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ACT Government Committed to Unaffordable Housing

By arescarti42 20 January 2014 44

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The good folk over at Macrobusiness have been doing an excellent job over the past week highlighting the ACT Government’s outrageously terrible and damaging policy when it comes to supplying land for new homes (see here, here, and here).

Despite strong population growth, stratospheric house prices, and the ACT Auditor General finding the ACT’s land release program woefully inadequate, the ACT Government announced last week that it would be making the problem even worse by scaling back its land release program. This comes a little more than a month after the limited land release at Lawson saw blocks selling for around $100k over the asking price, at an average of ~$500k per block.

Today the Canberra Times reported that the LDA has decided it will no longer be selling land to developers, giving the Government a complete monopoly on the supply of new blocks.

I personally find this behaviour by the ACT Government unconscionable. The fact of the matter is Canberra is a tiny city blessed with abundant land suitable for residential building, but the Government insists on strangling supply to boost their land sales revenue, putting secure shelter, a fundamental human right, out of reach for an increasingly large segment of the community.

If you care about bringing the Australian dream of home ownership back within reach, then I’d urge you to get in touch with Andrew Barr and your other local members, and let them know.


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ACT Government Committed to Unaffordable Housing
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steveu 8:51 pm 21 Jan 14

The council is so heavily dependant on rates and stamp duty for its very fiscal viability, it’s constantly trying to find new ways to drive up prices. With the fed govt clearly aiming to get rid of as many Canberra jobs as possible, it’s pretty obvious they are terrified of a mass exodus the likes of which we had in the 1996-97 when the fed govt cut apx 20,000 jobs.

Ryoma 5:37 pm 21 Jan 14

It’s been interesting reading the various comments on this topic, I have learnt things I didn’t know.

But I’d suggest there are some things we all need to think about:

Sooner or later, many of the Baby Boomers are going to reach an age where they need either home help/assisted living in a retirement village/full-time care in a nursing home. That might be 10 years away, it might be 20, but it is coming.

Tied up with this is how the ACT Government gets funded. While I don’t necessarily agree with all of the policy being put forward, as a community we face lower revenues and higher costs in relation to our aging population. At present, the ACT Government funds education, health, and other things like a State government, as well as the equivalent local council services. So we have two choices: either we find a way to lift the amount of revenue coming in, or we cut into those services.

The fact is, we don’t have much else we can tax beyond housing – there is not a big commercial or industrial base here, and that is unlikely to change. Our flow of economic activity is likewise not broad or deep enough to tax on a percentage basis sufficient to supply much revenue. Houses and land don’t move (excluding natural disasters) and so remain easy “targets” to be taxed.

There is also (often) an assumption that most people want to own houses. At present, I’d rather not – much of Canberra’s housing stock is run-down, poorly built, and tied to the 1970’s idea of driving everywhere. I rent in a location with decent public transport, and my housing is comfortable, safe, and warm, if a little on the small side.

But I am more concerned about investing for my own retirement, well away from property. Has anyone thought about what things will look like economically if (as a nation) we continue to borrow money for housing, rather than more productive things that generate ongoing employment?

If there is a housing crash (or even just a long-term stagnation), then I think many of us, both renters and home owners, will be in strife. If the price of a Baby Boomer’s investment property drops from the $500K it is worth on paper down to (say) $300K, that will be $200K less that person has for retirement. In turn, that makes it likely said person will run through their superannuation faster (and what does a large, even gradual sell-out of super fund holdings do to share prices?), and may reach the point where they depend solely on a pension….paid for by those who are still working.

On the other side of things, while renters may rejoice at getting their hands on said property at $300K, it’s still $300K that needs to be paid off. Given that many people are starting at later ages in terms of getting on the property ladder, can we afford to buy said house (including all of the interest needed) instead of saving that $300K towards our own retirements? And this is likely to occur at a time when taxes and charges will be going up, and there is less employment growth around, in both government and private industry.

I would like to own a house one day, but it’s really not that important to me. I’d prefer to ensure my finances are large and liquid enough to actually support myself and my family in my old age, rather than have to rely on what I imagine will be a pretty threadbare welfare system by that time.

howeph 3:29 pm 21 Jan 14

I’m not convinced by the argument that it is the supply of land/housing that has pushed prices up. I don’t see the data to support it.

If it was true that there was a lack of supply then we should have seen a rise in the number of occupants per dwelling. More people per the number of houses and flats must mean that on average each house or flat must have more people living in them (that or a massive jump in the number of homeless people).

The census doesn’t show this:

“Census data […] show there were 9,117,033 households in Australia on Census night. The average number of people living in a household was unchanged from the last Census in 2006, at 2.6 persons per household. […] In the 20 years since 1991, there has been little change in household size, halting the previous downward trend.”

Source: http://theconversation.com/australian-census-one-in-ten-live-alone-but-that-doesnt-mean-theyre-lonely-7674

From this I think that we can imply that in general, across Australia, supply has kept pace with the demand driven by population growth. That does not mean that in some location there hasn’t been a lack of supply and in others an oversupply. If anyone has any evidence showing how the ACT is different to the national average please share it.

If it is not a lack of supply that has driven up prices then it must be caused by an increase in demand. I think that this demand has come from the Baby Boomers buying investment properties, speculating on capital growth and in the process causing a housing bubble that has priced first home buyers out of the market.

Government (both Labor and Liberal) policies such as first home buyer grants and negative gearing have fueled this asset speculation and with it the current housing bubble.

Any way you look at it, house prices in Australia are overvalued and overdue for a correction. The only questions are when? And how hard? Good luck to the property investors among us. You’re going to need it.

justsomeaussie 3:28 pm 21 Jan 14

http://www.abc.net.au/news/2013-08-30/janda-home-ownership-and-future-aged-underclass/4924862

“With more than 90 per cent of this investment going into existing rather than newly built homes, the negative gearing subsidies simply pit cashed-up property investors against prospective first-home buyers for the same stock.”

Sooooo only 10% of negative geared properties are new properties. So much for creating the rental bonanza.

Should go back and re-read this:

http://www.macrobusiness.com.au/2014/01/saul-eslake-slams-australian-housing-policy/

dtc 3:00 pm 21 Jan 14

IrishPete said :

So what I am boiling this down to is, why treat “investment properties” differently because they are the second or third investment property rather than the first (owner-occupied)? My cynical nature tends to make me think it is to keep accountants and tax lawyers in jobs (just like the ridiculously complicated Tax Pack which motivates many taxpayers to employ an accountant – I’ve known people whose only income is a government benefit to do so.)

IP

You are looking at it the wrong way around – its not investment properties that are treated differently its owner occupied properties. Which all turns on the capital gains exemption on owner occupied properties – a fundamental principle of tax is that if the gains cannot be taxed then the losses/expenses cannot be taxed (gambling is another example – no tax on winnings but you cannot deduct losses).

Thus investment housing is actually treated in exactly the same was as any business/investment (shares, opening a cafe etc). Owner occupied housing is the one treated differently.

Some say its the biggest middle class ‘rort’ around – I remember when CGT came in (late 80s) and a number of people sold their investments and ploughed all their money into very large occupied houses, on the basis that the untaxed capital gain (with no deductions) would exceed the return on investment properties (with income and deductions). I dont know if that has proven to be correct.

dtc said :

We can make one fairly obvious assumption. That renters are very typically, non home owners. So the incentive shouldn’t be for existing home owners to buy more properties but to create a market where renters can transition into home owners.

Assuming that people want to be home owners.

dtc said :

In my first example, the simplest mechanism is to simply limit the number of properties of which NG can apply to. Thereby causing owners to sell their biggest losers back onto the market. Over time NG can be scaled more and more back so that the market gradually adjusts. It might look something like this in 2015 any individual can own 10 IPies and utilise NG. Each year after that the number of IP drops by one so after ten years we’ve removed NG but kept the market from fluctuating wildly. Of course the starting number sweet spot needs to be determined.owners to buy more properties but to create a market where renters can transition into home owners.

Of course, removing homes from the rental market forces renters to buy, or increases rent because there is less supply. You are potentially increasing demand by requiring people to go and buy. This may get ‘rid’ of NG but not high prices.

And the fundamental issue still remains – why should investments in a house be treated differently to investments in shares? NG doesnt miraculously make you money, it allows you to have a lower annual return than you would otherwise need (you are still losing income, hopefully made up with capital gains).

justsomeaussie 2:39 pm 21 Jan 14

Terra said :

Get out of here you ignoramous. You have no idea of our background so please keep your misconceptions to yourself. My partner has owned the investment property for years, and it’s certianly not because she was “let think she could afford it”. And our friends have been posted oversees for 3 years and have every intention of returning to the home they have also owned for years.

This situation is caused simply by too many developers building too many apartments in the same location too quickly.

Your assumptions are insulting.

I apologise if you are insulted. Developers are builing too many apartments not because they are ignoramousi but because there has been demand for them to build. That demand has come from a large number of people using financial vehicles like negative gearing as their way to enter the market.

So the problem of oversupply has occured because too many people created the demand, a demand that would be lessoned if negative gearing didn’t exist. As always artifically stimulating the market always ends in tears.

If you are relying on negatively gearing right now when the market is about to get worse you’ve got a lot of pain to come.

Maya123 12:49 pm 21 Jan 14

wildturkeycanoe said :

Nice way to make incorrect assumptions.
No I am not a first home buyer, I already have my first home, a modest 3 bedroom on 460sqm.
I mentioned Moncrieff because when we lived in Gungahlin years ago the area of Moncrieff looked beautiful, with its views toward the south and nice leafy trees [though it probably won’t be so leafy when it gets sud-divided]. It became a dream of ours to one day buy land there and build “our house”, the way we want it, with enough rooms for the kids and enough garage space to fit our cars and camping gear. It’s a dream that may never come true, but if the government is not releasing it for development like it is destined to in the master plan, there isn’t even a hope of that dream getting off the ground.
It is so nice of you to tell me not to wish for better things. Maybe we will stay in our modest 3 bedroom and watch our children fight over study space as they get older and we fill the yard with clutter instead of putting it away into a nice storage area. Apparently wanting nice things isn’t the right thing to do, we should all just accept what we have and be happy. Isn’t that sort of like Communism?
I will take it you work for the government, LDA media division, and are trying out your damage control measures to see if they are effective in calming down the citizens of Canberra who are in outrage at the strangle hold this government has, monopolizing their little territory for profit. Am I close, or is it a mistake to make assumptions based on one sentence a person has said?

Okay, mistake acknowledged, but you do get dramatic, eg. you stated, “Apparently wanting nice things isn’t the right thing to do, we should all just accept what we have and be happy. Isn’t that sort of like Communism?”
I thought you might be a first home buyer because many in the newer suburbs are. I never said that wanting a better home is wrong, but wanting it NOW can be questioned. I wanted a better home than my 99 square metre fibro house, but on my income (lower than the national average wage) that was not going to happen overnight. You stated, “I will take it you work for the government, LDA media division” No I don’t, so NOW who’s making incorrect assumptions? I saved, I lived very frugally by doing things like growing my own vegetables, riding my bicycle more than driving my car, wearing clothing out, etc and thirty years later I was able to build my dream home. A suggestion – I did this, after paying off my fibro box – was buy an old house as a rental property and rent it out. Several years later I paid off that loan, so then I had a block of land and only had to get a temporary loan for the house build; paid off when the old house was sold. With saving and planning a better house (and lifestyle) can be achieved. You shouldn’t expect it as a right though. Don’t get dramatic, plan and save and live a lifestyle now that will enable you your dream. It’s work, saving and lifestyle that will get you where you want to be, not some sort of idea of entitlement, which is how your comments are coming over as.
You said, “its views toward the south”
A suggestion; face your house to the north and build it to take advantage of the sun to heat it. My house does this and my winter electricity bill (My house is fully electric) was about $160. If you want the view to the south build a shady deck on the south side of the house where is summer you can sit and admire the views. Keep the windows to the south at a minimal, if any. Electricity is going to get a lot dearer.

Terra 12:24 pm 21 Jan 14

justsomeaussie said :

Terra said :

I dont know what to make of all this really. All I can do is speak to our own personal experiance, which goes against what has been said.

We own 1 x 2 bdrm investment property in Lyneham, and manage a townhouse in the same suburb for a friend. Neither are in the Axis complex. The massive overstock of apartments in that area is causing us serious grief. Rents have had to be dropped to subsistance level just to find a tenant, and without negative gearing we’d be stuffed.

Thank god someone is putting a stop to this sensless construction before we’re forced to sell for a big loss.

This is a perfect example of the bubble. A bubble artificially created by letting people think they can afford to invest in property when they can’t. It’s the reason NG has to go. Yes you’ll suffer some pain but you should have never been there in the first place..

Get out of here you ignoramous. You have no idea of our background so please keep your misconceptions to yourself. My partner has owned the investment property for years, and it’s certianly not because she was “let think she could afford it”. And our friends have been posted oversees for 3 years and have every intention of returning to the home they have also owned for years.

This situation is caused simply by too many developers building too many apartments in the same location too quickly.

Your assumptions are insulting.

justsomeaussie 12:22 pm 21 Jan 14

arescarti42 said :

Whichever way you look at, the cost of housing in Canberra (and Australia more generally) is extremely high, and is being kept that way by terrible government policy to the detriment of the young, the poor, and the otherwise disadvantaged.

Let’s just clarify something here. The government policy is merely a reflection of society. People elect individuals who create governments based on that the promise to never let their investment properties lose money.

So much of people’s money is tied up in investment properties that it’s a market that is “to big to fail”. Any sitting government can’t afford to let the housing market correct as they’ll lose at the next election. This mean more props incentives to keep the bubble going.

If you want cheap, affordable housing for first home buyers, the majority of Australians who have their money tied up in investment properties will lose out.

People in the end typically act in their own short term interests. They don’t give a stuff if the bubble bursts in 10,20,30 years as they hope to be dead/retired by then.

HiddenDragon 12:16 pm 21 Jan 14

Terra said :

I dont know what to make of all this really. All I can do is speak to our own personal experiance, which goes against what has been said.

We own 1 x 2 bdrm investment property in Lyneham, and manage a townhouse in the same suburb for a friend. Neither are in the Axis complex. The massive overstock of apartments in that area is causing us serious grief. Rents have had to be dropped to subsistance level just to find a tenant, and without negative gearing we’d be stuffed.

And has anyone seen what’s coming online in Bruce, let alone Lawson?

Thank god someone is putting a stop to this sensless construction before we’re forced to sell for a big loss.

History may be repeating itself, but on a larger scale – I believe that there were many hundreds of properties (predominantly units) left largely vacant in Canberra and Queanbeyan for some years into the late 70s and early 80s, as a result of overly optimistic investment decisions made in the Whitlam era. This time around, it will be interesting to see if market forces eventually win out in relation to prices as (so it seems) they are beginning to in relation to rents.

Two more links on the broader issues:

http://www.macrobusiness.com.au/2014/01/act-government-monopolises-land-supply/

http://www.macrobusiness.com.au/2014/01/saul-eslake-slams-australian-housing-policy/

arescarti42 12:04 pm 21 Jan 14

Terra said :

Thank god someone is putting a stop to this sensless construction before we’re forced to sell for a big loss.

For me it boils down to a question of what sort of society do we want to live in.

In the past Australia was a place where affordable home ownership was accessible to the great majority, and governments actively ran policies to ensure that homes could be bought by pretty much anyone with a full time job.

Whichever way you look at, the cost of housing in Canberra (and Australia more generally) is extremely high, and is being kept that way by terrible government policy to the detriment of the young, the poor, and the otherwise disadvantaged.

I’m strongly of the opinion that the Government should be doing everything it can to make sure that all members of the community have access to safe and affordable shelter, a fundamental human right, not backstopping the poor investment decisions of a privileged group at the expense of everyone else.

justsomeaussie 12:04 pm 21 Jan 14

Terra said :

I dont know what to make of all this really. All I can do is speak to our own personal experiance, which goes against what has been said.

We own 1 x 2 bdrm investment property in Lyneham, and manage a townhouse in the same suburb for a friend. Neither are in the Axis complex. The massive overstock of apartments in that area is causing us serious grief. Rents have had to be dropped to subsistance level just to find a tenant, and without negative gearing we’d be stuffed.

Thank god someone is putting a stop to this sensless construction before we’re forced to sell for a big loss.

This is a perfect example of the bubble. A bubble artificially created by letting people think they can afford to invest in property when they can’t. It’s the reason NG has to go. Yes you’ll suffer some pain but you should have never been there in the first place. The market has to correct at sometime because it cannot be sustained indefinitely.

To sympathise with you I have also had to reduce the rent on my IPies by $20 per week for the first 6 months and by $10 for the next six in the form of new leases.

Terra 11:41 am 21 Jan 14

I dont know what to make of all this really. All I can do is speak to our own personal experiance, which goes against what has been said.

We own 1 x 2 bdrm investment property in Lyneham, and manage a townhouse in the same suburb for a friend. Neither are in the Axis complex. The massive overstock of apartments in that area is causing us serious grief. Rents have had to be dropped to subsistance level just to find a tenant, and without negative gearing we’d be stuffed.

And has anyone seen what’s coming online in Bruce, let alone Lawson?

Thank god someone is putting a stop to this sensless construction before we’re forced to sell for a big loss.

IrishPete 11:38 am 21 Jan 14

maxblues said :

There is some kerfuffle on the airwaves this morning about the ACT government incorrectly charging stamp duty on houses as well as land and being tardy giving refunds. Does anyone know the details of this?

From the Canberra Times: “The Court of Appeal upheld Supreme Court Justice Hilary Penfold’s decision in March 2013 in favour of the couple – itself upholding an earlier Civil and Administrative Appeals Tribunal ruling – after the two federal public servants claimed the territory could only impose stamp duty on the land, valued at $80,000, not the whole $430,000 house-and-land package.

The decision meant a stamp duty bill of $16,800 was slashed to just $20 after the reduction left them eligible for a first-home buyer’s stamp duty concession.

Justice Penfold had upheld the tribunal’s view that the house should not be taxed because there were separate contracts, with separate parties, to buy the land and build the home.

Read more: http://www.canberratimes.com.au/act-news/act-government-loses-stamp-duty-case-20140120-31546.html#ixzz2qzLnVBhO

Looks to me like poorly drafted law to support the First Home Buyer’s Stamp Duty Concession, easily fixed but not retrospectively. Absolute thresholds will often cause problems like this – if there had been a stepped concession, there might not have been as much money in it for the buyers, and they may not have bothered challenging it.

IP

justsomeaussie 11:02 am 21 Jan 14

dtc said :

Demand is in part driven by investment properties and the incentives there, but down the line the higher the rent the more incentive to buy and hence the greater the demand and higher prices. So reducing the incentive to buy investment properties (eg NG) will result in increased rent which in turn increases demand because people now want to buy – if they can afford it. Whether a reduction in NG reduces prices or has no actual effect is subject to much debate. And if you cannot afford to buy, then you end up paying more rent.

So abolishing NG may have limited effect on pricing but increase rent for poorer people…

Economics requires you to look at more than just one thing, everything is connected.

I think your conclusions are a little pushed. You are treating the symptoms that NG has caused by saying we can’t remove NG.

We can make one fairly obvious assumption. That renters are very typically, non home owners. So the incentive shouldn’t be for existing home owners to buy more properties but to create a market where renters can transition into home owners.

Economics 101 teaches us that giving people money (increasing demand) with a limited supply only increases prices. So those FHB grants actually ends up in the pockets of the sellers as the market will just charge more now that it knows that buyers have the ability to pay more.

So the only way to treat the problem without causing the entire market to stagnate for 10 years (hurting everyone) is to create an opening where there are cheaper houses on the market of which there is a disincentive for them to be purchased as an investment property.

In my first example, the simplest mechanism is to simply limit the number of properties of which NG can apply to. Thereby causing owners to sell their biggest losers back onto the market. Over time NG can be scaled more and more back so that the market gradually adjusts. It might look something like this in 2015 any individual can own 10 IPies and utilise NG. Each year after that the number of IP drops by one so after ten years we’ve removed NG but kept the market from fluctuating wildly. Of course the starting number sweet spot needs to be determined.

The strangest thing I find is that those that have multiple (<10) NG IPies are of course against these proposals however they forget that they also will be eventually priced out of the market but those with far more capital and IP than they do.

IrishPete 10:55 am 21 Jan 14

johnboy said :

The value of the properties in ACT housing is billions in assets.

I think the point is that just as depreciation of an asset comes off the “bottom line”, appreciation (which land does, and to a lesser extent buildings do) adds to the bottom line. It would be interesting to run your own or your family’s budget like that.

IP

IrishPete 10:51 am 21 Jan 14

dtc said :

Economics requires you to look at more than just one thing, everything is connected.

Thanks for the explanation.

I wonder though how complete it is, as shares and savings accounts are somewhat different to housing and other businesses (e.g.a cafe or shop). There’s nothing concrete (pardon the pun) with shares or savings, and no maintenance costs, depreciation etc. They’re clearly conceptually a bit different to salaried income, but also a bit different to a traditional business.

Looking at NG for housing from another perspective – why not be allowed to run one’s owner-occupied home as a business? It is, after all, an investment, that adds (occasionally loses) value, but only if adequately maintained and re-equipped from time to time (i.e. parts of it depreciate just like a rental property). Charge yourself rent (income to the “business”) and offset that against interest, depreciation and maintenance, rates, body corporate fees, buildings insurance, and any other relevant costs (Land Tax does not apply). Obviously an owner-occupied home is currently treated differently for Capital Gains Tax purposes, but if it was treated the same as an investment property for the purposes of NG and CGT, , would the net benefit be in my favour or the ATO’s?

The applicable question might be “did I buy it as an investment or did I buy it as somewhere to live?”. I think for most of us the answer is the former, as we could have chosen to rent instead.

How does it work for renters who buy a house and rent it out rather than move into it?

So what I am boiling this down to is, why treat “investment properties” differently because they are the second or third investment property rather than the first (owner-occupied)? My cynical nature tends to make me think it is to keep accountants and tax lawyers in jobs (just like the ridiculously complicated Tax Pack which motivates many taxpayers to employ an accountant – I’ve known people whose only income is a government benefit to do so.)

IP

A_Cog 10:47 am 21 Jan 14

johnboy said :

The value of the properties in ACT housing is billions in assets.

But how would that destroy the budget? [Does the ACT Govt use the value of that housing as an asset to borrow against?]

maxblues 10:36 am 21 Jan 14

There is some kerfuffle on the airwaves this morning about the ACT government incorrectly charging stamp duty on houses as well as land and being tardy giving refunds. Does anyone know the details of this?

A_Cog 10:14 am 21 Jan 14

johnboy said :

Perhaps the biggest point is that thanks to the accounting treatment of public housing stocks any serious decrease in house prices would destroy the ACT Budget.

*interest piqued*

Can someone explain this?

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