Any bigger concerns for you than housing affordability

johnboy 25 March 2012 31

The Property Council is letting everyone know about their latest surveys on liveability.

Overall, Canberrans also rated the performance of the ACT Government quite poorly on a number of aspects. For example, most believe the Government is doing a poor job in terms of:

• Making housing more affordable;
• Setting a fair level of taxation when people buy or sell properties;
• Supplying infrastructure to keep up with demand; and
• Managing urban growth.

Despite that apparently we’re number 2 for liveability.


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31 Responses to Any bigger concerns for you than housing affordability
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Bramina Bramina 6:26 pm 26 Mar 12

Deref said :

screaming banshee said :

The Property Council is letting everyone know about their latest surveys on liveability things that make their members money

Well-said, that man.

There was a good piece on the Drum about how organisations like the The Property Council have a vested interest in ensuring housing prices remain inflated.

And by random chance, the link is below.

http://www.abc.net.au/news/2012-03-20/janda-urban-myths/3900906

Deref Deref 5:25 pm 26 Mar 12

screaming banshee said :

The Property Council is letting everyone know about their latest surveys on liveability things that make their members money
Overall, Canberrans also rated the performance of the ACT Government quite poorly on a number of aspects. For example, most believe the Government is doing a poor job in terms of:
• Making housing more affordable, so more people are buying and selling producing income for property related industries
• Setting a fair level of taxation when people buy or sell properties, so more people are buying and selling producing income for property related industries
• Supplying infrastructure to keep up with demand, so more people are buying and selling producing income for property related industries
• Managing urban growth, so more people are buying and selling producing income for property related industries
Despite that apparently we’re number 2 for liveability.

Well-said, that man.

chilli chilli 5:16 pm 26 Mar 12

chilli said :

EvanJames said :

That’s the thing. The ageing baby boomers bought into the market back when housing WAS affordable. So the current norm of carrying hundreds of grand in debt on a home is an alien concept to them. Why would they unload property that they own outright? Unless they wanted to.

It’s amusing to read comments like houses in Turner are cheaper than soem apartments, as though that somehow makes them affordable. It doesn’t. Canberra doesn’t have a Bankstown or a Shire, and that’s why housing affordability is such a problem here. We have high/middle, and no lower.

My point was not that houses in Turner are affordable, it was that if some 2 bedroom apartments in Turner cost less than a house on 700sqm of land, then those apartments are pretty damn expensive. And expensive apartments aren’t going to improve affordability, no matter what developers say.

They will, however, make developers very rich.

Hmm, meant to say if the apartments cost MORE than a house …

chilli chilli 5:15 pm 26 Mar 12

EvanJames said :

That’s the thing. The ageing baby boomers bought into the market back when housing WAS affordable. So the current norm of carrying hundreds of grand in debt on a home is an alien concept to them. Why would they unload property that they own outright? Unless they wanted to.

It’s amusing to read comments like houses in Turner are cheaper than soem apartments, as though that somehow makes them affordable. It doesn’t. Canberra doesn’t have a Bankstown or a Shire, and that’s why housing affordability is such a problem here. We have high/middle, and no lower.

My point was not that houses in Turner are affordable, it was that if some 2 bedroom apartments in Turner cost less than a house on 700sqm of land, then those apartments are pretty damn expensive. And expensive apartments aren’t going to improve affordability, no matter what developers say.

They will, however, make developers very rich.

Malteser Malteser 4:36 pm 26 Mar 12

I think I’ll just stay out of the housing game forever, sounds way too confusing, expensive and stressful. Maybe I’ll go join that guy in a teepee on the lake.

Felix the Cat Felix the Cat 3:27 pm 26 Mar 12

http://www.smh.com.au/money/investing/the-direct-road-to-profit-20120324-1vr6y.html

“As shares come out of the doldrums, property seems to be going into them. The average price nationally has been gently dropping for about 18 months.

There were 311,447 ”for sale” signs in February, a jump of 23 per cent on a year ago, RP Data reports. Compared with household incomes or rental yields, property is over-valued. The question is how, and when, they’ll get back to normal.

Since it would take a leap in unemployment or interest rates to trigger a crash, it’s more likely inflation, a rising population and time will chip away at the overvaluation. In any case, unlike the fallout of property booms in the US and Europe, Australia has a shortage of housing, though perhaps not of listings.

”In the past prices have gone nowhere for an extended period of time,” the managing director of property investment consultancy Atchison Consultants, Ken Atchison, says. ”That’s the way the market’s corrected for being fully priced. So I’d expect very flat capital growth for a long time.”

He predicts annual returns from investment properties of 7 per cent to 8 per cent, over half of which will come from rent rises. So like the sharemarket, go for a reliable income and let values look after themselves.

Among the capital cities Sydney, where the shortage is most pronounced, is likely to be the best performer, but only parts of it. Specifically the outer west and south-west where prices are low, producing high rental yields. ”Investors should look at lower socio-economic areas where rents are 7 per cent or more gross,” the principal of Smart Property Adviser, Kevin Lee, says. Properties in Gosford, north of Sydney, are yielding almost 9 per cent, he says.

Since property prices aren’t likely to increase more than 2 per cent a year for the foreseeable future, forget negative gearing with an interest-only loan. Instead make sure the rental yield is more than the interest you’re paying.

”Negative gearing with an interest-only loan is a risky strategy,” he says. ”It’s hard to beat having a tenant pay off the loan for you. That’s how you get equity.”

Incidentally, the best yields are on units. Don’t overlook commercial property, either. Incredibly, listed property trusts are trading below the values of their properties.”

VYBerlinaV8_is_back VYBerlinaV8_is_back 1:35 pm 26 Mar 12

devils_advocate said :

Grail said :

You can’t bank on capital gains in the long term: at some point you’re going to have to sell your property, and that will most likely be during the time that the property value has dropped below the principal of your foolish “interest only” loan.

The only people who tell you that “houses always gain in value” are people selling you houses or house loans. Just keep in mind that the time you will need to sell the property will be when you can least afford to sell it.

If you’ve bought “the right” property (as suggested above) then there’s no real reason to ever sell (or, at least, to be forced to sell). Once the rent increases to the point where it covers the repayments, it is simply a useful shelter for any capital gains that are made because they’re not taxable until they’re realised. In fact, the capital gains tax regime provides a good argument for holding onto the investment property until you retire or take a year off work or something.

If you hold the property long enough it can be paid off anyway (by the rent), and then you have an asset that generates regular cashflow and grows in value over time. You can also borrow against the asset to buy others assets (like other property, shares, bonds, etc).

My plan is to never sell any of my properties.

devils_advocate devils_advocate 1:22 pm 26 Mar 12

Grail said :

You can’t bank on capital gains in the long term: at some point you’re going to have to sell your property, and that will most likely be during the time that the property value has dropped below the principal of your foolish “interest only” loan.

The only people who tell you that “houses always gain in value” are people selling you houses or house loans. Just keep in mind that the time you will need to sell the property will be when you can least afford to sell it.

If you’ve bought “the right” property (as suggested above) then there’s no real reason to ever sell (or, at least, to be forced to sell). Once the rent increases to the point where it covers the repayments, it is simply a useful shelter for any capital gains that are made because they’re not taxable until they’re realised. In fact, the capital gains tax regime provides a good argument for holding onto the investment property until you retire or take a year off work or something.

Grail Grail 12:35 pm 26 Mar 12

Compounding interest is no match for the power of having a second income paying off your debt. That’s where the real money is to be made in investment properties: the fact that you have someone else paying off that loan, so you can take out another loan to get a new property.

You can’t bank on capital gains in the long term: at some point you’re going to have to sell your property, and that will most likely be during the time that the property value has dropped below the principal of your foolish “interest only” loan.

The only people who tell you that “houses always gain in value” are people selling you houses or house loans. Just keep in mind that the time you will need to sell the property will be when you can least afford to sell it.

VYBerlinaV8_is_back VYBerlinaV8_is_back 11:16 am 26 Mar 12

Tetranitrate said :

VYBerlinaV8_is_back said :

Tetranitrate said :

Rental incomes have been steadily increasing

Yeah, steadily increasing with CPI… it really depends on the city though. Canberra is a landlords paradise (but the cost of capital is still well above even gross rental yields), Melbourne? ha ha. 4% vacancies, rents stagnant or falling across most of the city.

That’s exactly what makes it work, though. When I borrow for a property, the price is set at the time of settlement is locked in (interest rate changes can vary it up and down a bit), whereas everything else marches upward with inflation. Of course, the relationship is not linear, but the trend is there.

Shame the RBA has an inflation target of 2-3% though.

Don’t underestimate compounding, even when the rate is low. There are also several other factors.

Of course, you still have to buy the right property.

Tetranitrate Tetranitrate 11:05 am 26 Mar 12

VYBerlinaV8_is_back said :

Tetranitrate said :

Rental incomes have been steadily increasing

Yeah, steadily increasing with CPI… it really depends on the city though. Canberra is a landlords paradise (but the cost of capital is still well above even gross rental yields), Melbourne? ha ha. 4% vacancies, rents stagnant or falling across most of the city.

That’s exactly what makes it work, though. When I borrow for a property, the price is set at the time of settlement is locked in (interest rate changes can vary it up and down a bit), whereas everything else marches upward with inflation. Of course, the relationship is not linear, but the trend is there.

Shame the RBA has an inflation target of 2-3% though.

Tetranitrate Tetranitrate 11:02 am 26 Mar 12

Anyway the proof is in the pudding,
http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0
The bubble is bursting, property doesn’t ‘always go up’ anymore – and now the plebs have caught on.
The falls we’ve seen in the past year or so are just as bad as those seen in Japan during their lost lost decade.

The government isn’t in a position to bail the bubble out again like they did in 08/09 with those obscene grants, they’re utterly committed to a surplus, not just for domestic political purposes, but also because they’re effectively underwriting the big 4 banks.

The RBA is too autistic to even consider using inflation to engineer a softer landing, I mean hell, they’re too autistic to consider intervening in the forex market despite the absurd, carry-trade driven strength of the dollar. Even then though, close to zero interest rates elsewhere hasn’t succeeded in reflating bubbles once de-leveraging has already begun.

Nobody is coming to save the monster this time, at long long last this sorry saga is coming to it’s inevitable conclusion.

emd emd 10:50 am 26 Mar 12

There was a lovely little affordable housing display village built on the lawns at Parliament House using cardboard houses last Thursday, with people talking about the difficulty of finding affordable private rental housing, especially women with children to house as well as themselves. There is a growing homelessness problem among older women who have no superannuation, people with disabilities need suitable housing, and people with children need housing they can afford so they’re not cutting back on food, clothing and other necessities to pay high rent.

It suits the Property Council’s developer members to talk up the problems of capital gains tax when selling a house, but what about the one third of Australian households paying rent, mostly in the private market, and mostly for the long term? What are we doing to ensure there are plenty of houses coming onto the market at the low end of the price range? What are doing to increase the diversity of housing being developed so it’s not just high-end inner-city apartments?

VYBerlinaV8_is_back VYBerlinaV8_is_back 10:49 am 26 Mar 12

Tetranitrate said :

Rental incomes have been steadily increasing

Yeah, steadily increasing with CPI… it really depends on the city though. Canberra is a landlords paradise (but the cost of capital is still well above even gross rental yields), Melbourne? ha ha. 4% vacancies, rents stagnant or falling across most of the city.

That’s exactly what makes it work, though. When I borrow for a property, the price is set at the time of settlement is locked in (interest rate changes can vary it up and down a bit), whereas everything else marches upward with inflation. Of course, the relationship is not linear, but the trend is there.

Tetranitrate Tetranitrate 10:42 am 26 Mar 12

devils_advocate said :

Tetranitrate said :

I’d like to see how long all the negatively geared boomers stay in the market if capital gains are close to zero or negative for several years running (and Australia wide, we’ve had a year of sliding house prices so far now with no end in sight.).
At some point it’s going to sink in that they’re hemorrhaging cash, particularly as many of them approach retirement. Paying 7.5% for what, 5% GROSS yields at best? (in Canberra, nothing near for say, Melbourne) without any capital gains is just p*ssing away your money, those properties are bound to be trickling onto the market over the next few years which is only going to make things worse.

The suggestion that baby boomers are recieving little or no capital growth on their investments and will therefore sell out en masse, crashing the market, seems predicated on some presumption that they are buying into the market at current prices and current yeilds.

Those who bought even as late at 2005 would have seen significant capital growth. Many would have had their properties well before this.

However, the more important point is, most of these properties would be well and truly positively geared and earning good income. And as with all such property investments, the yeild curve becomes very steep at the end, once the property is paid off. Rental incomes have been steadily increasing and I think for baby boomers (and, indeed, sensible property investors generally) this would be the driver of what is a long-term investment decision, rather than any movements in the paper valuation.

You’ve deliberately misread what I posted.

I was *specifically* talking about negatively geared properties, of which there are about 1 and a quarter million Australia wide. You’ve deliberately tried to make out that I was talking about all boomers, which I was clearly not. And in case you’re that thick: by definition, a negatively geared investment property is not “mostly paid off”.

Rental incomes have been steadily increasing

Yeah, steadily increasing with CPI… it really depends on the city though. Canberra is a landlords paradise (but the cost of capital is still well above even gross rental yields), Melbourne? ha ha. 4% vacancies, rents stagnant or falling across most of the city.

VYBerlinaV8_is_back VYBerlinaV8_is_back 10:31 am 26 Mar 12

As was mentioned above, the market generally has already been in a downward cycle for probably 18 months now. Higher end property has fallen off significantly, and some areas have also had reductions. I don’t expect well located ACT properties priced under about $650k to fall at all, in fact some will still increase in value.

Also, there have been changes to the way Australians operate financially over the past 20 years. Although I expect property to not increase much over the next few years, nor do I expect falls beyond those created by inflation. In perhaps 6 or 7 years I’ll getting ready for another boom (although it probably won’t be as big as the one we’ve just had).

Also, many property investors (and they’re not just baby boomers) have held property for a long time, and are cashflow positive. Much of the ‘negative geared’ tax breaks come about due to depreciation which is not a real loss of cash. If you buy property today, yield may not be very good, but if you bought a few years or more ago, yield can be very good compared to the real cost of holding the property.

EvanJames EvanJames 10:28 am 26 Mar 12

That’s the thing. The ageing baby boomers bought into the market back when housing WAS affordable. So the current norm of carrying hundreds of grand in debt on a home is an alien concept to them. Why would they unload property that they own outright? Unless they wanted to.

It’s amusing to read comments like houses in Turner are cheaper than soem apartments, as though that somehow makes them affordable. It doesn’t. Canberra doesn’t have a Bankstown or a Shire, and that’s why housing affordability is such a problem here. We have high/middle, and no lower.

Chop71 Chop71 10:05 am 26 Mar 12

Stamp Duty is the killer. $20k + what a wasted tax.

devils_advocate devils_advocate 9:20 am 26 Mar 12

Tetranitrate said :

I’d like to see how long all the negatively geared boomers stay in the market if capital gains are close to zero or negative for several years running (and Australia wide, we’ve had a year of sliding house prices so far now with no end in sight.).
At some point it’s going to sink in that they’re hemorrhaging cash, particularly as many of them approach retirement. Paying 7.5% for what, 5% GROSS yields at best? (in Canberra, nothing near for say, Melbourne) without any capital gains is just p*ssing away your money, those properties are bound to be trickling onto the market over the next few years which is only going to make things worse.

The suggestion that baby boomers are recieving little or no capital growth on their investments and will therefore sell out en masse, crashing the market, seems predicated on some presumption that they are buying into the market at current prices and current yeilds.

Those who bought even as late at 2005 would have seen significant capital growth. Many would have had their properties well before this.

However, the more important point is, most of these properties would be well and truly positively geared and earning good income. And as with all such property investments, the yeild curve becomes very steep at the end, once the property is paid off. Rental incomes have been steadily increasing and I think for baby boomers (and, indeed, sensible property investors generally) this would be the driver of what is a long-term investment decision, rather than any movements in the paper valuation.

The Traineediplomat The Traineediplomat 8:56 am 26 Mar 12

Here is my molehill…tremble in it’s almighty shadow…

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