Australians love to talk about property, whether it’s at a family barbecue, school pick-up or in the office kitchen. A 2019 study by HSBC Bank found that Australians spend more hours talking about the property market than they do at the gym or talking to their parents.

Your own house – The Australian Dream

Australia’s founders believed that Australia should be better than the United Kingdom. They wanted a society that was not divided by class. In short, they wanted equality of opportunity for all. They believed that the dividing line where division was most pronounced was property ownership. Therefore, everyone should be able to own the house in which they lived.

In the English cities, land tenure laws and vast church lands prevented many people from ever owning their own property. This was not the case in Sydney and Melbourne. In Melbourne in particular, there was a rapid subdivision of land in the 1850s.

Before universal male suffrage was introduced in South Australia in 1856, land ownership was a way to gain a voice in the political process. This lineage continued even when the colonies stopped applying property requirements for the right to vote.

Australians have taken this to heart to this day, including in cultural classics like “The Castle“. In the film, a homeowner, Darryl Kerrigan, denounces a large corporation that wants to buy his house. In court, he reminds the audience that a house is not just bricks and mortar, but also memories of a life built together. It is, moreover, a place where one can imagine one’s future.

A survey by the Australian National University found that more than three-quarters of Australians still consider home ownership to be part of the Australian lifestyle. Many people here continue to think that owning your own house or flat is what makes you a full citizen.

Housing becomes more and more unaffordable

However, house prices have risen much faster than incomes. A few decades ago, the price of a normal house was only two or three times the average income. Now it has gone up to ten times the average income, at least in Sydney. It’s much harder for young Australians to buy a house these days, and it now takes up to 10 years just to put down a deposit.

A study by a sociologist at La Trobe University in Melbourne is titled “Nobody’s Home”. The name suggests that when the sociologists rang the doorbell to ask about their homes, the home owners were in all likelihood couples working full time (or more) to pay the mortgage on a house they hardly spend any time in. Nevertheless, the Australian dream of home ownership is still a very lively hope in the minds of many people, even people who for the moment find it very hard to see how they are going to attain it.

Urban sprawl

The Australian dream of home ownership combined with a growing population is also leading to rapid urban sprawl. The city fringes are being expanded by the release of affordable land and by large residential districts. When approaching one of Australia’s large megacities by plane, Europeans are surprised at how long it takes to fly over the populated parts of the city before coming in for a landing.

For example, Melbourne is about three times the size of London and yet has only a third of the population. Melbourne does not have a fixed, permanent city boundary. More than 50 suburbs have been bolted on to Melbourne since 2006, with so much to follow. Just 1% of the grasslands that spread across Melbourne to Victoria’s western fringes before European arrival now remain.

Home ownership is the Great Australian Dream. Yet despite its decline consistently making front page news, many still aspire to owning their own land and castle.

Home ownership to accumulate wealth

The 1980s was a time of structural change in Australian home ownership. The financial industry was deregulated. Two-income households were the norm, making mortgages easier to obtain. Rising interest rates were followed by drastically falling interest rates.

The changes in the availability and cost of finance had a major impact on the housing market in particular. Before deregulation, housing was geared towards homeowners. Property investors who took out a bank loan had to pay a significant interest rate premium on their loans.

However, with the equalisation of interest rates, the targets for home ownership shifted. Houses were increasingly bought for their exchange value – they were used as leverage to accumulate wealth. More and more people invested in housing, including their own homes, to accumulate wealth. This continued to increase in the 1990s and 2000s.

Real estate prices among the top in the world

Due to a variety of factors (low interest rates, eager investors, tax breaks and foreign investment, to name a few), Australian real estate has become some of the most valuable in the world. A two-bedroom, two-bathroom flat in Sydney is worth more than a renovated 13th century chateau with nine rooms and 7 500 square metres of parkland in France.

Those who invested their money in residential property in the 1990s enjoyed phenomenal returns. In 1993, the average values for houses and flats in Australia were $111,524 and $123,840 respectively. By 2018, houses had seen a 412% increase in value and flats 316%. Assuming the same projected growth rate, a report projects that by 2043, houses in Sydney will be worth more than $6.3 million on average, while properties in Melbourne are not far behind at $5.8 million.

Record low interest rates have pushed Australian property prices up 22 per cent in 2021 – the biggest increase in three decades.

Housing affordability decreases

The increase in property prices has also been accompanied by an increase in debt. This brings with it the risk of financial instability if borrowers are unable to service the debt. At the same time, housing affordability in Australia has largely declined since the early 1980s and has deteriorated more than in other comparable countries. According to a 2021 housing affordability survey, the median house price to annual income ratio in Australia’s major cities is 7.7 times, compared to 4.8 times in the UK and 4.2 times in the US. In Sydney it is 11.8 times and in Melbourne 9.7 times.

The ratio of house prices to incomes and rents is at the upper end of OECD countries compared to long-term averages.
Even though interest rates are at record lows, the rise in prices relative to incomes has meant that the ratio of household debt to income has also almost tripled over the past 30 years. Australia has thus moved from the bottom end of OECD countries to the top end.

This makes it much more difficult for first-time buyers to enter the property market. Deteriorating affordability is also leading to increasing wealth inequality.

And governments’ housing policies reflect the interests of those who already own. And their interest is not that property prices fall …

Real estate industry is “big business” in Australia

To realise the Australian dream or to increase one’s wealth with real estate, one usually needs the services of a real estate agent. In Australia, around 600,000 houses and flats were sold in 2021. In Germany for example, on the other hand, there were around 752,300 sales in 2020 with a population around 3.3 times as large!

Making big money with commissions and fees

With an average of two to three percent of the sales price, the commissions to be earned are a strong incentive to join the business. The two to three per cent commission does not usually include advertising costs either. Depending on the rate and the placement of the advertisements, this can amount to several hundred to thousands of dollars. Especially for more expensive properties, there may also be a sliding scale of commissions. For example, one may receive 2.5% for the first $850,000 and 10% thereafter. This is another incentive for any real estate agent.

Landlords also use real estate agents

And if you can’t afford the Australian dream of owning your own home, you have to rent. For this, too, you usually need the services of a real estate agent (or rental agent). A rental agent usually manages the rental process, i.e. they market the property, show it to tenants and finally fill the vacancy. Once a tenant has signed a lease, the agent’s job is done. After that, one has to deal with the property manager. However, many rental agents also take on property management. Rental agents are typically paid a fee of one month’s rent for finding a tenant. If the agent then continues to manage the property, there is usually a fee of 10 to 15% of the monthly rent.

Tenants are not customers

In this context, the estate agent’s client is not the tenant, but the property owner. At this point, one often becomes aware of just how lowly renters are viewed by the real estate agents who depend on them for income.

Every tenant knows a horror story (so do we) – agents demanding excessive repair and cleaning costs from deposits; surprise evictions; agents ignoring repair requests while a property literally decays around its tenants. But only a fraction of tenants file an application with a court. Such an application takes time and money that most people don’t have. And in a dangerously tight rental market, tenants are afraid to complain. Anyone can be evicted at any time. And when it comes to re-letting, the agent just gets another commission.

Many estate agents just want to sell or let the property as quickly as possible and collect the commission. In doing so, some are merely a salesperson subordinate to the actual real estate agent with less training and qualifications.

According to president of the Real Estate Institute of NSW (REINSW), Leanne Pilkington, a barista selling a $4 coffee often undergoes more training than a real estate agent selling a $4 million home in Sydney. You can get a licence to print money in just three days to work as a real estate agent …

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If you spend more time in Australia than just on a short holiday or business trip, you might notice that the fuel price is very low in Australia in comparison to most countries in the world and that there are many big cars on Australian roads. Especially the omnipresent ute. Furthermore, a “hoon-culture” of “car-enthusiasts” is very distinct. Does all that have an effect on the average fuel economy. I wanted to find out.

The International Energy Agency (IEA) published 2019 a report, which – among others – adresses this question (“Fuel Economy in Major Car Markets: Technology and Policy Drivers 2005-2017“). That report investigates the fuel economy of newly registered light-duty vehicles (LDVs,) across the world from 2005 to 2017. LDVs are a category defined as passenger cars, passenger light trucks and light-commercial vehicles below 3.5 tonnes. For a better readability I will use the term “car” for LDV.

Average fuel consumption among the highest in the world

The average fuel consumption between countries differs substantially among countries, ranging between 5.2 l/100 km and 8.9 l/100 km. A big difference can be seen between

• advanced economies with a fuel price below USD 1/l –
  Australia, Canada and the United States, where average fuel consumption is in the 7.9 to 9 l/100 km range

and

• advanced economies with fuel prices above USD 1/l –
  European Union, Turkey, Japan and Korea, where fuel use per kilometre ranges between 5.2 and 6.5 l/100 km.

Australia consumes more than the global average car fuel consumption, reflecting larger and, therefore, less efficient vehicles.

Australia in 2017 had an average fuel consumption of 7.9 litres/100 km whereas e.g. Germany had 5.9 l, Italy 5.2 l and the USA 8.6 l/100 km. That means that Australian cars burn about 52% more fuel per 100 km than cars in Italy and 34% more than in Germany.

Heavier and larger vehicles

Advanced countries with relatively low population density and low fuel prices have larger shares of SUV/utes than other advanced economies. This is the case especially for Australia where about 30% of car sales were large SUV/utes (like e.g. Ford F-150, Toyota Hilux, BMW X5, Isuzu D-Max or Audi Q7) in 2017. In the same year, small SUV/utes (like Toyota RAV4, Honda CR-V) accounted for 29% in Australia. Whereas the European Union, Japan and Korea, with much higher population densities and higher fuel prices, have smaller vehicles. In Japan, large SUV/utes had only 2% market share and small SUV/utes were just 9% of car sales in 2017. Large SUV/utes accounted for less than 5% of the car market in Germany, France, Korea and United Kingdom.

Also, vehicle weight is closely correlated with fuel use. 70% of new cars sold in 2017 in Australia weighed more than 1 400 kilograms. This ranks Australia among the world’s highest average vehicle weight markets. In contrast, around 70% of new cars in France and Italy weighed less than 1 400 kg, ranking them the most fuel-efficient among the countries assessed.

Furthermore, the report also found that city cars in the Europe Union are 15% more efficient than comparable ones in Australia. In general, it can be said that average fuel consumption in advanced economies with fuel prices above USD 1/l is more efficient than in similar vehicle size market segments in economies with fuel prices below USD 1/l.

Fuel economy improvement rate slowed down

Between 2010 and 2017, the overall average fuel consumption in advanced economies with fuel prices above USD 1/l improved by 15% and in advanced economies with fuel prices below USD 1/l improved by only 9.5%.

However, between 2015 and 2017 the average fuel economy improvement rate slowed down to 1.4% per year globally. And in advanced economies even to only 0.2% per year. Key drivers of the recent developments include the rapid decline of diesel sales in several major vehicle markets. This is most notable in Europe. Worldwide, 76% of new Cars sold in 2017 were petrol ones and just under 17% were diesel.

The growing consumer demand for larger vehicles is also a major determinant. Australia has had a particularly high market share of SUVs and utes, closing in on 60% in 2017.

Mandatory fuel economy standards have an effect

The fuel economy improvement rate of countries after implementing fuel consumption standards or efficiency-based purchase incentives was nearly 60% higher than countries without standards and incentives. The higher improvement rate is also reflected by the higher market share of electrified cars (hybrids, plug-in hybrid electric vehicles (PHEVs), battery-electric vehicles (BEVs) and fuel cell electric vehicles). Regulated countries are amongst others Canada, China, European Union, Japan, Korea or the United States. Wheras Australia has no regulations but some incentives like Brazil, Chile, Malaysia, South Africa, Thailand and Turkey.

Fuel saving technology – turbocharging

Turbochargers enable the recovery of energy from exhaust gases. This allows the engine to operate closer to its optimum efficiency throughout the drive cycle. In addition, vehicles with the same power rating can be produced with smaller engine displacement and lower engine weight, further reducing fuel consumption.

Nevertheless, the diffusion of turbochargers in petrol engines is lower in Australia where engine displacement remains far larger than elsewhere. The lower share of turbocharged petrol vehicles in Australia may be partly due to lower fuel octane values.

Electrification is going to be crucial

The electrification of cars is going to be crucial to ensure that fuel economy can be effectively improved. Countries that currently have high average fuel consumption values, like Australia, could benefit the most from electrification since electrified vehicle efficiency is less dependent on size and weight.

The uptake of fuel saving electric powertrain technologies (hybrid, plug-in hybrid and battery electric) is higher in countries with regulations and incentives than those without. The market share in 2017 for electric powertrains only reached 1.1% in Australia where there are no federal fuel economy regulations, though several states provide incentives up to 4% of the vehicle price (Queensland Government, 2018; NSW Government, 2018).

No clear policy towards electrification

Unfortunately there is no clear policy in Australia regarding electric vehicles (EVs). A patchwork of conflicting regulations and road-user taxes between states and territories is inhibiting take up of EVs.

The Australian federal “emissions reduction minister”, Angus Taylor, has ruled out policies used elsewhere to drive EV uptake. These policies might include direct subsidies to consumers or a ban on new fossil-fuel car sales from 2030 or 2035 as promised in countries including the Germany, the UK, India, Thailand and Japan. Instead, the Australian federal government is spending billions of dollars on subsidies for the enormous twin cab utes that dominate Australian car sales.

However as of May 2021, Canberrans who buy electric and other zero-emissions vehicles automatically receive two years’ registration for free. The Australian Capital Territory already waives stamp duty for clean cars, and has promised households and not-for-profit organisations interest-free loans of up to $15,000 to buy them.

On the other hand also in May 2021, the Victorian parliament passed the country’s first road user charge – a tax on every kilometre driven – for EVs and hybrids. The Victorian government argues that it had to impose a new tax on EVs because drivers of those vehicles don’t pay fuel excise. This makes about as much sense as taxing nicotine patches on the basis that those giving up smoking aren’t paying tobacco excise any more.

But the New South Wales government just announced it will waive stamp duty on electric vehicle purchases and provide subsidies for 25,000 new purchases as part of a $490m strategy to drive uptake of EVs.

Conclusion

The 2019–20 Australian bushfire season was a major climatic event and the largest wildfires Australia has ever seen. At the same time, Australia is among the countries in the world with the highest average fuel economy and CO2 emissions per km. To change this is to increase the number of electric vehicles. A road user charge for electric vehicles should be many, many years off. Not now and not before Australia has a reasonably priced electric vehicle market and the right level of supply. The uptake of EVs needs to be encouraged.

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If you had asked anyone those days about Australia, you would have received an answer which possibly contained words like kangaroo, koala, Sydney, crocodile, snake, Ayers Rock, convict, barbecue, steak or Quantas. But the name of anything made in Australia?

Aussie, Aussie, Aussie

Australians then believed (and still believe) that Australian Made is an expression for quality. And that feeling was heavily promoted by the industry. In 1993 when I first time came to Australia, everywhere you could see all kind of logos often with an Australian flag, that outlined the Australian origin. This was really difficult for me to grasp.

It was (and fortunately still is) more or less unthinkable, that in Germany you would have found the German flag on so many products. Especially together with statements like “stolz deutsch” (proudly German), “im Besitz von Deutschen” (owned by Germans) or “In deutschem Besitz und stolz darauf” (German owned and proud of it). Certainly, in the “1000 years” between 1933 and 1945, Germany had had enough emphasizing of “Germanism” that it will last another 1000 years. Moreover, I also wonder, what people of other nationalities would say, if they found this kind of statements on German products today.

And since then, Australia has even extended it’s labelling of “Made in Australia”.

Country of origin label for food products sold in Australia

In 2016 the Australian government introduced a law, that requires food companies to specify the percentage of Australian ingredients, as well as whether the product was made, produced or grown in Australia. As a result, most food products in Australia now have to state whether they were grown, produced, made or packed in Australia or overseas. However, it mostly addresses the “Australianness” of products and not where the main imported ingredients come from.

Furthermore, food companies can claim their product is made in Australia if the food is processed in Australia. But that doesn’t necessarily mean any of the ingredients are actually from Australia. E.g. manufacturers adding salty water in Australia to fully imported pork can make it Australian made.

In a recent survey of more than 20,000 subscribers of CHOICE, almost all respondents said that knowing where the food and drink they buy comes from is important. When a logo on food shows “Made in Australia from 0% Australian Ingredients”, I also think it makes a difference where the ingredients come from.

“Made in Australia campaigns” and tariffs

Also non-food companies still regularly advertise their products as Made in Australia or that the company is owned by Australians. They hope that applying to Australians to support Australian producers will boost their sales.

Besides the labelling, manufacturing in Australia was helped along a good deal by very protectionist tariffs. That made Australian products cheaper towards imports and therefore more competitive. Consequently, behind those walls of tariffs, Australian manufacturing grew to its height in the 60s. For instance, the car industry had over 200 per cent tariff levels. Levels of protection were still high through the 1970s and ’80s.

I was very surprised, when I saw the exorbitant prices of imported cars the first time I came to Australia in 1993. For example, back in Germany a VW Golf was a standard car which was widely affordable. Here in Australia it was a luxury item.

But the tariffs were a double-edged sword. In other words, the effect was not only that imported products were more expensive but also that the prices for Australian products rose above a “normal” competition level and drove inflation to a high to a large extent. In 1974, it passed 15.4 %. Accordingly, Australians had to pay top dollar for sub-standard local products. Normally over time the degree of protection should have been gradually wound back as companies learn to compete, improve their productivity, and are able to face the international competition. But that didn’t happen.

Meanwhile, the producers felt like living on an Island of the blessed and became adept at lobbying for ever higher tariffs.

Cutting tariffs had a destructive effect

At the end of the 80s and the beginning of the nineties Australia reversed its policies and pulled down tariff barriers a to a large extent. For the manufacturing sector, it was devastating. The industry was exposed to competitive pressures, some went bankrupt and some went offshore. The manufacturing sector in Australia went from about 30 per cent to about 6 per cent of the GDP. In the late 1980s manufacturing was the biggest employer in Australia, with 16.5 per cent of the workforce. Now less than 1 million people work in the sector, accounting for 6.4 per cent of jobs.

Australia’s extensive mineral resources plus other primary products, such as agriculture, now account for about three quarters of its goods exports. In other words Australia is just digging it out of the ground and then sending it to other countries. There it gets manufactured into value-added products that Australia then reimports.

The end of car production in Australia

In October 2017, Australia witnessed the shut-down of its last car manufacturing plant. After 100 years of building cars in Australia, General Motors’ Aussie outpost, Holden, closed its doors. Before Holden, Ford, Toyota and Mitsubishi had already stopped producing cars in Australia. Not only the fierce international competition had to be blamed, but also that the manufacturers didn’t see the change in buyer profile coming.

For a long time, the Australian consumer preferred V6 and V8 sedan cars, such as the Holden Commodore with a Corvette V8 and the V8/V6 Turbo Ford Falcon. Then the SUV and the small engine economic vehicle gained popularity – leaving the local manufacturer and its roaring engines off the buyer’s shopping list.

In February 2020 Holden had more sad news for anyone who’s a fan of big V8 engines, massive burnouts, and the occasional ute: Holden will close up shop by 2021. Sales, design, and engineering for the brand will all cease completely, marking the final blow to that country’s automotive industry. One reason stated by GM was, that they could not overcome the challenges of the investments needed for the highly fragmented right-hand-drive market.

Depending on imports

The economic shutdown that followed the coronavirus pandemic has highlighted the vulnerability of Australia’s supply lines. The dependence on manufactured goods from overseas and especially Australia’s over-reliance on supply chains out of China became evident.

In June or July at big retailers like K-Mart, Target or even JB-Hifi, you could get the feeling, that they were closing down. The shelves were stripped bare of almost any goods you could imagine. Even display-models were gone. And now in October the situation is not much better. A lot of products are simply not available or it takes weeks to get them in. That reminds me of times when I was a teenager, when a lot of hardware was only available on order and you had to wait for weeks.

Make-believe Australian products

Consequently, it becomes also apparent that there are inauthentic supposedly ‘Australian Made’ products.

R.M. Williams for example can be considered an Australian icon. It has a fairly long history of making high-quality footwear, especially Chelsea boots (lose-fitting, ankle-high boots with an elastic side panel) but also riding boots and other. I have two pairs of R.M. Williams boots myself and I love them.

On R.M. Williams’ Website you get the impression, that their products are made in Australia, but that is not always the case. The majority of R. M. Williams products other than boots and leather goods are made outside of Australia, mostly in China and South East Asia. And R.M. Williams is not even owned by Australians any longer. In 2014, luxury fashion house Louis Vuitton Moët Hennessy (LVMH) acquired R.M. Williams.

Also other well known Australian shoe manufacturers, like Blundstone and Baxter Boots still make some boots in Hobart and Goulburn. However, most are now made in China, Vietnam and India. Blundstone has also opened a factory in Mexico for the North American market.

What could be in the future?

In these Covid-19-times, a lot of people talking of recreating the manufacturing base Australia once had. But this would require again a large dose of protection. And that doesn’t come cheap. It would damage Australia’s competitiveness and jobs primarily because the tariffs would act as a tax on the people. One just have to look at the USA today or at the times of Australia’s protectionist era.

Australia is the world’s biggest gas and coals exporter. Therefore, the current national government considers coal and gas as the primary mean for the recovery of the COVID-19 struck economy and also for the supply of cheap and reliable energy. In my opinion that might not be a sustainable outlook. The decline of China’s coal consumption and its crackdown on pollution suggests a bleak outlook for coal and gas exporters like Australia. But Australian industries could benefit with a pivot to clean and green technology.

Australia – a renewable energy superpower

Australia has a long coastline, intensive sunshine, stable society and reliable governments. Therefore, it would be an ideal country to become a world leader in large-scale and low-cost renewable energy infrastructure and energy storage. Australia could become a renewable energy superpower. But growing that industry will require government support and well-designed, bipartisan policies that stand up over the long term. Short-term policy support won’t be enough to create such a thriving industry. But there is still a lot of people who are saying, ‘No, we must keep our coal-fired electricity’. I am of the opinion that Australia has to get over these cultural wars about climate change and seize a once-in-a-century opportunity.

Another option would be to promote innovation with research and development incentives. It’s been done before. And innovative products require highly skilled workers to produce. Above all, these are the types of products other countries with lower wages simply can’t produce to the same standard.

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