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The Joye of analysis
Rismark International managing director Christopher Joye set out to revolutionise the quality of analysis on Australia's property market, and along the way became one of the loudest voices decrying claims that Australia's property market would fall 40 per cent.
Joye talks about property, data and buying a house in The Interview in API's June 2010 issue.
Following are some additional excerpts from that interview.
On his role advising the former Howard government on housing policy...
I ran the 2003 Prime Minister's Home Ownership Taskforce and essentially co-authored a very long 380-page report on a range of innovations in the supply and demand sides of the housing market. So basically in summary what we did was look at some of the explanations for the rise in cost of housing in Australia over time, we concluded most of the problems really resided on the supply side of the market and inelasticities in the supply side of the market that were preventing builders and developers from producing new housing efficiently.
We proposed a range of supply-side solutions to elastify the production of new housing. Chief amongst those were the relaxation of zoning restrictions, the release of greenfield and brownfield sites, we argued that we needed to speed up our building approvals processes and then we advocated some more complex policy measures that we hoped would improve the ability of the supply side to respond to changes in demand.
On the demand side, we basically argued that we needed to deleverage household balance sheets and households. Rather than just relying on mortgage debt we should use more equity in combination with debt...
That report was finished in June 2003 and was very well received, and I think has played a pretty significant role in shaping housing policy ever since.
On his recent discussions about housing policy with members of the Obama Administration in the United States...
It was really interesting. I was invited by the Rockefeller-Macarthur Foundation to go to the United States to present to Obama Administration officials on solutions to the US housing crisis. I presented alongside a guy called Robert Shiller, who's a professor at Yale. We presented a range of policy solutions and I was actually informed by a senior member of the administration last year that they were seriously considering taking up one of those solutions, but unfortunately I don't think they did.
So I'm personally pretty pessimistic about the US housing market. I think there are many structural dysfunctions that will ensure that market remains unstable for a long time to come.
On the lessons he brought home from the US...
Just how different their market is to ours. There's so much government intervention in that market, with Fannie Mae and Freddie Mac and what's called the Federal Housing Authority, the FHA.
And they also have a curious banking system where they have over 8000 banks - so they've got one of the most decentralised banking systems in the world and a very fragmented market indeed.
And finally, traditional balance sheet lending is the exception rather than the rule in the US. So around 60 per cent to 70 per cent of all homeowners are securitised, whereas it's the opposite in Australia with only around 20 per cent of all loans securitised in Australia, and by far the predominant medium for supplying finance was traditional bank balance sheets.
I guess the key learnings were that we have a very different housing market, a very different housing system, which sort of renders comparisons between Australia's housing market and the US housing market largely irrelevant...
I don't think the US policy makers understand how radically different their market is to many more sound markets around the world, like Australia's and Canada's, and I don't think there's a willingness to assault the root causes of the problems in the United States.
On affordability and measures of property prices compared to incomes...
We basically recognised that there was a problem in the measures of house prices to incomes. You see lots of wild estimates between six, seven and eight times incomes that are bandied around...
We've taken all homes in all regions, so I believe it's the first time it's been done. People made the mistake of just comparing capital city house prices to national incomes, but again 40 per cent of people don't live in capital cities.
So we've taken home prices in all regions and we haven't focused just on houses, we've included all property types. Then we've done a like-for-like comparison with incomes in all regions.
To make it even more like-for-like we compare average prices to average incomes, otherwise one runs the risk of comparing median prices to average incomes.
The income data we use is the ABS (Australian Bureau of Statistics) national accounts disposable income data, and it's the same benchmark that's also employed by the Reserve Bank, and the average home price data we use is an average of all home sales executed across Australia.
On that basis, it actually doesn't matter whether we look at median prices to average incomes or average prices to average incomes, our latest estimate is that the price to income ratio is about 4.7 times, which is nearly half some of the popular estimates you see.
The price-to-income ratio has been basically stable for the last five or six years, so it hasn't increased, and there's no evidence to suggest housing is especially unaffordable...
We also know that based on our mortgage default rates, the current 90-day mortgage default rate in Australia according to the RBA is 0.6 of one per cent, which means that according to the RBA again, 27,000 of the circa five million households with a mortgage are behind on their repayments.
That suggests that only a very, very small percentage of the population is genuinely in stress.
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