Expert: Sam Gordon – What’s causing the housing crisis? | Australian Property Scout

Bryce: [00:00:15] Welcome back to another episode of Equity Mates or should I say Equity Mates, we shall fight in the markets. We shall fight in the boardrooms. We shall never surrender. In this podcast, we aim to inspire and educate. Never give in. Never, never, never in nothing great or small. As always, I'm joined by my equity buddy, Ren. Who am I? 

Alec: [00:00:36] Bryce, you are Winston Churchill now. 

Bryce: [00:00:38] Nailed it. That was actually a listener request. 

Alec: [00:00:40] Oh, there you go. 

Bryce: [00:00:40] So if you have a request that you'd like to get fed through chap persona that you'd like me to try in the intro, send it through, ask@equitymates.com.

Alec: [00:00:49] Well Bryce are a fitting introduction today because we do need a wartime leader for the topic that we're talking about today. We're talking all things Australian property. Which is a constant battle. 

Bryce: [00:01:04] It is a constant battle. We have Sam Gordon joining us, who is the founder of Australian Property Scout. They are a buyer's agent for investment properties. Now we've had Sam on the show before. If you haven't, listen to the episode, go and listen to it. It was all about rent vesting. 

Alec: [00:01:18] Got us both very excited about the concept of rent vesting. 

Bryce: [00:01:21] Yeah, it did, and I got great feedback from, from you guys, the community. So he's back in this time where we're going to unpack what is causing the current shortage of housing here in Australia and the subsequent crisis, so to speak.

Alec: [00:01:35] Yeah, I think for people who haven't been paying super close attention to the housing market, we had 12 interest rate rises in 13 months and as basic economic theory would tell you, then house prices fell as a result. And I think the average, according to CoreLogic, was almost 10% fall. But since then, we interest rates have stayed steady except for a recent rise on Melbourne Cup Day. But house prices have come all the way back and they're almost at record highs again. So it's a strange market for half of Australia. It's an incredibly frustrating market as they try and get in the property market for the other half of Australia. It's a market that they love because they own a house. But for all of Australia it's a topic of constant fascination and attention. We're not experts in property, but Sam is, and so he's the person that we turn to to try and understand what's going on. 

Bryce: [00:02:31] Yeah. Now a reminder that while we are licensed, any information on the shows for education and entertainment purposes, any advice is general. So let's bring in Sam. He's the founder of Australian Property Scout. He also has a podcast. If you're interested in going deep on property investing. It's called Scouting Australia Podcast. So check that out. We'll have links in the show notes, but let's crack on with Sam. Welcome back to Equity Mates. 

Sam: [00:02:56] Bryce, Alec, boys, good to be back. 

Bryce: [00:02:58] Yes, we really enjoyed the last conversation we had with you all around investing in property. And today we're going to be discussing what is causing the housing shortage slash crisis here in Australia. One. Now, if you haven't listened to our previous episode with Sam, firstly we would recommend that you don't do that. But for those that are just tuning in for the first time, Sam, can you guys just give us a little bit of a background on your story and also founding Australian Property? 

Sam: [00:03:24] Scout Yeah, 100%. So I guess within my story I bought my first property at 19. Pretty much came from just about nothing like a very middle class family. Took my time kind of working up. I'm a high school dropout, pretty much just like worked work kind of labour and knew that property was a vehicle. I wanted to eventually get into it to help myself build wealth. I bought my first property at 19, essentially. It's been almost 15 years now of investing non-stop and you essentially got bitten by the bug very, very early on. Fast forward to these days to go to 30 mill plus portfolio 50 plus property portfolio and yeah and just like absolutely live and breathe the investing side what really spawned Australian property scout and where this was built from I really came from probably in my mid 20s. I was burnt by another buyer's agent back in the day as well, and it was when I wasn't making very much money. So $10,000 was a lot of money to me back in the day. And yeah, I got burnt by that. By at that time I kind of went back out there and then really aggressively invested kind of with a bit of fuel in the belly after it happening. And, and then after a couple of years, had I essentially retired myself or replaced enough of my income that I could go travelling for a while, I went travelling for around about 12 months and then came back and was kind of trying to figure out what I wanted to do and, and then, yeah, I was, I was tossing up like going out and getting my daughter's licence and development projects. But I thought, now I'll give this a go for a year. And then, yeah, fast forward, we're pretty much five years in you now off of Australian property Scout and loving it so. 

Bryce: [00:04:46] Awesome awesome question. 

Alec: [00:04:48] Property Scout's mission is to retire 500 people by 2030. 

Sam: [00:04:53] That's right. 

Alec: [00:04:53] How many people, what's your tally? Who are you? 

Sam: [00:04:56] So the way this works, it's funny because so many people ask me that question, right? But realistically, like property, it's not it's not a game that you retire in like a couple of years. Right? So, like, it's a compounding effect and it's kind of we always work through continual accumulation with our clients and it takes time to obviously build out the portfolio initially and then start building in some cash. Videos as well. So as of right now, I think where literally you'd be able to count on one hand the amount of people that are probably 5 or 6 properties into maybe eight, ten, 12. Portfolio strategy, like a lot of people are halfway there and we've still got a fair bit of time to hit that 2030 as well. 

Alec: [00:05:27] So we were talking about it before and it's like the financial independence retire Early movement is really focussed on the stock market and they're trying to build wealth, you know, through like VDHG and those sort of ETFs. Yeah. And it's a game of like trying to get like $2 million or a million and a half in the stock market and then get dividends where it's a bit different. When it's property, it's about getting like positively geared cash flowing assets and having enough of those assets there. 

Sam: [00:05:52] It's a mix too, because like the way that I like to invest realistically, a lot of people try and talk about retiring in like 20 or 30 years in property, and I think that's longer than is necessary. I think realistically you can do it depending on what you're starting from and your income and everything and your risk tolerance and what you're willing to do as well. Even buying two properties a year for five years, you've got a ten property portfolio. You let that compound for the next five years, you're ten years in. You sell at, let's say five of those were high cash flow and five of those were growth assets you sell. If you five growth assets, you pay out your five cash reduce, you go to a higher net return from those five deals. That's a very simple and methodical way of investing and not a crazy that's not going crazy. That's actually one every six months to a year sort of thing. So you. 

Alec: [00:06:37] Right now to me, it seems crazy, you know, Bryce and I just taken our first step in the property ladder. So maybe in hindsight we'll look back. 

Bryce: [00:06:46] I think it's worth pointing out, though, that, you know, when you are looking at the investment side of things. Yes. You know, you're not looking at the owner occupied where Yeah, we're looking at houses that are in that unaffordable bracket because if you're looking at just the numbers, you might be looking at areas that we would never leave. 

Alec: [00:07:00] Well, I think the

Sam: [00:07:01] 100% match. 

Alec: [00:07:02] The most recent call logic data had Sydney's median price at a scratch over a million. Yeah, correct me if I'm wrong. Yeah, like I don't think when you're talking about buying two houses for five years, you're not talking about buying new places in Sydney.

Sam: [00:07:16] That is exactly the kind of point that you would make there around like, like a lot of people would kind of think that initially. Right? And it's countercyclical thinking. So I think it's, you know, changing that perspective in the past and, you know, perception of what you need to be buying and targeting, especially areas that haven't gone through significant cycles in the last ten years, is kind of counter cyclically investing out there in the market. And when you do that, you're buying a much lower price point, but positioning yourself for really good growth as well. So definitely not talking about, you know, to a year at A couple of, you know Renting for nothing. We're not we're not talking about that sort of stuff. 

Alec: [00:07:48] Yeah, Well, we want to talk about the housing market today because, you know, we have lived through 12 interest rate rises in 13 months. Yeah. We've just seen another interest rate rise on Melbourne Cup Day. Yes. But if we're not back at all, time highs were very close to all time. Yes. So I think the first question is do interest rates work today? 

Sam: [00:08:14] Okay. So we're in a very unique position in the market. Yes, they work to an extent. Right. Like the one thing I'd say is, can you imagine where the market would be if they hadn't done them? Like if it's done a dampener as it is with we're up like almost 4.5% in in eight month window of rate rises. Can you imagine where the market would be if they hadn't brought that in? Because it's pulled a lot of people out of the market. But I think that's what we want to see. We're going to really unpack today as well, where rate rises aren't the be all and end all, you know, and the big game changing market mover. Yes, they can. They will have an influence on the market. But everyone's got to remember the RBA's only got one blunt instrument to have a crack at kerbing the market. But when you got inflation doing it, seeing you got population growth doing its thing, you've got builders going under, you've got no stock, you know, so massive supply deficits and stock deficits like it's a yeah. Man Right. Ross Is there any one piece in the bigger puzzles . 

Bryce: [00:09:02] Am so let's use that as the stepping stone. You mentioned a number of factors there. Yes. For those sitting at home wondering about the question, do rate rises work, interest rates work? And why isn't the property market doing what you would expect it to do? What are some of the most important factors that are weighing on the housing market at the moment? 

Sam: [00:09:22] Yes. So if we look at those data that came out actually in March, we haven't had any renewed data since March. But in March 2023, the ABS reported there was a 454,000 increase in population just from overseas migration thrown in. And there's another 110,000. So we're talking about a population increase of over 550,000 in 1 year. We've never done anywhere near that before. I don't think we've ever done half of that before. So when we push that into perspective, that's a huge increase in population in one year. But then you throw on top of it how tight that stock level their stock levels are at the moment and the stock levels, if you rewind all the way back to the start of 2020 when Covid first kicked off, what happened was in the marketplace there was when Covid first kicked in, Right. Everyone came out and said, well, not everyone, but there was a few people that came out and said, you know, 20, 30, 40% price drops, we're going to. Coming in, the market was going to crash and all the rest of it. You remember these conversations? 

Alec: [00:10:16] And I actually picked up a really cheap rental at that time. Rentals are crap. 

Sam: [00:10:20] Yeah, man, it was a crazy time. And I remember because I remember we were very early. I think we were 12 going into our second year of business. I think we were in just in the second year business. Everything went dead. And I had this prediction that really what was going to happen that I believe was going to happen was there was 2 to 2 parts to parties in the market. Right. There was those who needed to sell and those who didn't. And those who needed to sell took a haircut and they sold because they weren't that many people around buying. So it was very discounted property everywhere. But the people who didn't need to sell and were financially reasonably stable, they pulled their properties back off the market. They created this massive stock shortage. There was nothing on the market. And then in three, six months, no one was putting anything on because of so much slack uncertainty. And when there's uncertainty, people don't buy. And people don't know so much for what I bought. You don't sell. Like, they kind of everyone was kind of sitting on the sidelines. But then people also weren't able to travel. So then all of a sudden you got all these people with extra money in their pockets. Things like there were a lot of businesses that actually started thriving during that time as well. So some things suffered. Some things thrived. And it kind of went through this really weird period where stock never fully picked up and it definitely didn't pick up enough to too much demand. And that's where we saw so much price growth. Like if you look at Sydney and Melbourne never had a right to have another boom and have another run. And yet some areas in Sydney saw another, you know, 60, 80% growth in those two years of Covid. But then you look at the regional locations, you look at Brisbane went crazy, South east Queensland went crazy because a lot of people were getting out of Sydney and Melbourne at that time. I was one of them, yeah, literally. And I know a lot of people that did the same thing. 

Alec: [00:11:45] The regions also went crazy. Like, Yeah, we'll go where Bryce's from, Orange.

Sam: [00:11:49] Long from the Highlands, man. And like properties that I bought in early 2010s, they all doubled in the Sydney boom and then in the Covid boom because it was the next council outside of Sydney where there was no lockdowns, it doubled again because everyone just flooded, their rents went crazy, prices went crazy. And so, like, I think the point I'm getting at here is this stock was at an all time low and there was a little blip in 2022 where stock did pick up a little bit in some of these areas. But really, we've been at this stock deficit now really since kind of 2020. Then you throw on like the 12 months up until March where we've had this huge population surge because they've been getting people in as quickly as possible. But even since then, they've been ramping up. The government's been ramping up to try and get as many skilled migrants into the country as possible, too. You know, there's been a shortage of almost all industries, even hospitality and beer, especially trades. So that's why build prices went so crazy. It was such a labour shortage. A lot of people out there in the economy were bringing retirement plans forward. So there's this huge exodus out of the workforce during Covid, this this huge trade shortage, labour shortage and everything, right? So that's one of the big reasons, Bill, prices then went crazy. Well, this is this huge kind of cumulative effect is as to what's really held the floor under the market because there's been no stock has been no supply, but there's been this huge influx of new people coming into the market as well into Australia. 

Alec: [00:13:06] Yeah. So the I think about the numbers. So you said what, 400, 450,000 people? Yep. And Australia built about 190,000 houses, which is close to a record in terms of the amount that we've built in a year. 

Sam: [00:13:20] Yeah, but still. So almost like just the bird of what we need, right? 

Alec: [00:13:24] Yeah. And the government wants to build 1.2 million homes in the next 5 or 6 years. Yeah. Which would be like a record every year. 

Sam: [00:13:32] But the thing is, we can't do it. We don't have the trade and we don't have the materials. Material shortage was the other massive one that we because we develop a little bit as well. And we were battling that during Covid. It was just like builders not having stock, not having materials. You know. 

Alec: [00:13:45] To compound that, the I guess the second factor was that a lot of builders actually went out of business.

Sam: [00:13:50] Oh yeah, yeah. Huge amount.

Alec: [00:13:51] A friend of ours who was halfway through a renovation and the builder just went, oh, no. Well, yeah, yeah. So yeah, tell us a bit more about what's been going on there. 

Sam: [00:14:00] Yeah. So the build industry was an extremely tricky game again during Covid and like for the last three years the build prices has been going crazy. So like, what you could build are a standard four by two, the four bedroom, two bathroom, double garage home a few years ago might have been 250, 300 grand. That's now like 450 500,000 for like a speccy sort of star build. So we're up like 70, 80% on build prices in that time frame. Now, what happened during that period, right. Is and a lot of people were like, you know, calling for builders heads because they were doing these huge price increases to their contracts. But what they were doing is they're trying to forecast where they thought, bill prices were going to go. The issue was by the time they finally came through to being built, the price they could actually get the materials for had again skyrocketed, plus the labour costs. You know, I remember in Perth brick like tripled their prices overnight because they knew how much they needed because in Perth they built almost everything double brick. So they put their prices through the roof and the builders had to pay it or they couldn't complete projects. So what was happening was by the time they'd finally start to build materials and trade, prices had increased so much that it actually wasn't viable to do the build. So they would they would either offer the deposit back, I can't build it. They would ask them to come up to the contract price. It would allow them to actually complete the build and not go under or they'd fold. And so a lot of builders folded because people wouldn't come up. And it's a really tricky thing because for the consumer, you might be sitting there going, well, this bill is asking me for an extra 50 grand, but the builder is sitting there going, if I don't get the extra 50 grand will go under. Yeah, like I can't complete. And when they like, it's a lot like mid-tier builders. It might have 50 builds on the go. They might build 200 a year or something. That's that sends them under, you know, stuff like that. So it was a crazy period where we just saw this massive and it has slowed down a lot that that price increase. I think the labour has eased off a little bit. Those, those trade, you know, price increases and everything as well. But man, it was just like, yeah, it's a wild, wild period there for sure. 

Bryce: [00:15:47] And so the flow on of that is that we need the builders for more stock and it's more and more going under. It's another reason why it just you could argue that house prices are supported. 

Sam: [00:15:59] Yeah. One of the other crazy things is that one of the huge reasons for the immigration driving super high population growth is getting skilled migrants into the country. The one issue with that is they also need housing. So what happens when people first move into the countries that come by straightaway is like we were chatting about this off air is they don't come in super wealthy. Maybe 1% or half a percent of people could afford to buy. So what happens is that then they come in and they put huge pressure on the rental market. And so that's why we've seen vacancy rates come down so much and probably almost everyone we know would have felt rental price increase, whether you're as an investor, putting your rents up because that's where the market now is and because your interest rates have gone up so much, you've got to put it up to be able to hold that investment as well, or you're the average consumer and rents are out there and you're having to pay that extra in the front from that rental perspective as well. So it's been a while, a little window of just watching all this stuff like build and build.

Alec: [00:16:51] We've spoken a bit about Bryce's rental story because I think it really encapsulates where a la Sydney is. But you're paying a price, you've got a 25% rent increase and then as you told them, you're moving out, they were going to increase it again about 30% or something. 

Sam: [00:17:07] Well.

Bryce: [00:17:08] If not more. 750 to 950 Oh yeah, yeah. So I started at 560. 

Sam: [00:17:13] How long ago was that? At 560. 

Bryce: [00:17:15] Covid. But I got to the depths of Covid. No, I thought it was for 850 and I said 560. They said it done. 65, 62. And then they went 560 to 610. And then six months ago about, about that they went 610 to 750. Yeah. And now I told them we're moving out and we had some mates who'd like to move in. They said yes. Wait I know once 950 for a 1.5. Betty. Ridiculous. 

Sam: [00:17:44] Really?It's not to say it's crazy to Sydney. 

Bryce: [00:17:48] It's just Like. And then the thing is, we went back to the agent and usually where you could say, oh, you know, they'll move in straight away or whatever, whatever. Can we, you know, now I didn't do the negotiating for them, but they like what we can offer if we can get the price down to even 850 and the agents just like now, guys. Yeah, we can have people out the door. 

Sam: [00:18:05] Yeah. Yeah, That's crazy. So one thing with that, I'll just ask if you don't mind, is, is one of the huge things we're saying is typically in big cities where you migrants always come to initially, right? So much of it because they obviously know those places firstly. So they'll come and they'll start here. But what we're actually seeing is actually a huge amount of interstate migration of Aussies moving away from the big cities because they can't actually afford it any more because exactly that example you're giving their $400 a week rent increases in, you know, in a three year window. So what we're seeing is a lot of people actually moving to the smaller states as well, especially to the capital cities. It's been a bit of a mass exodus from a interstate migration perspective as well, which has been very, very interesting to see. 

Alec: [00:18:43] So, Sam, if we can sort of tie all of these factors together, there's a shortage of housing and we need more housing. But to build more housing, we don't have the labourers. And so we've seen massive net migration, but people coming to this country need housing. Yes. And that then just it's like a self-reinforcing cycle that seems to just add pressure. And so I guess the question and what we want to talk to you about is what next and where does this go? So we're going to put that question to you after the break. Welcome back to Equity Mates. We're talking to Sam Gordon, the founder of Australian Property Scout, the co-host of the Scouting Australia podcast. And we're talking or talking about all things property. We are. And, you know, we've just seen what's gone on the past year. Interest rates have gone up massively. But the Australian housing market did dip a little bit. I think it was down maybe 10%. But it's come back, it's near all time highs. We spoke about some of the factors driving that, the shortage of housing, the net overseas migration and builders going bankrupt. I guess the question is what next? So, you know, when we were going back and forth before the interview, I think you said we're going to see markets push into higher than ever before, saying growth rates and for extended periods of time and yes, for half of Australia, for half of Australia that don't own houses. Yes. That's terrible news. Yeah. And for the half of Australians that do own houses, it's music to their ears. So the flesh that out a bit. Tell us what you think is going to happen and just how big it might be. 

Sam: [00:20:25] Yeah, I Mean, so I think it's also important thing to note it's always relative to the area, right? So like I don't think this is going to be Australia wide. So in Covid, we obviously saw like a really big nationwide boom where almost everywhere it rose to an extent, obviously location again, dependent on the supply and demand and where it was depended how big it went, how big a boom it did have. But what I think we're going to see is in almost all areas, there's going to be another level of price growth, even in my opinion, like unaffordable markets like Sydney that is going to be pushed from a few things. Obviously, supply is still quite tight. You've still got a huge strong migration coming into the country as well. But as we were chatting about before, we're seeing those big rental increases. So you're going to see a lot of renters like you boys go out there and buy primary residences if they can afford to do it because the rents are going up so much as well. And that rental growth more than likely isn't going to slow because we've got so much coming in. There's still going to be so much pressure on that market. If there isn't enough stock and it keeps building up, the rents are just going to keep rising as well. Now I think that's going to hold a lot of those markets. Again, why, in my opinion, are a little bit unaffordable. I think it's going to hold a nice floor in the markets, probably give them a little bit of raise. Right. But what I think we're going to see is a lot of these other capital cities that have actually it's funny because we kind of look at Sydney, which dipped in 22 and then has kind of rebounded to the same levels it was at at the back end of Covid. But then there's a lot of other locations out there in smaller cities Brisbane, Perth, Adelaide, they've all done, they're all doing between 2,025% growth a year at the moment. For the last two years interest rates have done 4.5% increases in 18 months and yet they've still outperformed and then these massive growth runs and so have a fair few regional locations as well. And so what we're really seeing out there when we dive in and we do all this research internally is if those areas have performed to this extent right and supply isn't being solved anytime soon, they can't build enough houses, there isn't enough land coming through, too much red tape takes too long to get it through. Developers also aren't getting the sale prices they need at the moment, and the build costs are too high, so it doesn't make sense for them to develop. So they're shelving product projects, right? But then you've also got this huge continued pressure on the market from the amount of people coming in and then renting as well, then pushing more and more people into the sales market and buying, I think from all the sorts of perspectives in here, we're going to see continued house price growth like in quite a strong period for the next 2 to 3 years as a minimum, in my opinion, especially in the smaller capitals. But a lot of strong regionals that have really good, solid, booming economies, because what you're going to find is a lot of migrants might come into the big cities and go have a crack at it for six, 12 months and go, This is an unaffordable place to live. Where are some other job opportunities that I can go and maybe try and set some roots with a family and actually afford to live. And so I think we're going to see more of that. That'll be the next 2 to 3 years, right? What I think he's going to extend this beyond the norm is then after 2 to 3 years, what typically happens with the migrant? They get permanent residency and they try and buy their piece of Australia as well. So then you're going to find that in Lakos they're talking about driving this this huge immigration, this population growth for the next 4 to 5 years because they're really trying to keep the economy strong at the same time as trying to drive a bit of unemployment stuff to try and balance out this inflationary period. Right. The high inflationary period we're in. So pushing for that long, then when those people 2 to 3 years in after moving in, then they're trying to then buy their own homes as well. That's going to put additional pressure on the sales market and more and more people. If you're literally talking like half a million a year or more, they're trying to push for record years every year in terms of that, they're never going to keep up with it. There's the supply level of property is actually never going to come through to keep up with it. So the more and more we dissected this and dug deeper and deeper, it's just like, this isn't going to solve itself anytime soon. They can't they can't build enough homes. The only way to really solve this is to cut immigration, which they're not going to do because they need the trade. 

Bryce: [00:24:03] Yeah, that that's something that I've been thinking about this week though, because the RBA, the RBA, I think for the first time, or at least as far as I'm aware, publicly put pressure on the government will not pressure but publicly said you know your immigration policy is really cooking inflation. It's like you're letting. Far too many people in. Yeah. And it's just like the what we can do with our interest rates is only one thing, but there are many other things that the government can do to pull pull back on inflation. And obviously a lot of the impact of what that is doing to rentals and those sorts of things. So all you need is the government to say, you know what, we do desperately need to do something about this. We're going to halve our immigration for three years. But like, yeah

Alec: [00:24:52] But then that affects other.

Bryce: [00:24:53] I know, I know.

Sam: [00:24:55] And economy, right? Yes they're trying to keep up. 

Bryce: [00:24:57] But it's funny because there's like two competing things like the RBA wants the economy to chill out like we you you want to slow everything down so that inflation falls. But the government's like to your point has policies that are counterintuitive to that. 

Alec: [00:25:14] I mean there's more extreme levers the government could pull like, I don't know. 

Bryce: [00:25:19] Rental caps. 

Alec: [00:25:20] Ban AirBNB. Yeah, rental caps are not great.

Sam: [00:25:22] Well, the issue with rental caps is they can't keep jacking because I did that in Victoria. Right. But the issue with rental caps is they can't keep jacking interest rates and then expect investors to be able to hold rental caps because like at the end of the day, they're still got to be able to survive from that perspective. So then you're making it super unaffordable for them. Or like a lot of those guys would sell out because like, well, I can't actually afford to hold this property with the interest rates still climbing, but I can't increase my rental. So yeah, rental caps definitely aren't the solution. I know what you're saying with a few of these other points as well, but it's just like this is where it's vicious, right? It's a vicious cycle and it literally will just keep moving like that. The only way really is to bring that immigration level down. But I just don't see it. I don't think it's going to happen. They keep pushing it. They keep talking about how hard they're going to push it. But I think ultimately they're trying they're pushing that so hard, in my opinion, because they're trying to obviously level off, especially where labour prices got to as well. So they're trying to level out and kerb that off as well. And they're trying to drive higher unemployment because that's what obviously drives it. If there's not as many people or there's more people looking for, obviously people can lower their rates as to what they get paid as well. 

Bryce: [00:26:21] Or it just gets to a point where in, you know, probably markets more like Sydney and probably more Sydney and Melbourne, not so much the regionals and whatnot, where where it just becomes so much of a proportion of your take home pay. That you, you just kill the demand like people just literally like. 

Alec: [00:26:40] Yeah but like rent is becoming such a big portion of like this is just becoming like a.

Bryce: [00:26:45] Bit like surely mathematically. 

Alec: [00:26:47] Like the demand housing is inelastic in like a, the form owning or renting. Like there's an alternative.

Bryce: [00:26:57] But, but like mathematically, surely there has to be at some point, like you're not going to pay 100% of your take home into housing. 

Sam: [00:27:03] Well, that's why there is a cap though. There are caps and that's set by APRA, which is the Australian Prudential Regulating Authority. Glad I got that one right. But what they do is they're kind of that other governing body of debt in the country, right? So like they look at it and go, okay, how do we kerb these things as well? So they bring in different things. Mainly it's mainly around investors. So it's it's different things to kerb investor and that's what slowed Sydney in 20 1516. So I mean that's how they, they put Sydney back from its crazy run, but they, they have their caps in terms of what you can so regulatory like lending, right. So like what's a responsible way of lending. They have their caps on income to income to to debt ratios as well. Eyes and whatnot too. And a lot of lenders have to stay within that DTI policy. But the issue is, man, like when you've got that fuel in the fire from the rental perspective and more and more people are trying to jump in, it's just it just keeps around that fuel in the file. 

Alec: [00:27:51] Yeah, because like, I hate this conversation and like my and this is you're not going to love what I say. The first thing I say is like the, the treatment of housing as a financial asset is part of the problem. And, you know, maybe it's about tax treatment. Maybe it's about limiting negative gearing to like 1 or 2 properties. Maybe there's there's things you can do there. But like, this isn't a house price conversation. This is now like a housing availability conversation. And it's not like all the challenges. There's renters who want to buy and can't get their first home. The challenge is now people can't get rentals and rental housing. So it's like all of the financialization of housing conversation is kind of like moot to actually solve this problem, which is there's not enough roofs. 

Sam: [00:28:36] What they need to do. But really the better incentive for that would be to create schemes for affordable housing.

Alec: [00:28:42] So and who's going to build them? That's the that's challenge.

Sam: [00:28:44] The demand that there are builders. So I'm talking about even just things like granny flats and things like this, right? Like additional just from that perspective, how do we cut the red tape so someone can build a 200 person, 200 room tower or something like that In high density areas like Sydney, different things like the red tape is what really slows it down. 

Alec: [00:29:00] The granny flat thing was there's been a few reports about that recently that, yeah, it's like 500,000 houses or roads could be built. Yeah. The other interesting one was office buildings. There was a building in Melbourne that got converted from an office building to residential like that's an interesting thing.

Sam: [00:29:15] Hundred Per cent man looking for things like that. There are alternative solutions that fix, especially from the rental perspective as well.

Alec: [00:29:19] But the fact that these are the conversations we're having. It shows how deep the problem is. 

Sam: [00:29:25] But you know what? The other crazy thing is? We're one year into a 4 to 5 year aggressive immigration policy. So we're one year into it. Where are we going to be in three, five years? Like it's just going to be crazy then?

Bryce: [00:29:36] Yeah, there was interest rates going to be in 3 to 5 years. 

Sam: [00:29:39] This is one thing I was gonna say. So that's, that's when we talk about like where does this thing go? Because look where we're looking at it. The current factors push it into a boom, right? Push a lot of areas into proper boom and and a lot of areas already in it. Like you start talking 20, 25, 30%. If you say that to an investor ten years ago, you can get that in terms of there they would they would light up like that's unbelievable from a property spectacle you leveraging into it and then you getting that growth on top compounding as well right But then you look at that and all the factors in play right now creating a boom. And when we're when we pull this whole thing apart. It's funny that you mention where interest rates going to be because are you thinking up or down? 

Bryce: [00:30:13] Wow. When in what time period?

Sam: [00:30:15] Let's say two years

Bryce: [00:30:17] And while I mean, the fact that I'm highly leveraged, I would hope that it's going to.

Alec: [00:30:21] Forget what you want. 

Bryce: [00:30:24] I reckon I've changed my tune a bit. I reckon there's a chance that there might be a chance that there are. 

Sam: [00:30:30] That there are, I reckon.

Bryce: [00:30:31] Yeah. I think I just 

Alec: [00:30:32] I think like if, if inflation is going to be stubbornly high because of factors outside the RBA's control, cost of housing and cost of fuel, yeah, directionally it can only go one one like unless, unless we just change how we calculate inflation. Yeah. 

Sam: [00:30:47] Yeah. Because we were talking about this off air is obviously one of the big things is rent coming into the equation. But throwing rent into the equation of inflation is a pretty like it. It's obviously when it changes as it is increasing, it's a crazy influence on the on the inflationary number as well. 

Bryce: [00:31:00] So what do you think? 

Sam: [00:31:01] I don't think a lot of people were saying, oh, they think next year it's going to come back a little like property on. I don't think it's going to come back next year. I think you're right in terms of inflation is is too stubbornly high at the moment. But I do think I do personally believe in 2025, it's potentially we're potentially going to start coming back a bit. If they push the unemployment rate up, which I think will come about, that that's essentially why they're driving this migration so hard. They're trying to create additional labour to try and drop those those pricing. And if they drive that unemployment rate up, then that's when I think because if people start struggling a little bit, that's when they'll start clipping it back a bit. You can't go from from 2% interest rates to 6.5% interest rates. Right. And then think people are going to be able to afford it and not send a large portion of the country into into bankruptcy, which would happen if they keep going higher and then leave it to higher because it's not it's unaffordable, you know, because the buffer rates that they had in even though they were high, that were 3%. So if you if you ran your servicing, if you are borrowing at two and then they run it at five and all of a sudden were at six and a half going on seven, they can't then go keep running it higher and higher because you that you will send a huge portion of people who bought in last couple of years under. So I think that with what they're pushing on there and this is where we're looking at this thing and going are the first three factors of supply builds not coming through. So we've got this huge supply deficit, there's not enough stock and we got this huge population increase that's going to push into boom. Then if in 2 to 3 years, a lot of these migrants, even a lot of them still coming in, these skilled migrants coming in, they're still putting the pressure on the rental market. But then we're seeing the early migrants that came in then transitioning into purchasing, that's going to put the additional pressure on. But then if interest rates start coming back as well, I think it's just going to be. 

Bryce: [00:32:35] If interest rates go down and see you later. 

Sam: [00:32:37] It's going to be crazy. 

Alec: [00:32:38] Which is why. Yeah, yeah, yeah. I think maybe if the economy really starts to struggle. But I think like this level of population growth, you would expect the economy to do pretty well on the whole. And I just don't really see that would be a burning platform for them to cut interest rates. Yeah, that's just my view. But look, we don't know. We're all just forecasting.

Sam: [00:32:58] We are. You, you look at those first four factors. Even if you look at the interest rate equation, that's for first four factors. Maybe we're in for a pretty crazy next year might be in the next 3 to 5 years in the australian market. 

Alec: [00:33:10] So I guess the, the question is around, you know, let's say, let's say this thesis is right, it plays out like what starts to slow at what ends the boom.

Sam: [00:33:20] Well, obviously migration was making it go crazy and they're pulling and they're pulling that back to that. That starts to be curbed to an extent, but then affordable housing starts coming back in as well. So we already saw obviously this is coming out as a pretty big thing at the moment. Rental crisis. I called this a couple of years ago that like South Australia had to change their policy with granny flats because it was just it was wall. That is one of the tightest rental markets in the country, huge blocks all over the city and they're very pro infill state. But then they didn't allow grannies to be rented separately. They couldn't build them at random separately. Melbourne's the same assets, the same as well, and our Northern Territory is the same. But for South Australia it was crazy because the market was so tight and then the Government just came out. It was about a month ago now and said we have a rule, all councils, as long as it's complying development, you can build them and rent them separately. 

Alec: [00:34:03] Oh, wow. Okay.

Sam: [00:34:04] And so and then Victoria last month as well, I think it was Dan Andrews' last thing before he left, he said this is the thing. Everyone got so excited about it. Oh, you can get granny flats through. No problems now as long as it's complying development. But that didn't change the actual leasing laws, so you still can't rent them separately to a family member. So still has to be for a family. But that will probably change very soon as well. And so these are the ways because there are even in Melbourne and South Australia as well, there's a lot of people that have built these things but keep them for family members. But if we can change those and start allowing them to be leased, that's going to change the game from that perspective as well. But I think driving these affordable housing projects, how do we cut? Like if they want to build 1.2 million homes, maybe don't look at it as like on their own title, maybe like secondary dwellings and things that extra roof. Second second income streams as well, which will help people whole during higher interest rates, but then create those more rentals to help ease the pressure on that as well. They need to cut red tape. But from a development perspective, if they're not going to ease immigration, they need to ease that red tape that's all around developing as well.

Alec: [00:35:04] Yeah. So really, to sum that up, it's a supply and demand question. Like right now this boom is being driven by extra normal levels of housing demand from overseas migration and sub normal levels of supply with builders going out of business and stuff like that. And how this boom ends is migration comes back to normal levels. So demand eases off a bit and supply comes online as we have more builders and they're building more. 

Sam: [00:35:30] And more land starts coming through. Like that's a big thing as well. 

Alec: [00:35:33] So it's almost economics one on one, one on one side of it. 

Sam: [00:35:37] That's the thing you're looking at at the moment is gone. Literally supply and demand alone, like it's exactly the sort of cycle you want to be walking into. So which seems crazy because of the run that we've had in the last ten years. But I think it's then relative of looking, okay, well where's the most potential in this situation as well. 

Bryce: [00:35:54] So Sam, for a lot of the community who are sitting listening to this, thinking that it's, you know, dire straits and property, that the dream of properties is out the window And in the next five years, where we're looking at even worse situations to enter your job is is actually to help people find good investments not from the owner occupied point of view. So, you know, it is an alternative for people who want to get into the property market. Owner occupied is out of the question. But you want to take part in this boom that that is, you know, about to eventuate or we're in the midst of A what should we be doing to prepare ourselves or take advantage of this opportunity? And then, B, what are some areas that you're seeing outside of Sydney where, you know, this this next cycle is really going to to take effect? 

Sam: [00:36:39] Yeah, it's a great question. So I think one of the biggest things is a lot of people and we had this conversation last summer were on a lot of people fixated on buying in their own backyard and well, I want to buy in Sydney or Melbourne or whatever. They're very unaffordable for most people now. So like if people are thinking you're in dire straits, what am I going to do? How do we how do we make this thing work? If you look further afield and start looking like that last podcast we did on rent vesting. Ron and what is available from that perspective, you can build a significant portfolio outside of a primary residence and rent first and then go down that avenue if that's where you have to go down or if you're in your primary residence now and you and you can still go down that avenue and still do that, you don't need to be going As we laughed about at the start, buying one $2 million properties as investments, there's plenty of different price points and the market and the price points in those are they're all relevant to the local, you know, economy and location that they are there as well and income levels of those of those areas. So what I'd be saying, I guess kind of firstly, if were to look at like areas of where we could potentially take advantage of, like I saying before you smaller capital is a very much under find out as well being you know you Brisbane your Adelaide you Perth huge amount of infrastructure projects a lot of affordability, great price point for housing and good yields on them as well with as we said, super tight vacancy rates because there's just so much demand for rentals at the moment. So there's some kind of great areas, you know, that we could be looking at. And then if you look further afield, you drill down into some really good regional hubs, regional locations as well. There's probably about another half a dozen of those that are showing some real, real promise to also benefit from this uptick in this boom as well. But yeah, essentially, man, like I wouldn't be fixating on, you know, I can't do anything or be super upset and cut about the way that this is happening. There's always some way to put your money in. There's always someone to make money and property because there's always someone with an external influence that can drive a market. But you don't have to think about, yeah, million dollar plus markets, whether you're whether you're low income and you just trying to start out and you're buying to a $300,000 market or you got to bit more and you're looking at 4 or 5 $600,000 with a good yield, good return and you're positioned for very good capital growth. They're very good markets to start in. And if people rewind ten years ago to Sydney there were a lot of markets in Sydney ten years ago that were three, 4 or $500,000 markets, which is crazy to think about, but they were there and but fast forward now they're probably close to, they're probably million dollar markets or more but it's always relative. So like in ten years we will be looking back and Sydney's at the bottom of its cycle about to start another big run. But we look back now on the smaller capitals that I spoke about and all their areas now that with, you know, 4 or $500,000 and $800 million markets and that's way you got to think about this thing. It's looking further afield thinking outside your backyard and just looking at where the opportunities are. And that's obviously what we help a lot of clients with. We pick apart, you know, where are the right locations to invest in, where's going to benefit the most from, say, this next coming boom? And then you have really help the clients position themselves in those markets and then strategize how do we then put equity out? Of that. Do you roll onto the next one and keep building, you know, the portfolio from there as well. So there's always opportunity. Don't think in dire straits, always opportunity. You got something in you and you're willing to have a go. There's definitely some good some some good opportunities out there to get amongst it. 

Alec: [00:39:35] Yeah Yeah well it's and I love it. I think that's a good note to end it on. There's always opportunity as much as people might be lamenting what the property market is, if they're trying to get in, they can look a bit further afield and see where the opportunity is. If people want to hear more from Sam, the Your podcast is Scouting Australia. That's a long list. Yep. And they can hit you up at the Australian Property Scout website as well. Yeah. So plenty more content from Sam. Um, but I think that we'll leave it there. 

Sam: [00:40:05] Perfect boys.

Alec: [00:40:05] Until next time. 

Sam: [00:40:06] Thank you very much. Appreciate having you on as always.