Housing in 2026: A tale of two markets

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[Music]

Hello, I'm Alan Kohler, Editor at Large of Intelligent Investor and also Finance Presenter and Columnist for the ABC.

And I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder advocate...

And we are...

We're the Money Café, in the café, Alan. I've panic bought petrol yesterday for my seven-seater 15-year-old gas guzzling Holden and I'm nervous about how much petrol I've used up coming to see you today.

Oh well...

I mean, are you scared about this war, Alan? Oil prices surging...

Well, they surged immediately and then more or less stayed there. They haven't continued to surge yet. I note that America is now offering insurance and protection for ships going through the Straits of Hormuz, so presumably that will work, I don't know... The problem was insurance for ships getting through the Straits...

I think the problem is a bit greater than that, isn't it? The problem is, Iran is firing drones at nine different countries which has never happened before and it's causing massive panic on the world's biggest hub and threatening massive infrastructure and killed six US troops in Bahrain with one stray drone and this is not Venezuela, is what everyone is saying.

This is not Venezuela.

This is not a quick and surgical strike.

No, they're talking about it going on for a month or more. I think it's true that oil prices are likely to go up. A lot of these countries are going to have to reduce or shut down their production. Unless Iran is put out of action fairly quickly by America and Israel, which is not impossible.

Well, there's 93 million people, it's the size of Queensland, it's double the size of Ukraine - remember how the Russians thought they could take out the Ukrainians in three days and everyone's suddenly saying, "Actually, Ukraine's really quite big and they've got something called drones and they can actually fight back and you can't just do this overnight."

Yeah.

I'm sounding more nervous than you are, Alan? Aren't you in a bit of shock about the scale of the Iranian fightback and the impact they're having?

No, I'm not surprised.

Bombing Dubai, videos out there of drones crashing into high-rise buildings in Dubai?

Well, because, yeah, it's terrible, but I suppose I'm not that surprised because it is, to some extent, a battle not just between America and Israel and Iran, it's between Persians and Arabs as well. The Persians and Arabs have always been at it, there was the Iraq-Iran war, which was an appalling conflict and that's the way Iran's certainly approaching it.

How are you feeling about a war of choice run by Donald Trump and Pete Hegseth?

Terrified, really, it's unbelievable.

It is extraordinary. Wall Street was down 1,000 points at the start of trade overnight, we're talking early before it's finished, but so this is the time after four days - because what's been happening, is even with AI and software, it's always been a rotation, you can always go, "Oh well, software's crashing, we can go into hard assets..." or something. Now there's starting to be, Blackstone has fallen 8 per cent overnight, they're the world's biggest private credit firm and they're having a run of redemptions and people are talking about who's exposed in Dubai, travel stocks. There's this whole sort of contagion event as well, which this is a Black Swan event.

That's right and one of the contagions is air travel.

Qantas shareholders are down $2 billion dollars, 15 per cent in 10 days, so yeah. Disney stocks are getting wiped out because they've got big buildings and resorts and stuff in the Middle East.

Yes.

But you're looking very Zen, boss.

Because it's early in the morning.

It is 8 o'clock in the morning.

It's probably worth remembering that a lot of this involves America reaping what it sewed because of the coup in 1953, when the CIA removed the democratically elected Prime Minister, Mohammed Mosaddegh. Now, it wasn't a full democracy, in those days Iran was a constitutional monarchy, but the Shah of Iran at that point was relatively weak, he was only 22, he was in his 20s and not really running things. Since the Shah took over from his father in 1941, there had been a pretty solid democracy in Iran, they were elected and then Mosaddegh was chosen by the parliament to be Prime Minister in 1951. He nationalised the Anglo-Iranian Oil Company which became BP and that was the reason for the...

The colonialists weren't too happy about that.

They were not...

In they went with literally a CIA orchestrated coup. You hear that stuff of left-wing conspiracies these days, but that literally was.

But what they didn't do is establish a full democracy. What they could have done, is remove him and then establish a democracy or even not remove him...

They went the royal family model.

They went the royal family model and then of course the Shah turned into a dictator. In 1975, he cancelled elections, turned the place into full tyranny and four years later he was gone. Now, they're getting what they sewed.

You had an Islamic revolution, the clerical military dictatorship for 37 years and then the Americans and Netanyahu thought they could just decapitate the Ayatollah and Maduro style in Venezuela, they just cop it... But there were distributed orders to bomb everyone in sight, send drones. Drones are hard to - how do you stop tens of thousands of drones in a massive country the size of Queensland with 93 million people where the drones are hidden all over the country?

They didn't plan for this drone counter-offensive, they didn't think they would dare to do it, they thought it would just be like the 12-day war with Israel, where they'd fire a whole bunch of things at Israel and then they'd shoot them all out of the sky and everyone will say the Iranians didn't lay a glove on us, but they're certainly laying a glove on all their friends and allies and there's 115,000 Australians stuck in the Middle East in the largest ever DFAT consular effort in Australian history. I'm sounding scared. [Laughs]

You are, Stephen, you're sounding scared.

But we're not a political or a war - we're not The Rest is Classified, so we probably should stick with the markets, I guess, but it's a big market event, it's got oil...

It is and as you say, it could be the black swan. We've got a few AI questions, we'll get onto AI in the questions, we won't talk about that now, that's the other big topic at the moment. The other thing to mention that I wanted to raise, is house prices, which came out the other day for February. The national median price up another 0.8 per cent, so it's 9.6 per cent up for the 12 months, but it's interesting that the Australians housing market has kind of devolved into two markets. One, Melbourne and Sydney are flat, zero change in February. Brisbane, Adelaide and Perth are roaring ahead, unbelievable. The thing is, there is an element of catch up in that Melbourne and Sydney were rising much more quickly than those other smaller capital cities were earlier on, but those capital cities are doing much more than catching up now.

And why is that? We've got the old, "Melbourne's in decline relatively speaking, the taxes are too high, the Government's bad, the CFMEU is running the state..." or whatever you want to say, it's an economic performance/tax question to a degree. But as you said, a lot of it is catch up, but Melbourne's now cheaper than quite a few other places.

Yeah, that's right.

Are you surprised by this?

Yeah, I am. I think it's also a fact that Melbourne and Victoria has been more successful building more houses, they've actually done that, so to some extent it's a testament to the benefits of more supply. As to why, I don't know, maybe more people want to live in Brisbane than Melbourne. I can't understand that, but there you go. Housing is becoming more and more unaffordable, I had on the news last night that we had housing approvals yesterday for January...

It crashed in apartments, what's going on with that?

25 per cent down in apartments, overall dwellings down 7.2 per cent in January. The total number of approvals in January was 14,500 or something. The target for the housing accord to make 1.2 million in five years is 20,000 a month, so they're running 6,000 short of that. The total shortfall since the housing accord began, is 77,000 or so.

So the pincer movement is showing no signs of - changing house prices keep going up, supply is not being delivered.

Not yet, that's right. The median national house price to the average wages is 15 times and it was four times. If you think about what that means, that's almost four times what it used to be. A house that now cost a million dollars, if the house price to income ratio had stayed the same, that million dollar house would be costing $250,000, think about what that means?

It means a hell of a lot if you're attempting to buy that house with nothing and that's the inequality first home buyers question. It doesn't mean as much if you're a part-owner of the $12 trillion dollars of housing out of there which is bubbled up there and you're buying in the same markets that are selling.

That's true. That $250,000 to $1 million dollar difference changes everything about Australia, about the economy, about society, about how we live. It's massive.

At one level, we're incredibly rich, but it is a massive inequality question as well, it's just magnifying inequality enormously.

I think we tend to feel richer than we are. We're going around, we've got houses that are worth four times than it should be and we feel rich. Well, we're not really...

It doesn't generate a return, you're living in it, you're getting no income off it, it's like a gold investment. You're renting it out, you're getting what, 2.5 per cent? You may as well put money in the bank from a return point of view. It's half investment, it's half shelter. Everyone loves Australia, there's massive immigration, there's not enough supply, you need a roof over your head, that's sort of driving it as well and all the tax advantages of housing.

Have we got a question on Canada?

We should do that now. The question was, why is Canada's house prices down 18 per cent when ours keep going up?

That's because they smashed immigration to almost zero and also interest rates were higher in Canada than they are in Australia, so that combination just brought house prices down, so as you say, house prices have fallen a lot. I think people are kind of saying it is to a large extent to do with immigration. Yes, there's not enough supply, but why is there not enough supply? Because there's too many people buying houses. It's a matter of supply and demand, it isn't just about supply and that's why One Nation is surging in the polls.

Well, that's the other thing that's happened, is they've gone from - and it's partly Bondi. For mine, Bondi was the key event which sent One Nation's vote up the way it has, but you're right. Could the Canada situation happen here? I think if you look at the rise of One Nation, you'd have to say there could be some sort of a compromised Coalition Government next time where the agreement is to smash immigration, smash the student numbers. Trump's done it, he's one on immigration, fixed up the border and smashed immigration. The Canadians did it with a progressive Government in there the whole way through, but partly they fended off the right by smashing immigration because it was becoming a sensitive issue, so it could happen here, but then again, everyone who's ever predicted a housing crash in Australia has been wrong and it's never gone down by 10 per cent ever and it just goes up and up and up and up. So who's going to be the first to say, "Immigration crash, housing bubble burst."?

I think we shouldn't ignore interest rates either, because I think interest rates probably are the main factor in house prices.

They went higher in Canada from 0.25 to 5 per cent, bottom to top, post COVID.

The Assistant Governor Economic of the Reserve Bank, Sarah Hunter, did a speech in Norway yesterday, in which she compared Australia's interest rates with those of the average of advanced economies. I probably won't do it justice here, but listeners ought to go to the Reserve Bank website and just have a look at a speech, because it's very interesting. She shows that our interest rate peaked at 5.35 per cent, the average of the advanced economies peaked at - I think it was 5.7 per cent. Then she compared unemployment rate and inflation and our unemployment rate peaked at a lower - I think it was 4.3 per cent and advanced economies' unemployment rates peaked higher.

She didn't talk about house prices, I only talked about consumer price inflation and unemployment and the whole purpose of what the Reserve Bank was doing - they did it knowing what they were doing, they deliberately attempted to keep unemployment down in Australia and it worked. She was basically blowing their bags and saying, "Aren't we terrific? We kept unemployment in Australia lower than everywhere else in the world as a result." In fact, Australia's unemployment rate is the lowest among all of the advanced economies because of what they did.

Greatest country in the world, Alan, greatest country in the world.

But what the Reserve Bank doesn't do is target house prices, it's not in their mandate, they don't think about it, they don't worry about it and what that resulted in, house prices really rising a lot because Australian interest rates didn't go up very much.

What you're saying, is stop crowing about our low unemployment rate, you've on the flipside allowed the housing bubble to get out of control.

Yeah, but not only do they not care about it...

Do you think they made a mistake, that they should have risen more, allowed higher unemployment and not allowed the bubble in housing to grow up higher?

That's a hard thing to say.

That's a hard question, boss, isn't it? No one can say, "I wish more people were unemployed." Politicians, even Alan Kohler, can't say it.

That difference between 5.7 per cent unemployment in the rest of the world and 4.3 per cent here is real people, going through terrible times, so how do you say that?

That's right and in Australia it's an electric fence because we've got the world's most indebted households. One of the reasons we've got the world's most indebted households from a mortgage point of view is because we've also got the world's biggest pile of super, so everyone can borrow a whole lot more because there's $4 trillion of super sitting there, which they look at their balance sheet and say, "Well of course I can borrow $800,000 because I've got $600,000 in super. And of course, the banks make a pile on that because they clipped the ticket every which way on this giant merry-go-round of enormous household debt offset by $4 trillion dollars of compulsorily acquired super, thank you Paul Keating. Before we do questions, Alan, I should mention the last-day-laggards. I've been banging on about this for 20 years. On the last day of the reporting season, twice a year - so it's the last day in February and August - you get this deluge of dodgy little companies who are disorganised, as in, they haven't got their audited accounts together in time, because you've got two months from year-end, or they're taking out the trash, cynically, not wanting people to notice because if they figure if 300 other companies are reporting a $3 million dollar loss at the same time, no one will report it, it won't be on the front page of the paper - "We get away with it again..."

Well, it's true, isn't it?

It's true. But I'm claiming a little bit of a win because I've been naming and shaming these people for 20 years. Twice a year I have to spend 10 hours tracking this and I'm sick of it. I ran out of puff, I only tracked the ones on Friday, 2:30 p.m. But the number I did get, was that there were only 71 losses that were reported after 4 p.m. Normally, on the last day and over the years there's been 120-130 - it's usually always over 100 who wait. I'm claiming, one, the naming and shaming is working, a few companies are saying it's embarrassing to be in the last-day-laggards; but two - and it's also a bit scarier - is that it's also the ASX is thinning out.

Since January 2023, we've lost 248 public companies or 10.7 per cent and we're down to only 2,046 public companies anymore, which is the lowest since before the GFC, so one of the reasons is less last-day-laggards, less dodgy small companies overall and that just goes to the global trend away from public markets, that there's more in ETFs and private credit and private equity and alternative assets. I probably should be sad that there's not - it peaked at almost 400 and now it's on the last day and the following Monday before you get suspended. Because what happens, is the ASX says at 9:50, the next day on Monday, the ASX publishes mass suspensions, so your stock gets suspended. You used to have 40 or 50 companies that would come out before 9:50 to avoid the suspension and there were only eight this time.

But isn't it possible that fewer companies are making losses?

No, there's still plenty of losses. Star Entertainment was the last one on Friday night at 8:25 p.m., the casino company...

They were last?

They were last, another $109 million dollar loss, so they've now got $4.4 billion dollars of accumulated losses.

Just before you move on, what about the old saying that 'the house always wins'? [Laughs]

They've just been absolutely destroyed. Literally, the investors have lost $4.5 billion dollars in that thing. It's in the top three or four disasters of all time, so the house has certainly not won there. The one that I found the funniest, was a company called Cann Group, which is one of those medicinal marijuana companies. Billions has been lost in medicinal marijuana and they came out the last day and they said, "We made a $26 million dollar profit," and then you read the fine print and it's, "National Australia Bank has walked away from their $70 million dollar debt for $15 million dollars, so we've got a $55.6 million dollar profit from debt forgiveness." So they've come out with a last day profit and poor old NAB has literally lost $55.6 million dollars bankrolling this unprofitable medicinal marijuana company.

The Chief Accountant was consuming the product.

Well, that's enough to send the banker to pot, isn't it? The things you see, looking in the rubble on the last day, Alan.

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Now, DQ says - is that Don Quixote? I don't know... Anyway, DQ says, "First off, a request. Can we limit AI talk to every second week on the podcast? As you say yourselves, we have no idea of its impacts, so let's talk about something more interesting." Unfortunately, DQ, we got deluged with AI questions, so we might do one or two at the top and that will be it. Dave says, "We have James whinging that our productivity growth is terrible and then Alan saying productivity growth is going to explode so much that we have 30 per cent unemployment by 2030. Can you guys put your heads together and come to a reasonable position?"

Emily says, "Last episode, you mentioned the optimist case for AI, being productivity increases that lead to abundance, compensates for job losses. Surely, for that to occur, governments need to be much more interventionist in wealth distribution given the political influence of tech oligarchs both through direct contributions to politicians and by controlling the information delivery. The idea of an abundance fuelled welfare state seems like a pipe dream, thoughts?"

Well, yeah, AI is not yet showing up in productivity statistics, that is true. I think it probably will at some point, but there's much more to productivity and the reason productivity is down is because a lot of parts of the economy that will take a while to be taken over by AI or at least have them come into it and I think in fact a lot of it would need robots because it's in healthcare and aged care and a lot of those kind of care industries, which is where the low productivity - it's not so much that those industries are less productive than they were, it's just more of the economy shifting into those industries which are inherently less productive.

But in terms of the jobs desert, since we last met, Alan, you've had WiseTech announcing 2,000 job losses and you've had - I always forget their name - Jack Dorsey's outfit, Square, Block, XYZ is the code...

Block.

Anyway, they bought Afterpay for a ridiculous amount of money. They announced a 40 per cent job cut and the stock price went up 20 per cent and so the 1,300 Afterpay workers in Australia, they've all just been sacked after a big love-in at Lorne on the Great Ocean Road, they all got their notices. They're two very prominent sort of tech companies that have announced literally thousands of job losses in AI and in both cases or particular the Square, Block, Dorsey, XYZ case, Afterpay, the stock was up 20 per cent on the announcement. It's a bit like the old ANZ guy, that ANZ tough guy comes in, Nuno, and you just have to say you're going to sack thousands of people and the market loves you and up goes the share price. The temptation now is for everyone to say, "We're sacking 30 per cent of our workforce just to get your share price up 20 per cent." But whether you actually do it, whether it kills your business... What happens to all the people thrown on the jobs heap? It's the day after the announcement where things get tough, isn't it? Where you do that massive AI restructure which is seemingly going to come.

On the question of Government intervention, it's true, the question is what will permanent unemployment get to? At the moment, permanent unemployment is around about 4 to 4.5 per cent because that's what the central banks target as being full employment. They're not going to allow unemployment, if they can help it, to go below 4 per cent, so that's the level. The question is, will it be 10 per cent of unemployment...?

Absolute tops.

That's your view, is it?

Yep, you think it's going to go higher?

I do. I think that 10 per cent probably can be handled with the existing welfare system. The problem with it is, that if it's 10 per cent permanent unemployment, the job seeker is neither enough in dollar terms, nor are the rules around it really adequate for the AI age, because you have to keep looking for a job and all this stuff. The problem the Government needs to get its head around the idea that there is going to be a number of people who just can't get a job anymore because they're just out of the game, but I actually think it'll go to more than 10 per cent, I can't see how it won't.

As for James whinging about productivity, you can have both things happening at the same time. Victoria, we've got the North East Link, $26 billion dollars, it was meant to be $10 billion dollars and it's a CFMEU racket with bikie gangs all over it. That's a productivity question, that's a construction productivity. Productivity is a lot broader than just white collar jobs, it's the entire economy and overall, Australia is a high-cost, inefficient, not very productive economy at the moment living beyond its means and how sustainable is that?

Alex says, "There's an idea that buying a house to live in is an asset, but it's not. Buying a house is in fact a lump sum payment for all of your future housing costs. Renting is like having a short position in housing if you want prices to fall and buying a house is simply closing that short position. As an owner-occupier, you shouldn't care whether your house value increases or decreases, it's the same house but voters hate seeing the value of their property falling and elect governments accordingly, how do we change this?" Have you ever thought about it like that, that renting is like shorting?

I haven't, actually, but it's an interesting point. Most people have a mortgage, so to some extent you're renting it off the bank. Very few people are buying their house without a mortgage. But yeah, that's a good point. Generally, the whole idea of investing, is you're buying something that you don't need in order to make more money. A house is something you need. It's not as if you can avoid having a roof over your head, you can either rent or buy. The decision about housing is a classic business decision, rent or buy, which businesses all do, particularly in relation to their premises. Do you lease a premise or do you buy a shop? It's the same with housing, because you have to have a house.

Greg says, "Writing to you from India with an observation on gold. As I travel around, it is amazing that every town, big and small, is plastered with billboards for gold loans..." I didn't know that. "All of the big banks have moved into this as a lucrative means of leveraging people into additional gold purchases using an LVR, loan to value ratio, of 85 per cent on the gold offered as security. This works great in a rising market but will act as a huge decelerator on the price of gold should a significant downturn occur and banks call in the loans. China is in a very similar position with the recent 10 per cent fall attributed to Chinese leveraged selling. It seems that with these two major gold purchasing countries leveraged to what could be seen as a speculative bubble, there will potentially be a lot of pain ahead. Are you aware of any published data on the prices Australian miners have locked in for forward supply?" Are you, Stephen? Because I'm not.

Look, so many miners lost money hedging and had unprofitable hedge books. Quite often, you'd have capital raising plays where they say, "We're raising $300 million to buy out and close off our hedge book." So, as a rule, Australian miners having being burnt from bad hedging previously, the investors prefer them to be unhedged. But I would say, with gold prices so ridiculously high, if I was a gold miner, I would probably be forward selling at the moment, just like BHP's just done a massive forward sell of one of their silver mines where they've effectively sold it forward for like $7 billion dollars. What about gold at the moment with the war? Normally gold takes off in a crisis, but effectively the election of Trump has been a global crisis from an investment point of view and gold has gone to record highs and then we got a war on top of that, so it's not as if it's going to suddenly leg up another 20 per cent.

It always kind of puzzles me a bit that gold and silver, gold particularly but silver as well, are seen as safe haven investments, when in fact they're speculative. All the prices are being set by speculators who are leveraged mainly in China and India. Really, when you're buying gold and even if you're buying a bar of gold from the ABC Bullion or the Perth mint. I mean, it's being priced against the spot and futures markets and so the whole thing is a speculative bubble for sure.

And it could tumble, just like Australian housing could tumble, as Canadian housing did tumble.

If the banks in India start calling in their loans, all those people are going to have to sell fast.

Now, Anna...

That's a long question.

I won't read it all but I just love the way she frames it at the start. Anna says, "G'day fellas, I know you said you wanted more female listener question, so here it goes..." Then I won't read the whole thing, but Anna makes a really good case about picking up from the discussion we had last week about the unmeasured care economy that with surging house prices and everyone having to work now, there's no one to do tuck shop duty, there's no one to do those traditional volunteering jobs. Are we going to have to move to a position where many of those traditional volunteer jobs in the economy become paid? And I think she's absolutely right because as she says, when people in their 40s and 50s now get to retirement age they're going to still be working because they'll be paying off their debt from buying their house, etcetera, if they haven't had a bank of mum and dad lottery win.

Yeah, it's interesting, last week I attended the Senate inquiry into the capital gains discount and did a burst on that and said that, "Yes, it'd be a good idea to cut the capital gains tax discount to help make housing more affordable..." and then I got an email from somebody, who I won't name, but he said that my comments were shallow, glib and dangerous. He included his phone number, so I rang him up.

[Laughs] "Hello, mate. Alan Kohler here, how dare you?"

No, I rang him up and said, "That was harsh!"

Well, he knew that, then what did you say? "You are wrong..."

No, I said, "Why am I shallow, glib and dangerous?"

Did he fold?

Well, he apologised and then he said, "The reason is because you're going on about how the capital gains tax discount in 1999 caused house prices to start rising more quickly." He says, "My position..." - and this guy, I actually looked him up, he runs...

You LinkedIn him, did you? You stalked him online and then you did the hustled phone call...

He's a financial adviser, right? He's a wealth manager, so he's got a bit of substance.

So you worked out he wasn't a nutter, someone you could call?

He's someone worth talking to. Anyway, his position is that the reason house prices started rising more quickly than incomes in the year 2000, is because of the big increase in double income families in the 90s.

More capacity to borrow and buy.

His point is that the thing of both partners working and in particular, women going into the workforce, pre-dated the rise in house prices. His point is that it wasn't a necessity caused by the rise in house prices, it actually was a factor in causing house prices to go up.

That's a chicken and egg question, isn't it? I think it's a bit simplistic if he's saying it's one or the other, it's both.

No, but you could - and I haven't actually done this, but he says he's done the work and you can actually show that the increase in double income families pre-dated the rise in house prices, that's what he says.

Okay. Just responding to Anna's thing, I want to say she's absolutely right and the world is going to have to change. Councils in Victoria pay now for school crossing supervisors. They used to be volunteers, organised by the schools and now Council hires them, it's a classic cost shift argument. Many tennis clubs now effectively has the tennis coach as the full time CEO of the club. I remember going to a bowls club 50^th birthday and they said, "Our female bowls numbers have halved in 30 years because all the grandmas are so busy looking after the kids because both parents are working." There are fundamental changes and I agree that Government should step up and pay a lot of these volunteers for the people who've been displaced from AI, that's the solution.

The Government's not going to come in and resolve the bowling crisis.

No, but the canteen manager at the footy club should be paid. There should be a whole bunch of people doing those voluntary jobs...

By the Government?

By the system, like the school crossing supervisors.

But in those cases, the system hasn't got any money.

If there's no volunteers to do the job, you haver to buy it in eventually, that's why you're buying catering for the President's Lunch at the footy club these days, because you haven't got six volunteers to sit at the kitchen, serving. Anyway, sorry about that. We've got three capital gains tax questions, so we're going to play on with a couple of them. Lincoln says first, "Regarding the capital gains tax discount either being reduced or removed, would there be any benefit to having it, say, a 5 per cent discount added every year to a maximum of 50 per cent, so if you hold a property for 10 years, you can still get a 50 per cent discount, but if you decide to sell after two years it's only 10 per cent."

Dave's suggestion is similar but the other way, he says, "If you're going to phase out the discount, why don't you phase it out over five years, so the discount becomes 50 per cent, 40 per cent, 30 per cent, 20 per cent, over five years, etcetera..." Dave's prediction is, "Watch the market flood with supply of existing houses with big capital gains if you adapted that."

You should also mention Shane's question.

Shane says, "Most housing affordability policy seem to focus on the front-end of the market, grants, guarantees, demand incentives, which can just inflate prices. What are your thoughts on a back-end incentives such as offering a capital gains discount to sellers, only when a property is sold to a first home buyer?" This is all system reform design questions.

Taking it one at a time, the whole point of the capital gains tax discount, was that it replaced the inflation adjustment, the CPI adjustment, and made it simpler. My argument has been and remains that it's more than it needs to be to replace inflation, it's too high. It's not much too high, but it is a bit too high and they could justify reduce it to 33 per cent. The 5 per cent discount per annum, that would be too much again because the inflation rate is 3.2 per cent or something at the moment. The RBA wants it to be 2.5 per cent, so 5 per cent each year would be arguably double what it needs to be which is 2.5 per cent inflation. The thing about only getting the discount if you sell to first home buyers, well that's just...

Too complicated.

Also, firstly, it's just another way of having a first home buyer grant because presumably, the idea is that the seller sells it more cheaply to the first home buyer than they would sell it to somebody else and that's basically being subsidised by the Government which is a first home buyer grant. Secondly, how do you go about that? You can't have an auction. What, do you advertise first home buyers...?

You come in with a badge saying, "Verified, qualified, first home buyer," and of course that's someone with five kids organising one house for each of their kids because they haven't ticked the first home owners - that would be gamed. System design is important with these things, you've got to keep it simple.

That's right.

So, what change will they do? I think they're just going to go bang and they're going to cut from 50 per cent to 25 per cent, just go bang. Just one simple change.

I've seen 33 per cent mentioned and I suspect that that's because somebody in the Treasurer's office is hinting it's 33 per cent, so I wouldn't mind betting it's 33.

What about creating an incentive to sell? That's an interesting question. If you're worried about house prices so you create this thing where it is more expensive to hold in five years' time - and I don't mind that as a model because it would free up supply, just like the punitive land tax regime in Victoria has flooded the market with people selling their holiday houses and investment properties.

The main disincentive for downsizers, retirees and that, to sell, is the stamp duty.

But they can't work with the states. That's the thing, they need to work with the states on a whole package, whole of industry reform. Now, Merryn, has written in basically saying, "Listen, you shitty snobs, stop talking about your EV cars while you're sipping your lattes. Us people in the bush on farms, we need range, so think about us." I guess, Merryn, no one's forcing you to drive an EV. Phil's written in to say that, "Alan commented about his ownership of an EV and the difficulty of determining the running costs and Phil's story is that he and his wife both own an EV and they charge it on their solar during the day and it costs them next to nothing, and one time when he charged it overnight, he was shocked that it cost him $6 bucks for 100 K of range, so it was more expensive charging it - still relatively cheap..." but overall, Phil's comment is that you're absolutely saving a motsa, Alan, even if you're charging it overnight compared to filling up the car for $100 bucks.

How does $6 bucks for 100 Ks of range compare with petrol, do you know?

Well, that's slightly more expensive than I thought and that's Phil's point. He's saying he was surprised it was that much, but it's next to nothing, using it when solar is cheap during the day. But we've got a question later on about whether we should have a road user charge like New Zealand, because they're charge for EVs is $76 dollars per 1,000 kilometres. I was wondering if that's why Jacinda Ardern is moving to Australia, to get away from the road user charge in New Zealand.

No, no, she's moving to Australia because it's nice here.

Yes, that's right, it's a bit embarrassing, isn't it, to lose your Prime Minister to across the ditch? The question was, do we support a road user charge? Because people like you, Alan, are not paying your fair share on road maintenance and you should be like the Kiwi's, $76 bucks for every 1,000 kilometres you drive, Mr EV guy. I say, charge Kohler and his EV cohorts more for the road damage they're causing.

I think governments will have to have a road user charge, of course, because at some point there'll be no revenue to keep up the roads. The other reason for moving from New Zealand to Australia is because you like shiraz and you're sick of pinot noir.

It's like Dan Andrews, he can't live in Melbourne anymore, the poor guy. He can't show his face after all the COVID lockdowns.

What's that got to do with Jacinda Ardern?

Politicians leaving their jurisdiction. Is Dan going to finish up in Dubai, do you think?

Well, not at the moment. He'll end up in Queensland, he'll go to Queensland.

In a gated community, safe, away from angry Victorians. James has got an interesting question, "What can high income salary workers do to minimise tax pay? Tax is the largest expense I have..." He's paying over $100K a year in tax - "Plus the ATO demands I pay them quarterly. It seems that if you own a small business you can pump all sorts of expenses through the business and can claim deductions for things that a salaries worker can't." So, James is in the top 5 per cent of income earners, yet he's living in Sydney, can't afford a house in a nice part of Sydney and will have to go and live on the fringes even though he's paying $100K a year in tax. "The Government treats people like me like an inexhaustible source of revenue and I get little returns - should I just go and live in Singapore or Hong Kong?" I reckon anyone who's paying more than $100,000 dollars a year in tax like James should get a badge that they can walk around the streets saying, "I pay for a federal policy officer", or, "I pay for one-and-a-half nurses", because you're right, they don't get the credit. People who pay enormous amounts of income tax do not get the credit.

Everyone just thinks, "You're on $300,000, you're rich." Well, actually, the Government's taking $100,000-plus of that and the Government's getting rich and you're working hard. I feel sorry for James and I'm not talking my own book here, Alan, I'm nothing like that. But do you agree that it's a bit rough and that personal income tax rates are too high? We don't want James going to Singapore or Hong Kong, we want to keep him here but we shouldn't tax him as much.

One of the things I was on about at the Senate committee inquiry into capital gains taxes, the problem is that in Australia we tax income too much and capital not enough. The thing is, rich people have capital, less rich people rely on income and we've got the top marginal tax rate is probably okay at 45 per cent plus the Medicare levy, but it kicks in far too early. So, yes, we need to tax capital more. The reason capital taxes have come down, not just the capital gains discount, but lower company income tax rates and so on, is because capital has become so mobile and we're competing against places like Singapore and other places. We have to tax immobile assets such as minerals and housing which can't be moved to the Cook Islands.

If you're really honest, if you wanted to tax capital you'd be taxing the family home, all $12 trillion dollars of it in residential, a lot of that which is tax sheltered within the family home structure and then you have death duties as well. Now, we'll do one more question because Jessica - I love this, we want more female questions, we love Jessica, we need more female questions. Jessica says, "I deeply appreciate your intelligent commentary to explain how society, economy and the world work and especially your clear identification of what changes could improve growing inequality. My question is, besides being Treasurer of Australia or a politician, where in our economy could I work and have the greatest impact to improve inequality in Australia, if anywhere?" What noble job could Jessica do to fight inequality? Maybe work at the ABC because they always seem to be talking about inequality.

Everyday I'm fighting inequality at the ABC.

Housing, is it too expensive, it needs to be more affordable for first home buyers, etcetera... Work for a charity, do you think? Councils are good at helping people.

Work for the Salvos? I really like those companies that collect leftover food at restaurants and distribute it among poor people and homeless people, I think that's a good idea.

You don't want to be working at a pokies venue, taking free coffees to addicted gamblers, or you don't want to be the concierge at the Melbourne Club or some five-star hotel, so it's an interesting question. Where can you work where you can sleep at night and you can help people? I think that the charity sector, working at Centrelink, guiding people into which programs you should be on, etcetera... There's a lot of noble places to work, but unfortunately, you don't get paid very well when you work there.

That's right, you get paid more delivering coffee to addicted gamblers, I guess.

Poker machine venues.

Except if you work at Star Entertainment.

Well, that's right, they've lost $4.5 billion dollars now, that's right. Jessica, great question. We've got through quite a few there, Alan.

We did, we whizzed through - there was a couple we didn't get to, but thanks everyone for listening to today's episode of The Money Café, I'll be back next week with James Thomson, send in your question to themoneycafe@intelligentinvestor.com.au and we'll answer it then, we'll certainly try to. Keep your questions, short, sweet and to the point. Until then, I'm Alan Kohler, Editor at Large of Intelligent Investor and Finance Presenter and columnist for The ABC.

And I'm Stephen Mayne and look forward to seeing you in a fortnight.

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Got a question for next week? Please send it to themoneycafe@intelligentinvestor.com.au.