The Ladder Question Nobody Wants to Answer

There’s a maths problem they used to give kids in primary school. A ship’s ladder hangs 2 metres above the water. The tide rises 3 metres. How far is the ladder from the water now?

The answer is still 2 metres, because the ship floats. Saw someone use that exact analogy in a thread about falling house prices this week and it’s been rattling around my head since. Because it’s the whole argument, isn’t it. If your house drops in value and so does everything you might buy next, you haven’t actually lost anything. You’ve just been staring at a number on a spreadsheet and mistaking it for wealth.

I own a house in the outer southeast. Bought it a while back, before things got truly stupid. I don’t check its estimated value on those real estate apps, mostly because I don’t need the anxiety, but also because it genuinely doesn’t matter unless I’m selling. And even then, I’m buying back into the same market I’m selling out of. The tide rises, the ladder stays where it is.

What strikes me reading through the reactions to this idea, that falling prices might actually be good news, is how much genuine panic it produces in people who, on paper, have nothing to lose. Plenty of homeowners talking themselves into believing a price drop is a personal insult, a theft of value they were owed. I get the emotional pull. You watch a number go up for fifteen years and it starts to feel like something you earned, rather than something that happened to you because of zoning laws, immigration settings and interest rates. But it’s not a wage. It’s not a return on effort. It’s mostly luck, timing, and a tax system that’s been generous to people who already had something to be generous with.

My daughter is a teenager. She’s not buying a house any time soon, obviously, but I do think about what the market will look like when she’s ready to try. If prices keep climbing at the rate they have, she’ll need either a inheritance, two incomes and no children for a decade, or a level of financial contortion that frankly shouldn’t be required to secure a two bedroom unit in Pakenham. I’d rather she inherit a fairer system than a bigger number on my estate.

The bit of the discussion that actually gave me pause, and I’ll admit this openly, was the argument that lower prices don’t help much if you’re locked out entirely, and that changes to capital gains settings might just push more money into owner-occupied housing as the last tax-free shelter standing, making the family home even more precious and the investment property market swing toward rentals instead. I don’t know if that plays out. Tax policy has a way of producing consequences nobody drew on the whiteboard. I’m sceptical of anyone, including economists at think tanks, who says they know exactly how this unwinds. Peter Tulip might be right that falling prices are simply affordability improving under a different name. He might also be missing something. Both things can be true at once, which is an uncomfortable place to sit but probably the honest one.

What I keep coming back to is a comment from someone who said, more or less, that he owns his house purely for shelter and doesn’t much care what happens to its value because he’ll either still be in it or dead. There’s something almost monastic about that attitude, and I don’t fully share it, I like the idea of leaving my daughter something. But the instinct underneath it, that a house is for living in first and an asset a distant second, feels like the correct order of priorities that we’ve spent twenty years getting backwards.

I don’t have a tidy ending for this one. Prices might fall a bit, or a lot, or barely at all, and politicians of every stripe will keep talking about “protecting the value of Australians’ biggest asset” because enough voters still believe that’s the job. But if my daughter’s generation ends up paying three times their income for a home instead of eight, I’ll take that over a bigger number on my own mortgage statement. That’s not nothing. It might even be the point.