by Scott Pape - May 23rd 2009
Just like the Australian waistline, the circles of our cities keep expanding with every new development.
The great social experiment has seen first home buyers pushed to the edges in search of affordable housing. (You get the feeling that somewhere there’s a rich bunch of old farmers who are laughing all the way to the bank.)
Here’s how it works. Savvy developers first get the local council to rename the old suburb – that’s how Melton becomes Caroline Springs. (It’s all about the noun: Springs, Grove, Ridge, Hills, Heights, Sanctuary, Point.) Then they flog it as an affordable, family-friendly community of like-minded young people.
Everyone wins: the first home buyer gets a (comparatively) cheap new home, the developer makes money building, selling and often financing the home, and the State Government gets its revenue while simultaneously easing congestion in the city.
A couple of months ago I spent a day visiting some of these satellite suburbs on the fringes of Melbourne. Yet I didn’t go to the latest developments being pushed relentlessly on the telly.
Absent equity
Instead, I stopped a few kilometres short and visited the first home buyer suburbs of 10 and 20 years ago to see how things were faring.
Not well seemed to be the general consensus.
I was being chaperoned by the head of the Financial and Consumer Rights Council (the peak body for financial counsellors), whose members do brilliant work mopping up the mess that arises from a moment of monetary madness.
The strategy most young people had when they moved to these suburbs was to get their foot in the door of the property market. Then, in a few years when they’d built up some equity, they could trade up and move closer to the city.
Yet the equity never arrived.
Instead, developers continued buying up large parcels of land further out and building new groves, ridges and sanctuaries, thereby depressing the prices of their existing homes, which were now in suburbs that had lost the marketing gloss.
When cheap isn’t cheap
The reality soon dawned on the home owners that they were living 20 klicks from the city, often an hour or more’s journey by public transport (state governments love collecting stamp duty but generally dislike spending it on costly infrastructure).
The land may be cheap, the houses may be cheap, but the basics of living ain’t. A lack of infrastructure costs them in time and money.
Worse, many of these people were lured into buying their property without the means to do so.
One company, which features as its spokesman footy-legend-cum-property-spruiker Lethal Leigh Matthews, says in its advertising: No deposit. No legals.
No free lunch
But we all know there’s no such thing as a free lunch and there are lots of worries. You cannot expect someone to build you a brand new home when you’ve got no money.
The cost must be paid and many homeowners only find out years later how high a price that is. That’s where my friends from the Financial and Consumer Rights Council enter the scene.
Many whom I met on my travels were 20-year battle-scarred veterans, tough as nails, but underneath it all were caring, kind-hearted, selfless individuals. You’d have to be to do their job.
They told me stories of heartbreak, relationship breakdown, domestic violence, gambling and substance abuse. Many (though certainly not all) of these problems can be linked back to the day the optimistic young couple signed the biggest contract of their lives.
Financing the Aussie housing dream
The excitement of achieving the Aussie dream carried through to what they thought they could afford to repay.
Yet with no bad-times buffer, no margin of safety, nothing to fall back on, it’s only a matter of time before things go off the rails.
Which brings us to the Federal Government’s decision in the Budget to extend the boost to the First Home Buyers’ Grant, reported in the media as a win for first home buyers.
The real winner was the Housing Industry Association which managed to get billions of our tax dollars redirected to the pockets of its builder members under the guise of helping young people into their own homes.
With interest rates falling, many whose careers are tied to pushing property have been making statements in the media urging young people to buy, including the HIA, which has said there has never been a better time to enter home ownership.
No it’s not. It’s nothing of the sort.
This is merely a false boom, that – like the sub-prime crisis in the US – has been driven by well-meaning but deluded politicians.
Banks driving property prices
Here’s the rub: along with unemployment, it’s the banks that play a major factor in driving property prices as a consequence of how much they’re willing to lend. And up until a few months ago, they were willing to lend at no deposit, using the FHBG as a deposit.
Now, however, they’re starting to come to their senses and put the screws on their lending, with most requiring buyers to come up with a deposit.
This will bring down prices as people have less to spend, as will the fact that the Government has finally set an end date for the boost.
So don’t follow the crowds who this weekend will be rushing to the latest development to sign on the dotted line to get the grant.
If you do find yourself on the outskirts of town with nothing but a cheque from Canberra and some sales spin, here’s a tip from me and my financial counsellor friends: Don’t sign anything.
Tread your own path!
Photo:www.flickr.com/photos/adwriter/82945847/
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