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

johnboy 12 October 2011 22

The Liberals’ Zed Seselja is hooting and hollering over new data he’s obtained showing the average first house now costs more than $400,000, with the median at $395,000.

“The average first home now costs more than $400,000, with the median price up to $395,000” Mr Seselja said.

“We also know the average home has around $190,000 in tax alone.

“These numbers are further evidence that first home buyers are suffering under the ACT Labor Government.

“First home buyers are being locked out of the housing market under ACT Labor due to restricted land supply, a broken planning system, poor infrastructure delivery, high taxes and a lack of competition.

“The Canberra Liberals believe the solutions to these problems should include a genuine land bank, which would have a pool of land ready to release, infrastructure improvements, taxation reform, streamlining the planning system and improving competition in the market.

“Since ACT Labor came to power, property rates and charges have increased by over 75 percent and rents have increased by 68 percent.

“Coupled with huge electricity and water bills, Canberrans are hurting financially more than ever before, and are finding it harder and harder to enter the housing market as a result.


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22 Responses to Average first home hits $400,000, half of it in tax
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Chop71 Chop71 5:01 pm 12 Oct 11

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.

Deref Deref 4:55 pm 12 Oct 11

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

Deref Deref 4:53 pm 12 Oct 11

I’ll be fascinated to see the breakdown.

Grail Grail 3:45 pm 12 Oct 11

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.

Grail Grail 3:12 pm 12 Oct 11

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.

Classified Classified 12:59 pm 12 Oct 11

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.

arescarti42 arescarti42 12:17 pm 12 Oct 11

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.

intaba intaba 12:02 pm 12 Oct 11

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.

Classified Classified 11:58 am 12 Oct 11

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!

creative_canberran creative_canberran 11:51 am 12 Oct 11

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.

Chop71 Chop71 11:50 am 12 Oct 11

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

Can’t blame Zed for that article.
… and it would be pretty close to the mark.

intaba intaba 11:49 am 12 Oct 11

So the Liberals are citing an almost two week old article with the headline of “Tax accounts for 35%…” to claim that 50% of the cost of a house is tax?

johnboy johnboy 11:35 am 12 Oct 11
arescarti42 arescarti42 11:11 am 12 Oct 11

Grail said :

All a land bank is going to achieve is to push the prices of houses higher, since new buyers will be able to buy their first homes for less money. This means when they sell they’ll have far higher equity in their existing home and thus more buying power.

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.

Grail said :

If the Liberals are serious about affordability they’ll look at affordability not list prices. One way of increasing affordability regardless of prices is to allow owners to claim tax deductions, the same way investors do. This will even out the playing field.

No, that does nothing to affordability and will push up prices. All tax deductions would do is allow people to afford bigger loans to bid up prices with. It would be a good way to piss away tax revenues though.

Grail said :

This will allow families to buy a house they can afford, make the most of negative gearing under Federal tax law, and gain the benefit of someone else paying the rent on the family home they plan to move into later.

Just thought I’d point out that negative gearing only works as an investment strategy if capital gains are massive. It’s a very good way to lose lots of money if prices are going no where or down, which they currently are.

Grail said :

Go back and look for that article on the RiotACT about the “tax secrets of the rich” book. It’s worth reading through and going to talk to your accountant about.

And that was a paid for advertisement, not an article.

Grail Grail 10:20 am 12 Oct 11

All a land bank is going to achieve is to push the prices of houses higher, since new buyers will be able to buy their first homes for less money. This means when they sell they’ll have far higher equity in their existing home and thus more buying power.

If the Liberals are serious about affordability they’ll look at affordability not list prices. One way of increasing affordability regardless of prices is to allow owners to claim tax deductions, the same way investors do. This will even out the playing field.

Alternately, set up an official “rent from your mates” education campaign to help home buyers establish “arms-length” deals with others to rent their properties while renting out the property being bought. This will allow families to buy a house they can afford, make the most of negative gearing under Federal tax law, and gain the benefit of someone else paying the rent on the family home they plan to move into later.

Go back and look for that article on the RiotACT about the “tax secrets of the rich” book. It’s worth reading through and going to talk to your accountant about.

arescarti42 arescarti42 10:00 am 12 Oct 11

Well stamp duty on a $400k house is only about $15k.

The only way I can see the $190k in tax making sense is if you’re talking about new houses and include the revenue that the government gets in selling the land as a “tax”. If you really wanted to, I guess you could also include GST on construction of the dwelling, but that’s going to be maybe $10-25k, and you can’t blame that on ACT Labor.

Of course the average first home (particularly in Canberra) is not necessarily a new build, so the land sales revenue “tax” theory doesn’t work.

johnboy johnboy 9:54 am 12 Oct 11

I’ve asked Zed’s lovely spinner how the number was reached, will let you know if I hear anything.

ps0104 ps0104 9:48 am 12 Oct 11

Agreed that a figure like $190k needs a further breakdown. I would bet that the majority of that is Fed taxes and Zed is playing the spin game.

Johnboy- any chance of putting the pressure on Zed for a breakdown?

colourful sydney racing identity colourful sydney racing identity 9:42 am 12 Oct 11

What makes up the $190,000 in taxes?

Morgan Morgan 9:41 am 12 Oct 11

Yes, while I dont neccessarily disagree with you Zed, we need a breakdown of that $190,000.

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