Dear Monark Investors,
It’s early spring.
No doubt there are still a few more icy mornings ahead.
But the sun is up earlier, and the prospect of longer days, footy finals, and the race-that-stops-a-nation combine to lift the mood.
Writing this occasional note has become one of our favourite activities. It’s an opportunity to communicate with every investor engaged in some way with Monark. It’s akin to a fireside chat with a large family where we feel comfortable being frank and transparent. We hope you enjoy the read…
A monumental misdiagnosis
Few subjects generate more emotion in Australia than property.
For generations, owning a home has been regarded as one of the foundations of financial security: buy a home, pay down the mortgage and, over time, build wealth.
But that dream has become increasingly difficult for younger and less affluent Australians to achieve.
For years, the political response has largely been to subsidise demand – helping first-home buyers enter an increasingly expensive market.
The 2026 Budget takes a different approach. It seeks to reduce investor demand by changing the tax treatment of residential property, with the stated objective of improving housing affordability.
An approach, we believe, that fails to correctly diagnose the problem.
A monumental misdiagnosis.
Australian housing isn’t expensive because it is an attractive investment. It is expensive because we have made it difficult and expensive to build. Investors have simply been responding to an appreciating asset.
The price went up first. And then investors arrived.
And having misdiagnosed the problem, government has failed to provide an appropriate solution.
Disincentivising investors is not the cure.
Cost push vs demand pull
One can only conclude from government’s response to housing affordability that they are of the view that it is excess demand (driven by investors) that is at the root of the affordability crisis.
Economists call this demand pull – prices rise because demand exceeds supply. Ergo, reduce demand and the price will fall.
Reducing demand is relatively easy. Change the tax system, change the rules, change the incentives, and investors respond.
The problem is that we need both affordable housing and more housing.
The lower prices we are seeing today – resulting from both higher interest rates and budget blues – may allow some buyers to enter the property market for the first time. But increasing supply is much harder.
You need land. Planning approval. Infrastructure. Builders. Tradespeople. Materials. Finance. And, ultimately, a buyer willing and able to pay enough for the finished product to make the whole exercise worthwhile.
If those inputs remain expensive, housing will not remain cheaper by government decree.
And supply will wither.
Developers need to deliver new housing at a margin that compensates them for their capital and risk. At the same time, the finished product needs to be affordable to the people who want to buy it.
That is the gap Australia needs to close.
How can we do this?
State governments need to make more land available and ensure infrastructure is delivered when and where housing is required – not simply where it happens to fit an existing infrastructure plan.
Costly regulation needs to be reviewed, simplified, reduced. The Productivity Commission estimates that regulation adds between $135,000 and $320,000 to the cost of an average new house.
Australia needs more people building houses, and a construction industry capable of building them more efficiently.
This last point deserves more attention than it gets.
The Productivity Commission estimates that Australia now builds about half as many homes per hour worked as it did 30 years ago.
Half.
That is not a housing-market problem.
It is a productivity problem.
Productivity: almost a swear word in today’s Australia
And now for the elephant in the room.
Perhaps the most important point is that housing affordability cannot be separated from the broader economy.
A prosperous country is one where people’s incomes grow faster than the cost of living.
That requires productivity.
It requires businesses to invest, entrepreneurs to take risks and capital to flow towards productive activity.
It requires competitive energy costs, a skilled workforce, sensible taxation and regulation that facilitates rather than frustrates investment.
In other words:
Housing affordability is ultimately an economic productivity problem.
If Australians become more productive and real incomes rise, housing becomes more affordable – even if nominal property prices don’t fall.
That is a much more constructive objective than simply trying to make an existing asset cheaper.
What does this mean for Monark?
We are disappointed with what seems to be a number of own goals coming out of Canberra and Spring Street.
In addition to our comments on productivity, governments’ debt-fuelled expenditure (both Federal and State) is contributing to higher inflation and therefore higher interest rates. Major infrastructure projects are attracting skilled trades away from private sector construction resulting in shortages and higher costs. And the impact of the tax changes proposed in the budget have created confusion and sapped confidence.
Ironically, this environment is positive for Monark.
We do our best work when the environment is both complex and lacking confidence. Simply, when confidence is high and tailwinds are strong, capital is plentiful and lending terms borrower-friendly.
Good deals are made in bad times, and bad deals are made in good times.
That doesn’t mean that we have been charging ahead writing cheques.
We only do deals we want to invest in – and then invite our investors to participate on the same terms. This is very different to the typical funds management business where investor money is deployed by specialists who earn fees.
Both our shareholders and executives have material investments in Monark funds. That means that we adopt an “owner’s eye” rather than a “manager’s eye” with every opportunity we make available to investors.
There are good deals to be done. But these are few and far between and require a substantial amount of due diligence work.
Our caution is reflected by the fact that our senior debt fund, Prime Credit, has been closed to new investment for almost a year, with repayments sufficient to fund new opportunities.
More recently, the launch of our latest subordinated debt fund, the High Yield Debt Fund – Series 5, attracted a substantial amount of interest. We limited the capital we accepted to $50m which meant a number of investors did not receive their full request.
This is a time for patience. For caution. For care. For considered investing.
These qualities are at the centre of Monark’s culture.
In conclusion
Whilst the current environment might be conducive to some of the work we do at Monark, we appreciate that from a broader perspective it’s not what we all want for Australia.
Our guidance to leadership and those with influence is to resist the temptation to solve a difficult structural problem with an easy political solution.
Housing affordability is a problem that has taken decades to develop.
It deserves solutions that will still make sense decades from now.
At Monark, we intend to continue approaching the property market in the same way we approach everything else: thoughtfully, conservatively and with a long-term perspective.
Thank you, as always, for your continued confidence in us.
Warm regards
Michael Kark
CEO & Co- Founder
Monark Property Partners