traditional arrangement allowed them to access a workable home loan to buy a little house in Rosewater. The home has been perfect for the pair, who have a close and functional relationship, but there is some uncertainty about the future.
“When we bought the house I was single and I just didn’t even think about what it would look like if I wasn’t single… what would happen if I wanted to move out with my partner or anything like that,” says Olivia. “It’s a question I forgot to ask.”
“Obviously we could do any of those things – sell it or rent it, but the problem is Amy and I didn’t predict or expect that we would become as attached to it as we are.”
Still, Amy and Olivia are confident that the strength of their sibling relationship will allow them to peacefully resolve things when necessary. In the meantime, they’re delighted to be in a property of their own.
“This is really good. No-one is in a hurry to move out,” says Amy.
Since having their first child – Lyon – more than a year ago, young professionals Lydia and Stuart Crawford-Pope have found themselves spending a lot of time with Mary Crawford, Lydia’s mum, as they negotiate around work schedules and Lyon’s needs.
So the younger family members decided to move into Mary’s home, which is where Lydia grew up. But to accommodate this arrangement comfortably, some changes are being made with the help of Atelier Bond architect Greg Bond.
At the request of the Crawford / Crawford-Pope family, Greg has divided the character home into two completely separate apartments and created extra room by putting the kids’ bedrooms in the roof void.
While the homes will be separated, the garden will be shared, as will the veggie patches, pizza oven, solar panels, rainwater tanks, rates and – of course – the support.
“You need your family support. You can’t do this without it,” says Lydia of bringing up children.
“It’s a two-way thing. There’s that support [from Mum] and then I’m an only child so I’m going to be responsible for Mum in the distant future… We’d rather be having the two-way support for all these years.”
It’s a 2016 solution that harkens back to the so-called ‘family values’ that many fear we’re losing in the modern age, all while getting around the problems caused by a cultural hangover from 1956.
Greg Bond of Atelier Bond worked closely with Mary, Lydia, and Stuart to bring to life their vision for two joined but entirely separate residences under one roof.
John Baxter and his partner Michelle Wigg are modern workers – Michelle works mostly on short term contracts for arts festivals, while John works part-time in construction, part-time on his own consultancy business and part-time as a community advocate.
They almost certainly wouldn’t satisfy outdated home loan criteria, and even if they could they are wary of committing to land at 2016’s overblown prices. But the pair have found a way to access land at a more achievable cost.
John is building Australia’s first tiny house, which will measure just 2.4m wide, 6m long and 3m high, and will be placed in someone else’s backyard.
“The idea is to find backyards that are under-utilised so that like-minded people are happy for us to rent the space off them to give them income for something they’re not really using but at a price that is affordable for us.”
The tiny house is transportable too, and is based on a concept that has become a movement in the US. But John and Michelle’s search to claw back some access to land in Australia has not been all smooth sailing.
“One of the things that keeps coming up that is frustrating, but you get used to it, is the building industry is designed for professional builders,” says John. “Owner-builders have been sort of progressively squeezed out of construction over the last few decades so just things like getting access to information – codes and standards – is really difficult.”
John hopes that as well as becoming a home, his tiny house experiment will result in a set of instructions from which others can build their own tiny dwelling in a way that satisfies Australia’s building code and adheres to local council requirements.
John is not the only one bumping into regulatory barriers that discourage unusual and more equitable uses of land.
Robert van Gorp and Mia Alexander are building a four-storey shipping container home on a 90m2 block in the city.
“I knew the sum I wanted to build the house for and really it was working to that,” says Rob of why he chose to build on a small block.
Rob and Mia brought in architect Damien Chwalisz to design the home and his expertise meant the unusual blueprint still (eventually) made it through the obstacle course of Council approvals.
Despite that, they continue to encounter resistance as they attempt to execute most of the building work themselves in a bid to keep the budget in check.
“I want to make it very clear to young buyers: if you do not use a builder, banks won’t loan to you. Building in the city? Council will not help you… we are still waiting for our crossover [where the driveway intersects the footpath] to be repaired,” says Rob.
“We are an owner builder funding to finish, it is all us… Be aware if you go it alone you will be alone.”
But Rob and Mia’s architect Damien says the design principles rolled out on their site after all this heartache could well give guidance for people looking at small block builds in the future.
“There are many … I feel will have to be adopted in the future as houses become smaller due to the move toward higher density housing,” Damien says.
“Many techniques were employed including – creating elements of the building with dual purpose… dealing with a very vertical typology of housing, designing a house in which to live requires some social tolerance, to name a few.”
More lateral lending
While most lenders are stuck in 1956, there is one in South Australia that has cautiously made its way into the 21st century.
HomeStart is a subsidiary of the State Government and gets a break from some of the more onerous lending regulations as a result.
“The banks are regulated by APRA, we’re not,” says HomeStart’s CEO John Oliver. “That’s really the only difference – in terms of other things, anti-money laundering, privacy, the national consumer credit principles, which is basically the lending standards – we comply with all of that.”
But beyond regulations, HomeStart has one other key difference: its main purpose is to help people buy homes, not to help shareholders make more profit.
“Sometimes the difference gets down to interpretation,” says John. “There are elements of our lending where we will count certain types of income that the banks won’t…. for example, we will take into account some types of permanent casual wages and maybe banks won’t to the same degree.”
HomeStart also provide a solution to the Lenders’ Mortgage Insurance conundrum often faced by first home buyers.
“We don’t charge lenders mortgage insurance,” says John. “We take a loan provision charge, which caps out at about $2500, but we apply that to every loan above 40 per cent – that’s how we accommodate that. It starts at $400 and stops at $2500 or there abouts.”
HomeStart also tackle the land price issue by co-investing with home buyers through shared equity loans. These mean the buyer can borrow more without increasing their loan repayments, and they pay HomeStart back, and share in any profits with HomeStart, when the house is sold.
However, HomeStart is not the consequence-free solution to every first home buyer problem it initially seems to be. Its interest rates are higher than an average lender’s – something that provides a little surety for the organisation as it engages in higher risk loans, but it does allow first home buyers to get a foot in the door.
Just don’t buy
The other solution, of course, to the complex problems created by a housing market stuck 60 years in the past – is to forego buying a home at all.
But lifelong renting brings its own complications.
A recent submission from the Council of the Ageing SA to Housing SA on the topic of fairer and more sustainable private rental assistance quotes Anglicare figures that show only about two per cent of private rentals available in Adelaide on a given weekend were accessible to a person living on the age pension.
“Private rental is an insecure place to live in older life without resources,” says the submission. “From the tenant perspective it is an under-regulated environment increasingly unsuited to facilitating ageing well.”
Forme Projex are exploring the option of offering long term rentals across some of their portfolio in an effort to redress at least some of these problems for people looking at a future in the rental market.
“On buildings that we develop to hold, when go to the market on that, Kimberley [Forme’s property manager] can offer people a two year lease, three year lease, one plus one plus one – whatever they want,” says Andrew.
Forme’s long term rentals are a little Australian-scale nod to some of the European markets like France, where the preferred model of six-year-or-more residential leases often turns into a lifetime spent renting one home.
This approach creates more stability both in lifestyle and price for the renter, but the difference – of course – is that long-term rental markets are supported by swathes of regulations and concessions we don’t have in Australia.
But, if we must continue down a path of the past that squeezes young people out of the home ownership picture, moving in that direction could be one way to offer a different kind of security in housing.