SPEAKER_02 0:05

Welcome to a special episode of Brick to the Future. I'm Cam McClellan. I'm here with uh Matt Lewison. Matt, thanks for joining us today. Welcome Cam, good to be here. Now special edition. We're going to do a budget recap, but not the bullshit you're seeing out in the general landscape at the moment, because all anyone else seems to be doing that is just regurgitating the same policy crap that the government's put out. You know, people have seen enough of that. Matt, at the moment, the media are putting out these big headlines and it's designed to distract us from the truth.

SPEAKER_00 0:30

It's like the Matrix, Cam. Yeah. It is like the Matrix. Um absolutely. So it's a shame that they don't trust or the government doesn't trust people with the real facts. Um, because when you understand the real facts about what's going on and why they're making the decisions that they're making, there's a logic to it. And you can also see where they're likely to be heading when you look a little bit further down the down the line.

SPEAKER_02 0:51

Really quickly, just so anyone watching will just quickly outline the changes that the government have put in place that relate to the property market. Um, but then I want to uncover the macroeconomic impact so the and and get into those fundamentals and really practically what this means for investors. Are you good with that? Absolutely. Alright, so quickly give us a rundown. Um there's a number of different asset classes. The government's ripped off some advantages for some and left some remaining, just for people's knowledge, really quickly, if you can give us an understanding of what the changes were.

SPEAKER_00 1:20

Alright, so that there are three clear changes that affect property investment in Australia that I think you know come out of the budget. The first is the government's allocated $2 billion to go towards building infrastructure. So they're going to give that, make that available to the states and local governments if they can do things that create new housing opportunities. So, you know, building the last mile of services. Um, I'll get into that in a little bit. Uh, they've changed the CGT discount, so the tax um incentive that is for buying assets and capital gains tax and waiting for those assets to go up in value. We used to get a 50% discount if we held those assets for a year and sold it anytime after that. Now they've removed that for any established assets or existing assets, and it's only for new assets.

SPEAKER_02 2:08

So just clearly, if you held something and sold it within 12 months and it's gone up in value, the government would want about 50% of the profit of that. If you hold it in really round numbers, I'm well, yeah, if you held it for longer than 12 months, instead of taking half, they would take around a quarter of it. Quarter. And it depends on your income, but that's a really rough way of looking at it.

SPEAKER_00 2:29

And the third one is negative gearing. So the incentive, the tax incentive to hold assets that lose money while you're holding them until you're ready to sell. So, you know, things that affect negative gearing are interest costs, depreciation, that you can, you know, depreciate the value of the asset or the cost base of the asset and get a discount on your tax as a result of that. They've removed that incentive altogether for established assets. So it's only again for a new asset. So you buy a new asset. Meaning a a new build property as opposed to a newly built property. You build the property or you buy one that's you know off the plan, so you settle when it's finished, you will get those benefits as long as nobody else has ever lived in it, if it's a house or no one's occupied, if it's a you know commercial or whatever it might be. Um, so they're shifting the incentive. In fact, they're removing the incentive to just trade assets and speculate, and they're keeping the incentive that was already in place, essentially, for building, buying new, that sort of thing. Yeah. Um and it's it's really interesting when you look at the logic. I suspect they probably would have liked to have, you know, tax, changed the tax on the new, but we're in the midst of a housing crisis, and if they had done anything that maybe affected the supply of new houses, um they would have been shot. So the logic of what they've done makes complete sense and it kind of lines up exactly with what we expected at a few different options, but this was the base case, and you know, we've seen them deliver. So I think, in a way, as much as a lot of negative feedback, I think they get a tick for that. Surprising for a government. Okay, so the government has made changes to two key, I guess, tax um effects on housing market or investment. First of all, is capital gains tax, so anyone who invested in an asset that they held for longer than 12 months would get a 50% discount on the tax that they paid when they sold that asset in the year that they sold it. Uh, that's been removed for any assets that's not creating value in the economy now. So if you buy an established dwelling or you know an asset that already exists and you sell that in the future, you're no longer getting the 50% discount. Yep, shares? Shares, same deal?

SPEAKER_02 4:40

Yeah, so the reason that the government is doing that, and this is where I want to get a next layer from the bullshit that other people are putting out there so people understand so why the government have done that, and you you brushed on it briefly, but I want to come back to it. You said it's they're not providing that on assets that don't provide value to the economy, but they've left it for some that do. So what does that mean and why have they done that?

SPEAKER_00 5:01

Okay, uh, so just quickly, um, you know, if you're selling something that already exists and I come to you and I buy it, then we haven't created anything, we've just transferred it from you to me. Yeah, and the government just take a slice of their tax, and yeah, yeah, that's the that's their advantage. But if I go to someone else they don't own that haven't created anything and they go, I'm gonna build it and then they'll sell it to me.

SPEAKER_02 5:23

Which is why the new builds, so building a new property, um, run through the advantages of why the government have left some really good tax advantages on new builds.

SPEAKER_00 5:32

Okay, so obviously there's a shortage of housing at the moment. I shouldn't say obviously, because some people might not be aware of that, but we are living through a period of a prolonged housing crisis. And I say prolonged because it's been around for about six years. Uh it was there just before COVID hit. We were seeing this housing shortage that was leading to escalating rents and escalating prices. COVID paused that temporarily and then it's come back with a vengeance. And that's because we don't have enough houses to house the people that uh are either moving to the, you know, to Australia or moving interstate, and that growing population of people moving out of their parents' homes when they're in their 20s or even 30s now. Um so without enough homes to meet that demand, um, rents go up, prices go up. So that's you know the nuts and bolts of the housing crisis. The government wants to create new housing. Government wants, you know, new housing to be created across the economy to support that population growth. And I'm going to go into a bit of detail on why that's really important for the government and for Australians really soon. But they want to incentivize that. Or it probably a better way to say it is they don't want to disincentivize people from doing those things. So they've taken away an incentive for buying assets if it was an established asset, and they've left that incentive for people who create new assets or buy new assets. I should be really, really clear on that too.

SPEAKER_02 6:53

Yeah, so one so the first reason why they're leaving it on new property, uh those tax advantages, is to obviously provide more homes, which will help with the population to keep rent at a reasonable level or try and assist with that. The second is I think the advantage that um our economy gets when something new is built. So talk through the cash that flows through the economy when something's new is built, which is the advantage the government really really wants.

SPEAKER_00 7:19

Yeah, well, I mean that that is one part of it as well. Um so obviously, when you're creating a um a new house for if I use that as an example, yeah, um, you have to create a block of land to start with. So there's a lot of work that goes into developing a block of land, the road services, everything that goes in, all the consultants that are involved in that process. A lot of wages paid. A lot of wages, and then there's taxes that get paid along the way, there's infrastructure charges that get paid to council that make up a big chunk of the price of a property. Um when a new homeowner or an investor buys that block of land, again, there's a bit more tax, and then they enter into a building contract. So all of the trades, all the services go into building a house, yeah, it's creating you know economic activity, jobs activity. And again, there's a lot of taxes that get paid. Uh, I keep emphasising taxes here because that is an important part that as those um activities are going on, the government is making a lot of money along the way.

SPEAKER_02 8:14

So they'll take some tax off the farmer who sells the block to the developer, they'll take it off the developer, and they'll take it off the you know, the developer who sells it to the owner.

SPEAKER_00 8:24

They take it off every worker in the process and all the wages, they take it the profit, you know, taxes and the profit from the land developer or the builder, um and the GST.

SPEAKER_02 8:34

GST on all the materials and so forth. Um, and then it's the final part is they're um all of the fixtures and fittings and dishwashers, and there's a there's a retail sort of uh, you know, the blinds that that creates business and revenue for all of those companies.

SPEAKER_00 8:48

Yeah, well my oh you you know the story, but my grandfather used to work uh in a couple of jobs, and one of his jobs was creating electronic components that went into white goods. Um and he used to say that when the housing market's booming, the white goods market is booming, the white goods market's booming, every electronic, you know, every everything that's involved in all those support businesses boom, even though they're not directly related to the market. That's just one component of a building industry. Yeah, so there's about um a million people work in the construction industry in Australia, and a large number of those are related to residential construction. But all of the flow on industries and the activity that happens when the housing market is running and we're building new things is massive. Now, when you tra when you transfer a house from one person to another, none of that happens. None of that activity.

SPEAKER_02 9:34

Yeah, the government gets a pittance of well that it doesn't seem like a pittance to the person paying the tax on it, but in comparison, the tax that they they receive is is pitiful.

SPEAKER_00 9:43

Yeah, I mean if it's an owner-occupier selling a house, there's no um tax that the government's going to make on that. They might make some money off the stamps and the real estate agents and stamp duty and the removalists that move the property, you know, the furniture from one house to another. But that's not a lot of economic activity. It's not comparable to but um obviously when people are more active buying established houses, that does have an effect of inflating house prices in that established market in some areas.

SPEAKER_02 10:08

Yeah. Alright, so there are so let's get back to the core, which is this most people just put out here's the changes and go, fuck, that's great. Yeah. So we've identified.

SPEAKER_00 10:16

So we talked about CGT, yeah, and then there's negative gearing as well. So negative gearing is uh obviously a tax benefit that you get when you're losing money on an investment. So you're investing your money and you're making a loss while you're holding it, and the government's giving you tax back. Yep. Um, and subsidizing, I guess, the cost of holding that investment.

SPEAKER_02 10:35

And so it costs me $10,000 out of my pocket to hold an investment property for the year. I earn $100,000, I get taxed at $90,000.

SPEAKER_00 10:45

Um, negative gearing again is an incentive. So it was introduced as an incentive for people to invest money even if it wasn't gonna pay them a profit straight away. So you know it's worthwhile investing and getting some tax benefits along the way, yeah, so that you know eventually you're gonna make a profit when you sell it. Because if you don't invest, you know, if people aren't investing in the economy, the economy doesn't grow. So they wanted, you know, that. However, it obviously went to every asset. So if you bought an established house, if you bought shares that were leverage, you get negative gearing benefits and all those sorts of things. Um, and what they were finding is that people were, particularly, you know, the investors who are buying established housing in affluent areas, they're not really adding to the housing supply. Yeah, you know, they're speculating, and they're buying an asset that on a yield might be paying them 1%. So they're, you know, they might be paying 6% interest to the bank, they're yielding 1%. Yeah, that 5% extra cost of their finance, they were getting as a tax deduction. And they're generally on the highest tax rate, so they were getting a lot of money going back into their pocket through that. Again, they'd bought an asset that didn't add value to the economy, didn't create any extra housing, yeah, and wasn't creating taxes for the government, yeah, and they were getting a tax um deduction.

SPEAKER_02 12:00

Yeah, and now people should know if they've watched our previous videos over the past five years, the amount of times I've said negative gearing should be abolished on established housing. Um, so we've been saying this for decades, so I actually like it. Um it's tough for people, yeah. It's a change people need to get used to, but I think it's the right thing to do. And I don't often say the government do things right.

SPEAKER_00 12:21

No, no, it's right. Um, I mean there was some logic to it, wasn't there? Um, probably the other thing that people didn't realise um is the sting in the tail of the way that the um those very affluent um you know properties that were being, or properties in those affluent areas were transacting to with investors. So you get a discount on the interest cost while you're holding the property, you know, 5% I was talking about. And that's on a 47% tax rate for argument's sake, for the top tax bracket. Then when they sell the property, they're selling and they're getting um taxed at effectively a 22.3%, or 22 point yeah, just CGT discount. Yeah, 23.5%.

SPEAKER_02 13:04

Well people say 50% discount, those it's worked out on your income. So it's it's not exactly as clean as everyone says, but yes.

SPEAKER_00 13:11

Um so they're obviously getting the best of both worlds, and it was a double whammy. They were getting the the discount from the tax for holding the property through those years, and then they were getting you know an extra discount when they sold it.

SPEAKER_02 13:24

And to to compound that the way a few of those you know shit wealthy investors were doing things is buying those really blue chip properties, what they deem blue chip, are really expensive and the rent's pitiful, so the losses on those are huge. Absolutely. Yeah, so they're actually getting a double, they're they're getting a huge loss offset against their huge income. So yeah, they're they're really cleaning up.

SPEAKER_00 13:46

And the crazy thing about this, and we've talked about this for a while, is that from a tax perspective, you know, other than losing a lot of money on interest costs, there's not really any tax advantage for buying an established house in Australia. Like the investors who have been buying established houses are missing out on a lot of depreciation benefits anyway, compared to new builds. Yeah. And st you know, when you work through the numbers, mathematically they were worse off. The cost of holding was way higher.

SPEAKER_02 14:13

Well, we've been investing for the best part of 30 years now, and for the last 22, 3 years thereabouts, I haven't purchased any established property. I've only built new because of those advantages you're talking about.

SPEAKER_00 14:25

Absolutely, when you do those numbers, but it was it was lazy investment, essentially.

SPEAKER_02 14:29

Well, people need comfort, don't they? I know my local postcode, so 81% of investors were investing in established property, and the only reason was because they felt comfortable because they could drive past it. Yeah. But what's to say, this has been our argument for the last 20 years, what's the chance that out of the 10.7 million properties in Australia, the best property happens to be in your postcode? There's no fucking chance.

SPEAKER_00 14:52

Absolutely. Um, and I think there's, and I, you know, I use the term lazy investing, but perhaps it's convenient investing for them because they could go down, particularly in Sydney, Melbourne, they walk down the street, they watch an auction, they go, I like this house, and oh, I'm happy to pay that. And when they sign the contract, they've done almost no work on it, they sign the contract, they go in conditional, they go to the value of the very auction, they yep. Alright, there you go. Your valuation is what you paid for it, and move on. You go to the bank, the bank's happy to fund it nice, nice and easy. Um, when you are looking at off-the-plan sales, you know, you've got to go through a process where you might not settle for two years. There's you know, it's a little bit less convenient. Yeah. Um, and similarly for building a new house. So again, you've got a land contract that's separate from a built contract.

SPEAKER_02 15:36

Probably in an area you're unfamiliar with.

SPEAKER_00 15:37

An area you're unfamiliar with, you've got to do a lot more research around those things. You've got to understand the market. Is this the right market to invest in? Should I invest in another market? And where should I be investing in that market?

SPEAKER_01 15:47

Yeah.

SPEAKER_00 15:47

And you know, circulation growth in that area. Yeah, and then where should who should I build with? How do I manage the risks of building? Yeah. You know, that's a lot more complex. And also then you layer that in with the valuers that work in those areas, aren't just going, oh, well, it's sold at auction, so I can stick that on the contract, and you get a lot more variability evaluations, a lot more effort to just get the finance across the line. So just I just want to unpack those two things so people understand it.

SPEAKER_02 16:13

So buying at auction, um, convenient, um local area, so no strategy, no thought process behind it, but paying more than anyone else is a pretty shit investment strategy, isn't it? It is, absolutely. My investment strategy is to pay the most money that anyone would spend in this area. I won't win the auction. Yeah, what a dip shit. Um against something that takes a lot of effort, a lot of thought, you know, huge amount of brain calories, and you're still uncertain, and time's an issue, and builder's an issue, and you know, new area. Yeah, so but the advantage is you can get the right capital city, the right growth corridor, and the best property if you know how to do it.

SPEAKER_00 16:51

Well, dare I say, um the reason we've beaten the market by 61% over the average of Australia's housing market is because it's less convenient for many people, but when you actually can take the time to get to know it, you can make you know far greater returns. Yeah. And that's on top of obviously all the extra tax benefits that um us and our clients have been getting from buying properties that have great depreciation. Um, and you know, I think that convenient investment strategies go on auction. Some people might still do it, they'll just cop the extra money or the tax losses that they're not gonna be able to offset now.

SPEAKER_02 17:27

I don't know if they will. I think people are going so the an established property that used to cost you um yesterday or the day before um free budget, $200 a week to hold out of your back pockets, now six to seven hundred dollars a week out of your back pocket. Now I'm gonna unpack something um for people and what you just said then, and then I'm gonna flip you into what I think most people make you pull the wheel pillowcase off uh Australia's head um so we can unpack things like because in the in the media you're hearing immigration, migration is terrible. It's uh it's an evil thing, it's killing our housing in crisis, aging population, the boomers are uh aging, um, what have you got? Rents are rising, supply and demand, all these things are talked about in isolation, and there's really strong opinions on each one of them. Where you shocked people yesterday, and this was amazing to watch the crowd, was where you uh articulated those things really simply and then linked those together so people could understand why the government's doing it, each one of those, and what that means to the property market now and going forward. Um but just so we understand um the facts that that goes through, so we know that uh you know the rubber's really gonna hit the road for people when they understand this and they can rely on these figures. Uh this the figures he was talking about before with open corpse um client results, so we pride ourselves on our clients' results matched against the eight capital city markets, and we have those results independently verified to ASIC disclosure standards. Um we're the only investment firm in Australia who does that, uh, which is really important. So other people can have opinions, um, they can say fucking anything. We deliver results and have them proven. So I just want to put it out there that what Matt's going to go through. Um it's great information, but it's also delivered really good results for our clients. So it's got some it's got some street cred. All right. Um talk through, I want you to go through the aging population, rising spending, shrinking tax base, because those things and my and the migration required, because once you get that piece of the puzzle sorted out, if we can loop that together for people, then they can understand why the government's doing what they're doing, and then we can talk about quickly what happens to the housing market from there, which is really what people want to get into.

SPEAKER_00 19:43

Yeah, okay. Um look, I think I think everyone knows that we've got an ageing population, it's been talked about a lot, um, not just in Australia but globally, the advanced economies have um obviously as the boomers are getting older, they're living longer, and that's just shifting the demographic. So the median age of the population is going up. Um, and as more and more of those boomers move into retirement, it's been happening for about 10, 15 years, about 10 years more years until they're all kind of out of the workforce. And I'm not a boomer, just so what we call the old age dependency ratio is changing. So the old age dependency ratio is what percentage of the population is over the retirement age? So how many people are working paying taxes versus those in retirement? Absolutely. Oh well, um not yet, just as a percentage of the population, I'll get to the paying taxes part. So the old age dependency ratio is about, I think, 13% in 1969. So 13% of the population were over the retirement age. Today it's 28%. In the forward projections from um the Centre of Population Studies, which is an Australian government organization, they release a report every year. Their projection is that the old age dependency ratio gets to about 38% in their forward projection, which gets us to about you know the next 30, 40 years.

SPEAKER_02 21:04

Yep, now percentages uh are good. What I've watched the crowd yesterday is when you explained how many people work compared to how many people in population and and who how many people are paying taxes to support the amount of people in retirement. So that scared a lot of people out there.

SPEAKER_00 21:21

Yeah, so in 1969 uh we weren't born yet, um, but there were 6.8 people paying taxes for every um person who was retired.

SPEAKER_01 21:29

Yeah.

SPEAKER_00 21:29

Okay. Um when we started working, um, it was down to about five people. Today we're at 2.8 people paying taxes, 2.8 taxpayers for every person that is over the retirement age in Australia. Yeah, and by the end of the projection period, it's expected to get to 2%, roughly. Yeah. Sorry, two taxpayers for every retired person. So if you think of it this way, there was three times more taxpayers for every person that was retired, yeah, 40, 50 years.

SPEAKER_02 22:00

So the government had a shitload more taxpayers and money to play with that they could support the economy and support our cities and create a great Australia to for us to live in. It is fucking heaps harder for the government to do that.

SPEAKER_00 22:16

So, you know, it was at times tough for them to balance the books then, but now people are living a lot longer, and that means they're drawing on health care for longer, aged care, the pension, you know, every service, they're still in the economy, they're still using things, so they're putting demands on all of the workers in the economy. Yeah. So those workers, us and you know, everyone around us, um, who are paying taxes, you know, to balance the books, the government either needs us to pay way more taxes individually. Which is getting the cost of living is obviously it's a strain point now. Yeah. Or they need to reduce their costs, you know, which is unpopular.

SPEAKER_02 22:53

Unpopular to wipe out the aging population, that's not ideal. Or they need to find another source of tax revenue. Ah, so so then we're sort of linking things together now. So how do they do that?

SPEAKER_00 23:03

All right, so if you don't want to tax people who are working more, um then you have to tax the things that they own, things that we own. So you know, it's if assets are where the wealth is going, getting created in the economy, the boomers have a lot of assets, although let's not be fooled into thinking that there's any extra taxes that the boomers are going to be paying from these changes. Um but um you know, over time the asset base of Australia has been going up. If you go back to 2004, the Australian housing market was worth about $2.4 to $3 trillion. Today it's worth $12 trillion roughly. So that's six times more wealth in housing. Um seems like a good little tool for the taxpayer. You've got shares, you've got all these assets. So over time, inflation is going to continue, and inflation will continue because there's fewer workers servicing a bigger population. That puts demand on workers. We have a shortage of labour. You've probably heard that. In the media, we don't have enough people to build the houses that we need. Um, you know, so all these things, this cost of living pressure that we're feeling, it's off it's largely driven by that shortage of labour and availability of people to work and produce the things that we need. So there's the less people, more demand, they put the prices up. So prices go up, that puts inflation, you know, pressure on inflation. Um and that's not a trend that's going to stop suddenly. And this is kind of where, sorry, I'm going to diverge a little bit where the RBA's current trend of rising interest rates is probably not going to have the effect that they want it to have. No. And why they've been surprised by the persistent inflation, it's not a surprise to us.

SPEAKER_01 24:42

Yeah.

SPEAKER_00 24:42

Persistent inflation happens when you have too few people working to support the demand of the economy. Them only having one tool being their hammer of interest rates. That's right. So everything looks like a nail. Um so obviously inflation's going to continue, and inflation's also going to drive up asset prices. So the government wants to try and get more tax off those assets. And you know, they don't want the asset price to stop going up. And this is, I think, one of the things that surprises a lot of people. Yeah, the the the government have designed this so property prices continue to go up. Yeah, I mean, if you're shifting your tax base and you want to get more tax from assets, if assets don't go up, you don't make any more tax. So they need assets to go up. So they've designed these tax changes to keep pushing the property market up. Absolutely. Um, probably the point that I didn't, you know, didn't cover today, that it was kind of a I mentioned a bit earlier, is that if you've got decl declining number of taxpayers for every retiree, um, and we go from 2.8 taxpayers down to two in the forward projections, um that's on the basis that we continue population growth at the rate that we've had population growth. Yeah. So if you start to tamper with population growth, it gets worse, it drops down to one and a half, to, you know, it makes it really hard to balance those books because it the people who are moving here aren't the old people, no, they're the young people who are going to be contributing and paying tax for 30 or 40 years. Um, so if you stop them from coming to the country, the population keeps aging, it just ages faster because the proportion of old people is bigger than the tax paying base. So governments can't do that. And you're even seeing now. Well they'll increase it. Yeah, yeah. Even seeing now that Angus Taylor, the opposition leader, you know, his policy is talking really tough on immigration, we need to cap immigration, um, you know, because it's a buzzword and it gets it's popular with the media and it's scary for the population, so they you know lean into that. Um, what he's actually saying is we need to line up immigration with the number of houses we can build. Um, now again, uh one of the key things that we're seeing is we can't build enough houses, and I'll explain why shortly, but I did touch on part of it, which is we don't have enough people to build them. Yeah, and the people we're bringing into the country aren't builders. If you go back 50 years, the people who came to Australia were builders. Yeah, absolutely. Um so a lot of those European migrate, you know, migration trends we saw in the 60s and 70s helped to build some of our biggest infrastructure, they you know helped to build the houses that we ended up living in, yeah, and they became builders and that added to the social fabric of Australia, and they felt pride in Australia because they were building Australia. Yeah. People who are moving to Australia and not builders, they're often moving into aged care, healthcare, they're moving into jobs where it's actually really challenging emotionally. That's right. It's hard to feel that affinity, and you know, I'm digressing.

SPEAKER_02 27:30

Yeah, that's right, and and and the people coming in who are helping out with um aged care, there'll be a a a glut of those there'll be a large amount of those people out of work or needing to find other employment once the aging population dies out.

SPEAKER_00 27:44

That's right, and the government's paying the wages of most of those people in aged care and healthcare, anyhow. So I'll come back to it. So we're talking about immigration is absolutely needed, um, and it probably needs to go up, to be perfectly honest, for Australia to have the society and the services that we want in you know in our old age and that we grew up with as kids that the current um boomers are getting, um, you know, because if we can't increase migration, those services are going to drop off. But you can't say we're gonna increase migration when everyone's worried about their rents and house prices.

SPEAKER_01 28:18

Yeah.

SPEAKER_00 28:18

So, you know, we didn't have an issue with migration in the past when migration as a percentage of population was higher at times. And yes, there was little points of friction, but no one looks back on the history of a saying, oh, migration was a problem for us forever, hasn't been, but our nation was built largely through lots of migration from different countries. And um, the issue now is that people do notice when their rents go up, and they do notice when the entry level for a house goes up, and they need someone to blame, and they're blaming the extra people who are moving in, putting pressure on rents and house prices at the bottom end. Yeah, and I'm not saying that's unfair, it's probably a little bit founded, but it's also a little bit naive because we need those people.

SPEAKER_02 28:58

Otherwise, the the the way we live would suffer greatly. So I summarise that before we get into what it means to the property market. Um so we've got an aging population, so the amount of taxpayers are required to handle the paying enough tax to get into the economy and make it a great place to live, um, it needs to needs to lift, or we need to the government needs to dig into an asset pool which the largest one is property. So what they've done is they've said, all right, well, established property and shares, things that don't add value to the economy, meaning when they mean value, they mean tax in their pocket that they can re-spend. Um so they've gone, well, get rid of the tax benefits on those things so people have no incentive as an investor at all to buy an established property. Shares are shit as well, you may as well park those. So the most attractive property to buy is building something new, which they've put the incentives still in place there, which gets enough people as you went through before, makes the most amount of tax and gets the most amount of people engaged in the economy and active. So it's a logical thing, which is why we've been saying it for years, that this um should change. So um now that they've put that in place and people understand and can link, hopefully they can link those things together, that migration's gonna continue, the way they've got the tax structured, I think is a better than it was. Um, talk us through what happens to the property market. And I um a lot of people, if they're thinking there's going to be a huge amount of properties built and so there's gonna be an oversupply of property, um, flisting my wife as we're going through it, um, you know, looking at the budget, and she's asking me, Well, what does this mean? You know, will rents go up in a local area, established area? I said, Well, if people come in and new home buyers can start buying up all those properties in that area, so more owner-occupiers in established areas, there's less of rental properties in those areas, so bang, rents go up. Now, that's a really simple way of looking at it. But talk to us through obviously, you your team study the amount of land supply in every growth corridor in Australia and match that with the population growth forecast. That's probably the simplest way to explain what you guys do. Talk me through what these changes mean, and the last piece, piece together that supply-demand, pricing, rental for me.

SPEAKER_00 31:10

Alright, I'm gonna just add one more thing about the government budget. Um, so there was a couple of billion dollars that they've put into the budget to fund new infrastructure for what they're calling housing affordability. So they're essentially saying we'll give state governments and councils money to help them get infrastructure built faster, and that's gonna go into the, you know, over the next 10 years they think that'll add 65,000 dwellings to supply or registrate, right? Sounds really good on base value.

SPEAKER_02 31:40

So the billions that put in roads, rail, help out with getting that all happening fast so the road so the more houses are a bit thicker.

SPEAKER_00 31:47

Let's be realistic, these things take time, you know, the wheels of government turn extremely slowly. So to get to a point where a council or a state government is building something they weren't already planning to build, you know, it's gonna take years. It's nearly a decade. So those 65,000 homes are gonna come at the end of the decade. Now, in the text of their budget, um, they are also expecting that about 30,000 fewer homes will be built this decade because the changes that they've made are gonna scare away a number of investors and there's gonna be a pullback in some investment activity in some markets.

SPEAKER_02 32:20

Yeah. So the headline is 65,000 built, fine print, uh 30,000 homes less.

SPEAKER_00 32:26

Yeah, so the net effect is about 35,000 new homes. But the ones that stop, the ones that come off will be in the short term.

SPEAKER_02 32:33

Yeah.

SPEAKER_00 32:34

So the reality is that the housing supply is going to get worse sooner. Sooner, and arguably, you know, they might use the term before it gets better. I wouldn't even say it'll get better. It's just going to get worse for housing supply. And we already had a housing supply problem because we couldn't build enough houses. Yeah. We couldn't build enough houses because we don't have the resources to build those houses, not because of planning approvals, not because the government wasn't paying for a road to get built. There's not enough arms and legs to not enough arms and legs, and the government is building a lot of big projects, and that's using a lot of the labour that would have otherwise been available for the housing market. And they have to get finished, and they're decades ahead getting finished. I mean, even just if I use a very small example of the Brisbane Olympics that's coming up. So we've now got six years before the Brisbane Olympics, none of the projects have started. As we get closer, there's seven billion dollars or something like that that they've set aside to say that's the budget to build things. As we get closer to that, and they've got a deadline that's going to be very embarrassing to miss, they're just going to start paying more and more and more. And builders in Brisbane are already saying, you know, if we don't start a project in the next six months, there's almost no point in starting our project because the government will outbid us for labour and materials and supply. So we don't have enough of the materials and supply or the people to build houses any faster.

SPEAKER_02 33:48

And then you match up the cost that it costs the government and the taxpayer to build those major projects, the budget that they've put into those and the payments to people as opposed to the residential housing market. People don't want to work in the resident housing market because they can pay three times the amount of weight. Yeah, that's right. And then the government, I mean, you look at look at Melbourne, um, you know, if we look at that, they nearly need to put a contingency in, like a $15 billion um bikey contingency or something like that. So because they can't manage the money. I'll give you a really quick this fucking noise the shit out of me. So just quickly off topic, so we every year, Good Friday appeal comes around, you know, we raise money for the Royal Children's Hospital, everyone in Victoria gets their $5,500 and chucks it in there, and we feel really good as a community, which is what I love about Australia. We all get together, raise about $20 million. So I did the math because these numbers are getting thrown around, and they're astronomical of how much money the Labor government in Victoria has wasted on you know um giving money away to you know gangs and you know the the underworld. $15 billion is the equivalent of 750 years worth of Good Friday appeal money raising. You go, it's devastating the amount of money our government's throwing out. So now I'm still gonna put money into the Good Friday appeal, but that's the mismanagement that's going on. They're just huge numbers thrown out there, but it's the equivalent of 70, 750 years of Good Friday appeals. Anyway, I'll talk about it then. Yeah, wow. Um get back to it.

SPEAKER_00 35:13

One of the many reasons why we can't build enough houses. Right. Now you've got to layer that in with, you know, at the moment, you know, geopolitically, we've also got one of the largest um freight corridors in the world shut down. That's not just for you know petroleum products and oil, but there's a lot of goods that get made there from those petroleum products. Yeah, um, yeah, um, and if you look at the things that affect um land supply in particular, so almost every part of a land subdivision, um the roads, the fuel used by the truck, you know, big machinery, the pipes, yeah, um, concrete, everything you know, has oil and petroleum products in it, and they've gone up 30-35%. So the cost of building a new subdivision has gone up substantially. Yeah, um, my friends in the um engineering construction industry are telling me a lot of projects are gonna get cancelled, yeah, just not proceeding because they're not profitable anymore. They'll just sit on them until prices go up and they become profitable again. That's right. So we're gonna see a shrinking of the land supply available to build on. So even if you gave us more builders, you couldn't build more houses if there's not more blocks of land for them to build on. Yeah. Okay. Um, same in the you know, apartment construction market. Um costs have gone up and even more in the glazing and everything, yeah. Um and the risks of you know, are those costs going to continue to rising and you've got an 18 to 24 month construction period?

SPEAKER_02 36:34

Yeah, well it's much riskier to build an apartment than it is to do a land subdivision because you can do a small stage, sell it out, get your money back, roll it into the next stage. Absolutely. You commit to digging a basement, then you can't stop until you finish the top to get money back. Yeah.

SPEAKER_00 36:48

So we've got a lot of major constraints, resource constraints, that stop us from even being able to produce something extra. So, you know, changing the tax incentives isn't going to produce more houses, and giving state and local governments more money, or at least putting a pool of money there that they could get access to won't increase the number of houses in the next few years. So, what's more likely to happen is that supply is going to dry up over the next six, twelve, twenty-four months, and we're already seeing it because you don't produce a house overnight. So the houses, you know, housing supply for the next 12 months is pretty much already locked in based on contracts that have been signed in the last six to twelve months. Yep. Projects underway, and that's diminishing, particularly in Victoria. We're seeing um housing starts have been dropping, yeah. Um, houses under construction have been dropping, and that's going to lead to a reduction in handovers for properties in the next six to twelve months. So it pushes price up, pushes rent up. If I use a very quick example, um so post-COVID we saw an increase in houses getting started, it's about 10,000 extra. Yep. Um it was taking longer to build houses. So it kind of blew out. Um and then over the next uh over the last 12 months, 18 months, we've seen that come down because completions picked up and the speed of building houses shrunk.

SPEAKER_01 38:08

Yeah.

SPEAKER_00 38:08

So we had an extra 10,000 handovers that you know meant that more homes were getting to market. And that pushed up the vacancy rate in Victoria. Um so we're seeing you know, rents were a little bit softer in Melbourne, in parts of Melbourne, over the last year. Since January, the number of homes on the market in Melbourne has dropped by 3,000. So that's a you know, about a 30% reduction in the number of available homes for rent in the space of four months. And that's because those handovers slowed down.

SPEAKER_01 38:37

Yeah.

SPEAKER_00 38:38

And so now, you know, that supply is going to start to bite. And again, the government's changes won't do anything to affect that. That was already going to happen on the you know in the fringes in particular. And it's going to get worse over the next six to twelve months. So we're going to be seeing, particularly in Victoria, um, you know, rising rents more focused on housing affordability. And you know, I suspect that while we don't think that the government's um you know tax changes are necessarily uncalled for, um, they're going to get blamed. Um the reality is these things will baked in, and yes, the Labour government has contributed to the supply crisis in decisions they've made in the past, but this decision about tax won't be the cause of it. Yeah, correct. But it will probably make it worse in years two, three, and four. Um, so you know, we've got a very interesting period at the moment, and this talk about it being for intergenerational equity, you know, I think that's just a bit of a marketing spiel. It's about trying to rebalance the books from a tax perspective. They only provide four years of you know financial forecast.

SPEAKER_01 39:44

Yeah.

SPEAKER_00 39:44

When you look out for the 40-year period where the taxpayer base is shrinking, you know, the problem gets massive and it's gonna keep getting worse, and they have to really, you know, I don't want to use haul ass was the term I was gonna say. Sorry, sorry, viewers, or um, but uh it's gonna be some heavy lifting from the government. And so we're gonna see this housing shortage, it's gonna be around for a long time. We're also gonna see, and I suspect, I expect what the Labour government is hoping, is that if they were able to miraculously increase supply and balance you know the um the market for renters in the short term, it would enable them to change the conversation about immigration. Because we need more migration, but you can't have that conversation while there's a housing shortage. So they're hoping that it would do that, but it's not going to work. Um and so you know, we're gonna be having that you know tit for tat with the different political parties about whether you should cut immigration or not.

SPEAKER_02 40:44

And that's yeah, they they come in like they do and just pick one thing to throw a bit of mud at when what you've been able to do here today for people listening is piece those things together so hopefully they'll get a view of what has to happen with where they get money from, the government for tax, and which is you know obviously into those big asset classes, increasing the economy or getting more migration in, and then what's going to happen to the housing market. Um anything in the any of the different capital cities that you see happening in the markets at this point in time as far as supply goes over others?

SPEAKER_00 41:17

Oh look, I think that um when you look around Australia um and the major capital cities, I think you we would be naive, and anyone who's an investor or a property owner would be naive to think that there won't be a pullback in um the established house price in the premium market. So we're talking about the markets that are at or above the median house price. Yeah. And that's because they're largely driven by sentiment. Sentiment has like hit the floor since the government started talking about tax changes. Maybe it will bounce back a bit now that people go, oh, now I know what it what the future looks like.

SPEAKER_02 41:50

If soil ticks on, yeah, if we get rid of this war and some fuel comes back, sentiment builds back again.

SPEAKER_00 41:54

So there'll be a pullback. Investors in those established markets will pull back even while they're just trying to digest what it all means for them. Yeah, um, I think you know, interest rates are going up, and that's gonna affect those markets more than at the bottom end.

SPEAKER_01 42:07

Yeah.

SPEAKER_00 42:07

Um now I just probably used a term I hadn't used yet in this um this chat, but we talk about the bottom end of the market being you know the affordable end of the market and probably the lowest 25% of sales, so the lowest quartile. The lowest price point. Lowest price point. And when you look at the um house price growth for the last few years, the bottom quarter of the market in every major capital city has outperformed the middle and the upper market because the price of land has been going up, because the price of building apartments, and because the price of building houses has been going up. That's being driven by factors that the market's not really able to control because it's supply-side factors.

SPEAKER_02 42:46

Which means that people's borrowing capacity is at the lower end. Um, if things go up 100,000 and I've got this amount of money, then I've got to go down to the lower price point property to buy. So there's more people buying in that lower price point.

SPEAKER_00 42:58

So when the cost of producing something new continues to rise, it pushes the floor of the market up.

SPEAKER_01 43:03

Yep.

SPEAKER_00 43:04

And we know that the floor of the market is going to keep rising. So the bottom end of that market in all the capital cities will be the best performing. Now, in some capital cities, we've seen the bottom end of the market, like if I use Brisbane, for example, go from getting to Brisbane 500,000, 550,000 about seven or eight years ago, you know, 950,000 for an entry-level property 50 cases in the city is now the norm. And we're talking probably more the 1.1 to 1.4 for most kind of first home buyer houses around that capital city. In Perth, we've seen the entry price go from 400,000 up to 800,000. That's pretty much doubled in three or four years at the entry price. The median hasn't gone up, you know, 100%. It's gone up quite a lot, but that floor has gone up a lot and it's hitting at a point where affordability wise, it's going to be hard for people to continue to pay more at the moment. So we'll we think that'll slow down and probably just kind. Stabilize. Obviously, Sydney's quite high, but we think that Melbourne's that market where that floor is low enough. And one of the other reasons why we've seen that vacancy rate diminish a lot in the last few months is because people have started moving into Victoria from Sydney and from Brisbane.

SPEAKER_02 44:16

Either moving physically or investing in.

SPEAKER_00 44:19

Yeah, and they're moving down because you know, if you've got aspirations as a first home buyer and you can get work in a city where you can get into the market $300,000 cheaper, and it saves you years, wages is just as good, then you move and you get into the market. And that was the story for Brisbane for many years, where people would move to South East Queensland because it was so much cheaper than Melbourne or Sydney. That's right. Now it's more expensive. And now it's way more expensive, and people are coming back down to Melbourne for that reason. So we expect Melbourne's going to be the outperformer. And as I said, that entry-level price is going to rise. Now, one thing I'm going to add to this is that 82% of property investors have been buying established houses for the last you know years. Some of those are going to disappear from the market and not buy anything. Maybe they've done enough, they go, I'm sick of the government, I don't want to get my head around what it means to invest in new housing. Some of those might still continue buying what they were buying and just copy tax. And others are going to go, I want to get into this new housing market, how do I do that? And when they do that, it's going to drive up the land price further. It's going to drive up the cost of building a house further. So our modelling predicts that over the next 12 months, by the middle of 2027, we expect house the price of a block of land to be $30,000 to $50,000 higher than it is now. And we expect the cost of building a house to be $30,000 to $40,000 higher than it is today. You're looking at the best part of $90,000, $100,000. And that's before factoring in inflation of their costs as a result of what's going on in the Middle East at the moment.

SPEAKER_02 45:56

And that's as if it stays as is.

SPEAKER_00 45:57

If that's prolonged, then those costs will be higher. So the cost of entering into the market, that floor price in Melbourne in particular, will go up $90,000 in the next 12 months.

SPEAKER_02 46:08

Mate, I want to um summarise this for people. So the reality is the tax changes, we understand those, we've we've gone over why what's been introduced, why the government's introduced them. The opportunity for buying established properties or shares is much worse, and for me it's been off the table for 20 years, and now I can see for the majority of Australians that 80% of people investing in you know established property quite easily go to half that if best. I couldn't see I can't see it. You have to be the imbecile to invest in uh established property if you needed to take advantage of some of those uh tax advantages. The option then is to buy new property. The only way to do that comfortably is to, because you can't analyze all the capital city markets. So if people want to understand how to identify the best cities, the best growth corridors, and find and manage that whole process for us, feel free to contact us at OpenCorp. As you said before, our results have been verified to asset disclosure standards independently, and over the last since 2006 to now we've beaten the market by 61%. So past performance is no indication of future performance, but it's a pretty good track record over a long period of time.

SPEAKER_00 47:13

And I think the important thing is we've been doing this exact thing. And there's a lot of you know, investment experts have been selling, you know, established houses, and they're gonna pivot and they're gonna go, we're an expert at new builds now, and that they don't have our track record.

SPEAKER_02 47:26

We haven't put one client into an established property. No. For 20 years, we've only provided new properties in these growth corridors for clients. So uh hopefully that clears things up for people, gives them a bit more insight into um what's happening with the tax reform, the budget, and uh what they need to do to move forward. Awesome. Thanks, mate.