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OPINION: Orange is fast becoming a tale of two cities, and thousands will be left behind
By Peter Holmes
A property is worth what someone is willing to pay for it.
And so, on the one hand, the recent sale in Orange of a three-bed house on a smallish 497sqm block for an eye-popping, jaw-dropping $1.225 million was illustrative of nothing more than a free market at work. And, like, we're all getting wealthier on paper along the way, right?
On the other, it was a clear marker that Orange is changing, and fast. And not necessarily for the better.
For those working everyday jobs paying $20-$30 an hour, the dream of home ownership in Orange is drifting out of view.
The curse that has infected the Sydney property market for more than 20 years has leeched into our city.
People in Orange talk about property now in the way they have done in Sydney for more than 20 years.
We used to talk about the weather, and other things.
In a regional city of 40,000 a four-hour drive from Sydney (with a short break and a toilet stop) and not on a beach, the property prices for an average working person in a modest house in a safe area shouldn't be out of reach.
That they are reflects poorly on what is supposed to be an egalitarian society.
And yet Orange is at the centre of a perfect storm - low interest rates, a high-paying mine, people fleeing cities due to Covid, investors left with nowhere to put money but into property or shares, the rise in popularity of short-term rentals - that is fast dividing the city into the haves and have-nots.
The rise in rents, and the dislocation of people from rentals by home owners looking to cash in on the boom in recent years, are signs that in some ways our city is becoming wealthier.
But it is also becoming more indebted, as people borrow more to get a foot on the ladder. Or chew up more of their disposable income to make the rent.
Who wins in this scenario? Banks? Real estate agents? People with property portfolios?
The problem for everyone else is that it doesn't really matter if your house skyrockets in value, if everyone else's house is doing the same. You still have to live somewhere.
And every extra dollar you have to borrow from a bank is one less dollar you can spend with a small business in town on a takeaway meal, a pair of shoes, a piece of furniture, a car, a tradie, a book, a holiday, clothing, a haircut, a beer, a bunch of flowers, a movie...
In a fully functioning economy money should be able to be invested in the share market, property, or left to accrue a reasonable rate of interest at low risk with a financial institution.
Our economy has become so warped since the late-1990s that leaving money in a bank account to accrue a modest rate of interest is no longer an option, unless you're happy with earning almost nothing.
So what is left? Shares and property.
This deliberate reshaping of the economy has lead to share markets and property markets becoming seriously overvalued when compared to market fundamentals such as wage growth and company profits.
How was it that in the middle of a global pandemic, where millions around the world died and many millions more became sick and/or lost their jobs and businesses, people were locked down, and immigration in Australia slowed to a trickle, that house prices continued to climb in Orange and most parts of Australia?
It surely went against every basic reading of market fundamentals.
Government stimulus - borrowing money to tip into the economy to keep it upright - was partly responsible, but that's meant to be reserved for disasters such as Covid and the GFC.
Governments, whether Scott Morrison's in Australia or Joe Biden's in the US, can't keep on borrowing and then doling out billions and trillions of dollars on tick indefinitely. Can they?
The Morrison government's responsible tightening - and then irresponsible loosening - of lending regulations in recent years also played a role.
Just kick the can on down the road for the next mob. We'll be far in the rear vision mirror when it all goes down.
And now the Morrison federal government is telling people - many of them young - that they only need to save a five percent deposit and they can get into this overheated market, where rates are tipped to rise.
Seriously?
With property prices heading north and financial institutions hiking some of their mortgage interest rates ahead of any move by the Reserve Bank, what could possibly go wrong?
As with first home owner grants and other market-distorting giveaways, the Coalition's unseemly desperation to keep the property market bubble - and thus our perceived wealth - not only inflated but expanding, was representative of nothing more than a group of uninspired politicians disturbingly low on ideas.
ALP leader Anthony Albanese - who, like many in federal parliament, owns multiple properties - is too scared to tamper with negative gearing. Given the campaign he would have faced from vested interests and the Murdoch press, it is understandable, if regrettable.
Former PM John Howard's obsession with creating illusory "wealth" in Australia by relentlessly pumping air into the property market via grants, easy access to money and mass immigration, did more damage to the Australian fabric of life than just about any other policy in recent memory.
It has left a generation of young people who don't have access to family wealth or a well paid job, and who are often employed as casuals or on year-by-year contracts, facing more than 50 years of work, and no house or unit or villa to show for it at the end.
Or a life punctuated by eviction notices from landlords who want to sell, or move back in, or rent to airbnb - followed by a desperate search for another place to live.
Is that who we are now? Is that where 25 years of Howardism has left us?
Which brings us back to the house that sold a few weeks ago in Orange.
Nicely positioned between the aquatic centre and the CBD, and opposite public green spaces, it has three bedrooms, two bathrooms, and sits on less than 500sqm. The internal area is about 190sqm.
Yes, it has a large main bedroom with en suite and walk-in robe. Yes, it has beautifully manicured gardens. Yes, the kitchen looks top notch. Yes, it has a large combined living-dining and a smaller second living area, and a double garage.
But $1.225 million? In Orange?
According to Domain, the property has sold once before, in 2004, for $212,000.
In 2004 the standard variable interest rate on a home loan was about seven percent.
According to the Australian Bureau of Statistics, in 2004 average full-time adult total wages were $997.70 per week. The average weekly earnings across all employees was $751.90 per week.
In this scenario, an average wage worker in 2004 ($51,880 annually) would have been able to secure that property for a little over four times annual wage, paying about seven percent interest initially.
In 2021 the average standard variable interest rate on a home loan was just under five percent.
In 2021 average full-time adult total wages each week were $1,813. The average weekly wage across all employees was $1,328.90.
In this scenario, an average wage worker ($94,276 annually) would have been able to secure this Orange property for 13 times their annual wage, paying about five percent interest.
Australia has become one of the most indebted countries per capita in the world. We are drowning in private debt, much of it due to extending ourselves to buy a house.
There is no widely accepted economic theory that says you can indefinitely choke wages while at the same time pumping air into the housing bubble, and have a happy outcome. Somewhere, sometime, something has to give.
Cities such as Sydney and Melbourne have been backed into corners now. Other metropolitan and regional cities are following. Will we become one of them?
The housing bubble has been so overheated for so long by successive governments that there is now no way out without sections of society feeling enormous pain. Bankruptcy type of pain.
If inflationary pressures continue, the Reserve Bank will be forced to hike rates to try and cool the economy. If this occurs, many already feeling mortgage stress will become canon fodder in a collapse.
The stock market learned nothing from the GFC. Neither did governments. Nothing to see here.
The property market has learned nothing, either. After all, houses never go down in value.
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