Average first home hits $400,000, half of it in tax

Grail said :

And of course all this talk about housing affordability entirely avoids any mention of securing water resources, expanding the sewage treatment works (it was designed to be expanded twice using the existing design), raising population density in existing residential areas, discouraging one-person-per-car commuting, or addressing the simple question of “how many people can this country sustain, given our natural resources?”

Perhaps there is no “housing affordability” issue. Perhaps there is instead a “too many people” issue.

In one of the least populated countries on the planet? Hell, we just managed to find one of the biggest iron ore deposits because a guy looked out the window of the plane… hello Fortescue, and thank you China.

Maybe if we all didn’t have to live on the east coast (and in cities) then prices would come down.

Whoops. That’ll teach me to read all the posts before responding. 🙁 Sorry.

I’ll be fascinated to see the breakdown.

And of course all this talk about housing affordability entirely avoids any mention of securing water resources, expanding the sewage treatment works (it was designed to be expanded twice using the existing design), raising population density in existing residential areas, discouraging one-person-per-car commuting, or addressing the simple question of “how many people can this country sustain, given our natural resources?”

Perhaps there is no “housing affordability” issue. Perhaps there is instead a “too many people” issue.

arescarti42 said :

No, it means they’ll have somewhat less equity. For example, If i buy a $200k home with a $30k deposit, I pay $70k off the loan before selling it for 10% more than I bought it, then I have $120k in equity. If i buy a $400k home with a $30k deposit, pay $70k off the loan before selling it for 10% more than I bought it, then I have $140k in equity.

How’d they get the loan for the more expensive property in the first place? How’d they pay the same amount off the higher loan in the same time? How did they get 10% more for the place when the price of real estate is stagnant or falling?

You raise more questions with your answers.

The monthly payments on a 25 year $200k loan at 7.5% will be $1478.

The monthly payments on a 25 year $400k loan at 7.5% will be $2956.

Thus after 10 years of paying off a $200k loan at the same rate as the $400k loan, I would have paid off an extra $177k of that $200k loan. In fact, I would have paid it off entirely and have cash to burn.

So your argument about the difference in equity raised between two properties of different values in the same timeframe is a little bit bogus.

However, since your argument relies on the value of the two houses rising by 10% over a given period of time, which one ends up with the potential buyer gaining more equity in their property: a home buyer who can only afford a $200k house, or a home buyer who (due to being able to claim interest on the mortgage as an income deduction) can afford the $400k house?

But since you then argue that house prices aren’t rising at all, perhaps your 10% capital gain argument is quite bogus. All we’re left with is a home buyer who can afford a $400k house thanks to being able to claim income deductions on the mortgage interest.

An alternative is to remove the ability of investors to claim income deductions due to interest on a mortgage. Either way, the investors are left with capital depreciation and rental income as buying power magnifiers, as advantages over home buyers.

arescarti42 said :

Classified said :

If we want improved affordability, the only way it will really happen in the longer term is with increased supply. The more money is chasing a particular asset, the more the price increases.

Exactly.

Classified said :

There’s also the issue of building costs for new stock. Tradies earn a lot more nowadays than they used to, and this has contributed also. Is this a problem? Not if you’re a tradie!

Certainly construction costs have risen and are a contributing factor, although I’d argue not the primary cause.

Agreed. The big run up in prices over the past decade has a lot more to do with credit availability than building costs.

Classified said :

If we want improved affordability, the only way it will really happen in the longer term is with increased supply. The more money is chasing a particular asset, the more the price increases.

Exactly.

Classified said :

There’s also the issue of building costs for new stock. Tradies earn a lot more nowadays than they used to, and this has contributed also. Is this a problem? Not if you’re a tradie!

Certainly construction costs have risen and are a contributing factor, although I’d argue not the primary cause.

creative_canberran said :

The report is by the Centre for International Economics so will have to look at that for more detail.

Commissioned by the Housing Industry Association, to give them something to present at the tax forum, which seemed to be a lot of self-interest groups telling the govt why their sepcial interest should get tax breaks.

If we want improved affordability, the only way it will really happen in the longer term is with increased supply. The more money is chasing a particular asset, the more the price increases.

There’s also the issue of building costs for new stock. Tradies earn a lot more nowadays than they used to, and this has contributed also. Is this a problem? Not if you’re a tradie!

johnboy said :

The Liberals are citing this CT article as their source:

http://www.canberratimes.com.au/news/local/news/general/tax-accounts-for-35pc-of-new-house-cost/2308905.aspx

The article says “high cost of new housing”, so I suppose when one factors in stamp + gst + land tax could get that fairly high, but it still seems excessive unless they’re also adding in the taxes applicable to financing and so on over a long period.
The report is by the Centre for International Economics so will have to look at that for more detail.