Domain: the new profits of wisdom
Image: Real estate agent offer house represented by model.
BY KIERAN ADAIR
If you’re rich and living in Sydney, chances are it’s not because you worked hard, it’s because you bought a house early and sat on it. Thanks to the housing boom, homeowners have seen their wealth skyrocket over the last decade, based off nothing more than the rising price of their property.
Down in Pyrmont, the Fairfax group, publishers of the Sydney Morning Herald, can also thank the housing boom for a change in their fortunes.
While the decline of print advertising has seen publisher’s profits drop across the country, Fairfax’s Domain.com.au, a hybrid news and property listings site, has emerged as the company’s new growth engine.
In November, the company reported a $893.5 million loss over the 2016 financial year – announcing $1.02 billion in write-downs. During the same period, the Domain Group saw revenue increase by one third to $296 million. In 2015, Citi media analyst Justin Diddams speculated in the AFR Weekender that 75 per cent of Fairfax’s then-$2.3 billion market valuation was due to Domain.
Property is profitable, and over the last decade Fairfax has managed to turn the bubble into a steady source of revenue. There’s only one problem: its bubble locking an entire generation out of the housing market, raising rents, and making an entire city unaffordable.
Australia is unique when it comes to world housing markets: with around 70 per cent of household wealth tethered to real estate, homeowners have a huge incentive to spend when advertising their homes for sale.
Domain works by taking advantage of this, and charging potential sellers a fee to list property on the site and in its associated publications. As long as people keep selling, Domain keeps making a profit.
While this sounds simple enough, the model’s reliance on growing housing sales, in a market that experts warn is overvalued by up 40 per cent, raises concerns about its ability to cover this topic impartially.
Its front page reads like an advertorial for new housing, with headlines like “Exclusive Hamilton apartment gives a whole new meaning to waterfront” (6 Jan, 2017). And “The best properties to buy for your extravagant New Year’s Eve celebrations” (30 Dec, 2016).
Other stories like “How a 20-year-old bought three investment properties: His seven steps to get started” (17 Nov, 2016) would give anyone a dose of status anxiety – and remind them they’ll fall behind their peers without an investment property.
Finally, headlines like ”Young couple outbid builders for $1.65 million rundown Rozelle home” (19 Nov, 2016) turn debt into a virtue, downplaying the risks involved with the debt now needed to purchase a new home – and keeping the house bubble alive.
The theme underlying these articles, and others like them, is that owning a home is a superior investment strategy – rent is dead money, and you’ll never lose cash buying in Sydney.
For the record, the jury is still out on this.
In 2014, The Reserve Bank of Australia issued a paper that found house prices would have to rise at the same rate they had for the past six decades for owners to be as well off as those who chose to rent while investing elsewhere – an unlikely possibility.
This was backed up last year by a separate analysis by Stockspot, which found that ‘renters are likely to be better off than property owners over the next 7 years… Leverage and poor diversification make home ownership much riskier than many people expect.’
In the wake of US election, Guardian Editor Katherine Viner warned that, “many news organisations have steered themselves away from public-interest journalism and toward junk-food news.” The Executives of Fairfax would do well to heed this warning.
Sydney’s become a property obsessed city: and that obsession is driving half a generation out of it, and the other into lifetimes worth of debt. Housing is the fundamental issue of our time, and the public need newspapers they can trust to cover it objectively – not cynically exploit them to turn a quick buck.
