Fast 3: Is it really cheaper to buy than rent? | World’s first plastic waste treaty | Elon’s latest outburst

Sascha: [00:00:02] Welcome to the Dive, the podcast that asks who said business news needs to be all business. I'm your host, Sascha Kelly. We're back for another Fast three, where we cover three stories in less than 15 minutes. Today we're covering a range of topics from a world first global treaty on plastic waste to why Elon Musk told Disney CEO Bob Iger to go himself. But first, we're looking at recent housing data suggests it's actually cheaper to buy than rent in some parts of Australia. This just doesn't seem right to talk about this today. I'm joined by my colleague and the co-founder here at Equity Mates. It's Alec Renehan. And Alec, welcome to the dive. 

Alec: [00:00:42] Sascha Good to be here.

Sascha: [00:00:43] I'm just dying to know how is it possibly cheaper to buy than rent in some places?

Alec: [00:00:49] Yeah. So this is a study from Prop Truck, which is the data analytics of real estate econ EU. And what they do is they compare the cost of renting versus the cost of buying. And you're right, it does seem counterintuitive. In early 2022, they found that about a quarter of properties nationally would be cheaper to buy than rent. In the latest data park released 28th of November 2023. It's risen to one third. 

Sascha: [00:01:17] That's a massive jump. I was surprised by a quarter and the fact that it's got to a third now. What's the methodology like? How have they actually calculated this? 

Alec: [00:01:27] Yeah. Yeah. You know, we're sounding surprised because it does sound surprising because the intuitive question is if a third of houses in Australia were cheaper to buy than rent, why aren't more people buying? 

Sascha: [00:01:39] Yeah, why don't I have one when I bought a house? 

Alec: [00:01:42] Yeah. Yeah. So we had to look at the methodology to get a better understanding of how they're actually coming to this conclusion. So what they're doing is comparing renting versus buying over a ten year period. Now for renters, they are assuming monthly rent. Obviously the bond which gets returned in their assumptions, but there's an opportunity cost to put that money and they also assume rental increases over time. For buyers, they assume a 20% deposit, which is outside of this calculation. And then they assume, you know, the mortgage payments and all of that. So in some ways, it's cash flow of a cash flow while you're paying for your mortgage fee, what you're paying for your rent over a ten year period. Obviously, rent gets increased in that time and your mortgage doesn't necessarily get increased depending on what interest rates do that. As we were reading the methodology, there is one more thing to keep in mind. They say that at the end of the tenure, at the end of the ten year period, buyers incur a selling cost. So the assumption is you sell the property after ten years. Oh, buyers incur a selling cost and receive the new value of the property less the remaining loan balance. These total costs are then converted to present value terms per month. So what they're saying there is that they assume that you sell the property at the end of the ten years and however much money you make on the property is factored into the calculation. 

Sascha: [00:03:09] Yeah. And that's kind of moving into investing territory. And if you look at historically how Australian property's gone and you comparing that we are renting, that's a bit unfair.

Alec: [00:03:18] Yeah, it's a bit unfair, but I think the greatest unfairness comes in the 20% deposit because that is where the challenge lies. That is why even if one third of places in Australia right now are cheaper to buy than rent over a ten year period, most people can't do it because they don't have a 20% deposit. Yeah, I think this is off the top of my head, but I think the stat is now for the average person earning the median wage, trying to buy the median house, they have to save for 14 years to get the 20% deposit. I think it's about that. 

Sascha: [00:03:52] Yeah. Okay. We'll check afterwards, but that's a pretty good start. And I think it's important that you said homes just then because I used the word houses before. But when you drill into the data, it's particularly focussed on apartments. 

Alec: [00:04:06] Yeah. The findings here are that apartments are a lot cheaper to buy than rent in many places. Let's take Sydney for example. Just 1.4% of houses would be cheaper to buy than rent over this ten year period. According to this calculation from prop truck. 1.4% of houses compared to 42.7% of apartments or in Perth, 74.3% of houses are cheaper to buy than rent or 92.5% of apartments. 

Sascha: [00:04:37] And when they're doing the calculations and factoring in rent increases, that's notable because rents have been rising really quickly for those in apartments. 

Alec: [00:04:45] Yeah, that's right. Rents have been rising quickly and the purchase price of apartments haven't been rising as quickly. Now, the key driver of this is the, I guess, the massive supply of students, young people. All recent migrants and those on lower incomes trying to rent these apartments because that's in Australia's housing market at the moment. That's what these people can afford. And that ironically pushes the price of these lower end apartments up faster than the national average for rent. 

Sascha: [00:05:19] Mm hmm. So what about the geographic split? You mentioned Perth before. Is that indicative of where this issue is?

Alec: [00:05:26] Yes. So if we combine houses and apartments and just talk about homes in general in Western Australia, 78.7% of homes are cheaper to buy than rent, which is pretty amazing, more than three quarters. Next up is Queensland. Just over a half, 53.3% then 48.1%. So that's the podium in Australia. At the other end, at the lowest end of the range is Victoria at 16.6%, still a higher number than I would have expected before we looked at this story. 

Sascha: [00:05:59] So the obvious question you mentioned that deposit before is that the thing that's stopping people from buying? 

Alec: [00:06:05] Yeah. Getting that 20% deposit is the big challenge. And it's the problem with affordability here. Since 2001, the national ratio of median house price to median income has almost doubled to 8.5. And here is the stuff that I remember earlier, Sascha. The time required for the accumulation of a deposit for a typical property has increased to 14 years. And ironically, Sascha, as rents rise, it gets even harder like that. 14 years is going to keep blowing out. If rents keep rising the rate, they are, you know, 6.6% over the past 12 months, rents have risen. And it doesn't seem like it's slowing any time soon. Yeah. So whilst this track findings suggest that a lot of people may be financially better off buying than renting long term, they can't get that deposit together. And ultimately this report is just another frustrating piece of financial content around the Australian housing market. 

Sascha: [00:07:06] Look, I don't think I could have wrapped it up better myself, Alec. Any time properties in a headline, there's always something to kind of hit your head against the wall about. Oh. Let's move on to our second story, which is about this plastic waste treaty. The need is clear Less than 10% of plastic waste is recycled, according to the UN Environment Program, while at least 14 million tonnes ends up in oceans every year. The International Union for Conservation of Nature says plastic production has doubled in 20 years and at current rates could be triple by 2060 without action. So with that context, in March 2022, 175 nations voted to create a legally binding international agreement aimed at kerbing plastic pollution. Negotiators have just met for the third time. So, Alec, surely we've got some good news. 

Alec: [00:08:01] Sascha. 

Sascha: [00:08:02] Your face says that it's not. Sorry. Spoiler for podcasting. 

Alec: [00:08:07] So when the 175 nations voted to create a legally binding international agreement aimed at kerbing plastic pollution, they hoped to finalise the treaty by 2024.

Sascha: [00:08:19] Okay. 

Alec: [00:08:19] If these latest rounds of talks in the Kenyan capital of Nairobi were anything to go by, don't expect them to be signed by 2024 or 2025. To be honest, why? 

Sascha: [00:08:31] Why is it so slow? 

Alec: [00:08:32] So participants suggested that the third round of UN talks had drawn more than 500 proposals from governments, and then all of these proposals required debate and votes and ultimately slowed down the process and made that not much progress on the actual treaty was made. But if that's disappointing, Sascha, and you know, the context that you put at the top makes it clear the need is clear. Don't worry, we've got more talks coming. We've got two more rounds of talks scheduled for next year. 

Sascha: [00:09:06] So there's been no progress whatsoever. 

Alec: [00:09:08] Look, there was a big split in attendees. There's sort of two philosophical camps when it comes to how we deal with this problem of plastic pollution. On one hand, the limit production of plastic countries. They are led by Canada, Kenya, the European Union, and they're saying we need to actually just stop making as much plastic. Yeah. Then the second philosophical camp is the recycling cap. They're led by countries like Iran, Saudi Arabia and Russia, which you may know are all big oil producers. And I also know that plastic is an oil by-product and so they don't want to limit production of plastic. They want to encourage recycling. 

Sascha: [00:09:53] Okay.

Alec: [00:09:53] So what we saw at this third round of talks in Nairobi was that these oil producing countries. Iran, Saudi Arabia and Russia. We're putting proposal after proposal on the floor for debate. And, you know, the rest of the attendees accused them of basically employing stalling tactics to hinder progress and actually get into a treaty.

Sascha: [00:10:14] Yeah, because you're saying they're putting proposal after proposal on the floor and it appears to be good faith to promote recycling, but really it just moves the conversation away from kerbing plastic production and stalls in the process.

Alec: [00:10:30] Yeah. Now that seems to be the reporting out of the meeting. That's not what I'm saying. I wasn't. This seems to be the reporting. The reporting is that in these closed door meetings, so many new proposals were put forward that the text of the treaty, instead of actually being revised and streamlined, ballooned in size over the course of the week. And then all of that needs to be reviewed and debated. And yeah, it just blew out the time that was allotted for these talks.

Sascha: [00:10:59] So what happens next? 

Alec: [00:11:01] So we have two more rounds of talks that will take place next year to try and finalise the deal, the first in Canada in April and then in South Korea in November, with the goal of adopting a treaty by mid 2025. Now, there was a proposal to hold an extra round of talks before the next round in Canada. There was talks about talks, but the vote on the talks failed to advance to the final plenary meeting where they would have talked about the talks even more and then voted on it. Bureaucracy moves slowly, Sascha. 

Sascha: [00:11:37] Yeah, but meanwhile, the plastic industry produces really quickly an estimated 400 million tons of plastic waste is produced every year. So, Alec, let's hope we see some progress in the coming meeting. 

Alec: [00:11:50] Yeah, let's hope. 

Sascha: [00:11:51] Let's take a break then. And when we get back, we're going to talk about what on earth is going on at Expo, formerly known as Twitter and Elon and his recent viral interview. That's in just a moment. Welcome back to the dive today for our third story in our Air Force Three. Elon Musk does something rogue. I mean, who would have thought that this seems to be a headline or story every couple of months and it is about that time again. So here we are talking about it. Alec, what has Elon done this time? Hmm. 

Alec: [00:12:30] The New York Times DealBook summit. Elon was interviewed on stage by Andrew Ross Sorkin, a New York Times journalist, when he was asked about advertisers pulling their ads from Twitter. Elon accused them of trying to blackmail him and then told Disney's Bob Iger to, quote, go piss off. 

Sascha: [00:12:47] Yep. And for people who have tuned out of the whole Elon Musk saga, which I definitely was guilty of over the last couple of months. What's the context here? 

Alec: [00:13:04] Yeah, a growing list of companies have decided to stop advertising on Twitter. Now X, let's just keep calling it Twitter. 

Sascha: [00:13:10] I think most people do. Just call it Twitter. Yeah, like Prince, the artist formerly known as. Yeah. 

Alec: [00:13:17] So this boycott really started in early November when some major companies announced they would be pausing their ads on Twitter due to concerns that ads might be shown alongside offensive material. This was really sparked by a media matters report that showed IBM ads being shown alongside content promoting the Nazi Party and Adolf Hitler. And we can include the link to that Media Matters report in the show notes if people want to say it. Yeah. So IBM was the first major advertiser to pull out. But from there, we've seen a flurry of others. There was Apple, Lionsgate, Disney, and as of the time of recording, we also have Walmart, NBC, Universal, Coca-Cola, Comcast. A lot of these advertisers, some are just tightening their belts, but a lot of them are worried about what content the ads are showing up next to it. 

Sascha: [00:14:10] Have any of the companies made comments explicitly? 

Alec: [00:14:13] Yeah. So a few have Walmart said something generic like we have multiple ways to connect with our customers. Like most of these companies, they don't want to add fuel to the fire. They just want to quietly back away. Bob Iger from Disney was a little bit more explicit. He said he, quote, felt that the association was not necessarily a positive one for us. 

Sascha: [00:14:34] Yeah, you said a little bit more explicit, but not as explicit as Elon was when he responded. So, Alec, how much is this boycott expected to cost? Twitter?

Alec: [00:14:57] Yes. So for context, X is a Twitter's revenue has already fallen a fair bit. Alan has previously said that X is ad revenue is down around 50% overall year on year based on what Twitter generated in 2022 estimates. Are they going to bring in somewhere around the $2 billion mark for advertising? Kate, that $2 billion in mind, because that's sort of where they are. So according to The New York Times, this expanded advertiser boycott is set to cost around $75 million in ad revenue this year. So like a meaningful number, $75 million is $75 million, but a fraction of that $2 billion of advertising revenue. But the important thing to keep in mind is that Twitter is not profitable. Are they going to lose maybe a few hundred million dollars this year? They've got a heap of debt and then losing more revenue on top of that just makes their losses even bigger. 

Sascha: [00:16:01] And Ellen said in this New York Times interview that this boycott could end up being essential to the company. 

Alec: [00:16:08] Yeah, that's right. He said the boycott could, quote, kill the company. He appeared to be pretty Zen about it. And he went on to say. 

Audio Clip: [00:16:16] And the whole world will know that those advertisers killed the company. 

Alec: [00:16:19] But I think he's playing. I don't think the world is going to think that Disney and Apple and Coca-Cola stopping advertising killed Twitter. I think how loud and how public and how outspoken he has been. People are only going to say Twitter's fortunes are tied to his behaviour. I don't think the advertisers will be coming in for a lot of blame here.

Sascha: [00:16:42] Yeah, absolutely, 100% agree.

Alec: [00:16:44] But, you know, there are plenty of people that love Ellen out there. And what we did see in the few days after was a massive spike in the Google search terms for cancelled Disney Plus and cancel Hulu. So some people are taking his words on board.

Sascha: [00:17:01] Bill Ackman wrote a very long tweet in support of him as well, which was interesting reading. Is there anything else we need to know about Ellen after this interview? 

Alec: [00:17:11] Yeah. Look, the f yourself line wasn't even the most surprising from the New York Times interview. Instead, the thing that stood out to me the most was what he said about his own environmental credentials. He said that Tesla has done more for the environment than any other company in history. And as the head of Tesla. That means he's done more for the environment than any other person on Earth. I'll leave you to make your judgement on that one, Sascha. 

Sascha: [00:17:40] I think we can let that line speak for itself, can't we? Let's leave it there for today, Alec. It's going to be our last episode for the year on Friday, so please get in touch with us contact@equitymates.com. Tell us what you'd like us to talk about. We're going to look back at some of the biggest stories from the year. That was 2023. So we'll be back in your feeds then. Until then, thanks for joining me, Alec.

Alec: [00:18:02] Thanks, Sascha.