Jemmy Is Off (with Gratuitous Thoughts)

I need to learn all the terms and stuff. I rmeember reading about Options and some other thing to do with shares and oh my god it would have been clearer in Swahili! Futures, or soemting. It was fake money, whatever it was. Heck, GST is bad enough, times by 11? or divide by 11, or soemthing. I don’t get that, either.

Be sure to keep checking around on the web, ant, as there are plenty of people who post on investors forums that know heaps more about this stuff than I do!

Thanks VY, this whole thread has given me food for thought. Some very useful suggestions and options (I’m such a money dunce, I really just don’t get it). I think il’l get a very large post it note, and jot down all the ideas here, and start to research how they work. I don’t want to be in that bedsitter in Qbn, they look pretty awful.

VYBerlinaV8_the_one_they_all_copy said :

Hey Deano – great idea, but let me tell you what will happen.

Mr and Mrs Working Family buy into your company, and move into one of you houses. Mr and Mrs Working Family them sell their company shares to pay off credit card debts

It is quite straight forward to have restrictions on the shares that prevent them being transferred whilst the owner is living in the house. The initial share purchase can also be thought of as a very big bond – if you stop paying rent then your shares are forfeited back to the company to cover the arrears.

The bigger problem will be maintaining control of the company. Without a majority shareholder, any group of shareholders can take control and do anything they liked (within a few legal restrictions). Factions of shareholders would soon spring up – the Environmental faction wanting everyone’s house to be made carbon neutral, the Swimming Pool faction wanting the company to install a swimming pool in everyone’s house, the Lower Rent faction that wants to lower everyone’s rent, and so on.

Hence the term ‘working’. They are the only people in this country that actually do anything, its a pretty big group classifier…

Hey Deano – great idea, but let me tell you what will happen.

Mr and Mrs Working Family buy into your company, and move into one of you houses. Mr and Mrs Working Family them sell their company shares to pay off credit card debts, and go get a loan for a new 4WD. Costs rise, and they can’t make payments, and the credit cards are at limit again.

Your company evicts them due to failure to pay rent, to protect your and the other company shareholders from financial loss, and Today Tonight runs a story about ‘schemes’ developed by ‘greedy rich investors’ to milk Mr and Mrs Working Family. The local govt bans ‘schemes’ such as this one to ‘protect consumers’. You lose a bunch of time and money sorting out the legals.

Like I said, it’s actually a really good idea, but anything that alleviates cost pressures from Mr and Mrs Working Family inevitably results in additional consumption. Of course, it’s not ALL Mr and Mrs Working Family’s that do this – just most of them.

If you have no debt and a big deposit, then there’s no reason you shouldn’t be able to get a home loan, regardless of your age. You just need to think a bit creatively. My advice would be to find one of those properties that has 2 dwellings on the one block, live in one, and get someone to rent the other. Then, once you have a decent chunk of equity (eg 50%), sell out and move to a smaller place. Use your large equity chunk as a BIG deposit for the next property, meaning your repayments will be very small.

Alternatively, choose some high yielding shares that have franking credits attached and invest your deposit money there. Find a place to rent and use the returns from the shares to subsidise your rent payments. The shares will still grow over time, and the amount of yield will increase (in nominal terms, at least) also. However, the rent will grow also.

Realistically, you need to consider that you probably have 10-15 years of work still ahead of you, but with careful spending, and some sensible investment you should still be fairly comfortable by your mid 60s.

I have no debt, I have a big deposit, and I’ll be 50 not too soon. So getting a good start is a nice idea, but even nicer if you’re in your 20s. With all the above, there’s still no way I can buy in Canberra, as no one in their right mind would give me a mortgage. As I’m quite simply out of time to pay it off.

People like me just didn’t realise that prices would double and more. My pay has gone up 10 grand. Houses in Kambah that were 140k are now 450k. And that’s what’s happened.

I feel your pain Ant, however thats the way things are so you just have to work with it. I am in a similar situation, single (kind of) and hardworking , earning a decent salary but won’t be buying a Porsche anytime soon.

I’m buying later this year and I’ll be able to afford a smallish 2 bedder in Qbyn. It’s not my dream home by any means but it’s a start and I have to (and you) think down the track. Getting in the market is essential. There are home loans that don’t require a deposit these days if you don’t have one (with higher interest of course)and you can always get someone to rent out the second room to help with your repayments. At the end of the day you have to put your pride aside and realise it won’t be forever, but a start is a start!

Getting out of debt is the first most important step though which is what I’m doing at present. Good luck to you.

I think i’m earning under average earnings for ACT (but not Oz). Can never get that search function for prices to work on allhomes,and also it skews results by listing auction places as $0. Then there’s the investment units that you can’t actually live in (redeveloped hotels), which are in the $100k category.

Looking at specific low-prestige suburbs, I could find nothing under $300k, which required over $2k/month replayments, over 30 years.

I wish they’d express those average earnings in per annum.

A few more statistics:

Average monthly earnings after tax in ACT

Male $4600
Female $3800

Amount a major bank would lend you on a 30 year term along with the monthly repayments and the amount of annual disposable income remaining

Single male: $385,000 ($3173 per month repayments leaving $17,124pa)
Single female: $298,000 ($2459 per month repayments leaving $16,092pa)
Working dad stay at home mum two kids: $255,000 ($2102 per month repayments leaving $29,976pa)
Working couple no kids: $745,000 ($6143 per month repayments leaving $27,084pa)
Working couple two kids: $666,000 ($5489 per month repayments leaving $35,000pa)

Currently listings on allhomes:

$100,000 – $255,000: 88 listings (all units or apartments)
$100,000 – $298,000: 135 listings (still all units or apartments)
$250,000 – $385,000: > 500 listings (apartments and houses in ordinary suburbs)
$400,000 – $750,000: > 500 listings (houses in ordinary to good suburbs)

I’ll look into that, Meconium, but suspect that the fees charged to move money out of my institution to Members Equity might eat up that extra .6% of interest!

Maybe by the time I’ve saved a hefty lump, it’ll be enough to buy me a small room in an old peoples’ home.

In Brewarrina.

Hey Ant

Members Equity just started a new online-only savings account offering 7.5% – only marginally better than 6.9% but when you’re talking about that amount of money you might be better off transferring it into that. You just need another bank account in Australia to link it to (because you don’t get an ATM card with it or anything).

There’s a branch in Civic in the same building as Kate Lundy’s office if interested, but you can apply online too.

http://www.membersequitybank.com.au/rates_and_fees/savings_accounts.html

My internet savings account gives me 6.9% interest, and the useful thing is, the money’s not locked up anywhere. And it’s calculated daily, credited monthly. They have an 8% term deposit, but it’s for 9 months, and the interest is paid at term. Now I’m crap at this stuff, but I suspect the internet a/c is a better deal. (without doing any maths to confirm it of course).

I had a look on Allhomes last night, it gives you the monthly repayments on a 30 year mortgage for each property. On my pay, which apparently is over the Australian average, I could buy a Queanbeyan bedsitter. There is absolutely NOTHING in Canberra I could afford. And it’s highly unlikely I’ll be in the workforce for 30 more years (although I dunno, it’s looking like I might have to be). To say this is depressing is an understatement.

Just to add a bit of context, or an anecdote at least.

Mrs C and I tagged along to a couple of inner north auctions today. One was an older house renovated, quite nicely on the surface, but a more critical eye revealed that while the basics were pretty good, for the money expected, there was still a bit of work to do. There was one registered bidder and the house was passed in at $820K. A quick search on allhomes revealed this was $25K less than the vendor paid for the property around this time last year.

A couple of hours later the same agent had an “entry level” inner north residence for sale. It has great structure, by that I mean, a reasonable sized block with a good northerly aspect to the rear aspect, decent privacy from neighbours, pleasant open parkland opposite. The house itself was in good, but original condition, not pretty, but certainly not ugly if you follow me. Recent sales nearby indicated a price of around $630K would be the going rate. It seems as though things have tightened up a bit quite quickly in the last month or so and I thought $630 would be a great result for this place. And so it looked it would end up this way. Then in a vendor’s auction wet dream two bidders drove the price up to $670K and finally a new bidder entered the fray and got the property for $675K.

So, the house with all the work done to it (supposedly) struggled to sell, and the one with all the potential had lots of interest (12 reg bidders) and sold for what apears to be over the odds, albeit not by much at that sale price.

What do we learn from this? Good prices still seem achieveable so long as you can sell a dream, that is, leave room for improvement for the buyer to add their mark on the property. If you’re selling a vendor’s realised dream, then expect the buyers to be very critical.

And, back to the OP, I’m with pottsy here, if your income was in the top 1% I think you need to rephrase your comment from…

“Although my salary when I was working was in the top 1% of the workforce, I can’t afford to buy a house as a divorced single man in his 50s. There is something fundamentally wrong.”

…to…

“Although my salary when I was working was in the top 1% of the workforce, I can’t afford to buy a house *that suits my picture of what type of dwelling a person on my wage should be buying* as a divorced single man in his 50s. There is something fundamentally wrong *with my outlook*.”

I’ve no idea what sort of figures you’re talking in the top 1% of wage earners but I’m guessing it’s plenty more than the wage Mrs C and I are on and we’ve managed okay, albeit with well educated guesswork at when to time our relatively few (1999, 2003, 2004) real estate transactions.

I’ve just been looking at the housing price figures available at the ABS. Over the past 20 years in Canberra, housing prices have risen 221%, which is equivalent to 6.3% per annum. That’s including the recent housing boom. In 10 of those years the increase was
less than 5%, 6 of which had zero or negative changes.

Historically housing prices have briefly boomed (88/89,92,03/04) and then had long periods of stagnation.

In comparison, home building costs have increased 145%, a steady 4% pa for the same period.

Cheers Hax.

Yes the “1dt home owners grant” is missed a big chunk of the population now isn’t it. Should be broadened to include anyone who hasn’t owned a home from 2001 onwards, as anyone in that group (pick me) missed the whole house price explosion and has therefore been weel and truly stuck behind the 8-ball.

So with 60 additional people at the ballot, they didn’t sell everything hey? Well that backfired didn’t it. And meanwhile people who didn’t make the “preliminary” ballot didn’t know they missed out on the opportunity and are still waiting?

And what happens to not sold blocks is that they are available for sale “over the counter”. I’ll bet the others on the ballot list weren’t told, so the blocks went to whomever came on the door, thereby jumping the queue?

This was how I got my block. Our hopeless bank (Commonwealth) screwed up (again) and didn’t have the finance approved in time for us to participate in the particular ballot. Sat through tghe entire ballot watching block after block sold, and at the end the only one left was the exact one we wanted. Slapped down a $100 deposit and several weeks and several more bank screw-ups later, the block was ours.

Interestingly, this block was one of the few blocks running alomost bang on east-west and with the private open space at the rear rather than facing a road, which was ideal for a passive solar design. The house my wife and I designed for it was 5.5 stars off the plans and will exceed 6 stars when thermally efficient blinds are fitted to the windows, largely because of the ideal solar orientation. Says heaps that no-one else at the ballot seemed to twig to that…

I’m in the process of starting a consultancy to guide people through land selection, house design and builder liaison, including putting together block “wishlists” prior to going into ballots. But the utter uncertainty of even getting onto the list is killing off potential clients.

Ant: you are right – the LDA continues to sell of job-lots to builder/investorss, resulting in cookie-cutter streets of almost the same houses. From an energy efficiency perspective, it also kills off any ability for those houses to be better designed by caring owners, as they are invariably built to the lowest common denominator.

7.25 eh? I’ll go have a look at that. Hope they don’t charge fees and rubbish though. Hate fees. My internet account is completely fee-free. I move the money in and out via my normal account.

I just don’t understand finance and money and all these weird things. Even the intricacies of teh different ways interest compounds makes my head hurt and eyes go crossed.

Thumper – I think it’s a sign of a sound imagination!

Ant – you can do better than 6%. I just signed up for a dragon basic saver paying 7.25% compounded monthly interest. Any talk of finance makes my eyes glaze over, but i’m tryin, tryin real hard.

About 2 months ago I made a similar decision, and moved 5 weeks ago to Bundaberg. About half my decision was based on housing prices, though they are also on the rise here. But for comparison, I am renting a 5 bedroom dbl garage home on 1/2 an acre for $250 a week until my family and I buy in the next 6 months – wanted to be sure of our area before full commitment. The houses we have been looking at to buy are in the $215k range for similar to Canberra sized blocks with 3 beds, up to $300k for the type I am currently living in – very reasonble against Canberra pricing, and the weather is a huge improvement too!

It seems that letting developers buy up big, building clone-homes, hasn’t worked either. Outsourcing, it’s no good unless the gov’t is just looking to make money and let big business make lots of money too. The government has to re-involve itself in the bottem end of this market. And we do need a bottom end, someone building small, modest dwellings. (Like my shed).

Gungahlin Al said :

.. see my article on the people being turned away from ballots.

– nice article, spot on.

People are doing it tough, we’re not talking bottom of the market either.
(I dont even bother going in the ballots. Im a “first-home buyer” if there is such a thing any more)

Interestingly they didnt actually sell all of the land at that ballot; with such extreme demand it speaks volumes of the Quality / Price.

The ACT government should be ashamed and embarressed of itself, but they’re too busy pointing at everybody else (while raking in the profit$)

I been thinking about a solution to the housing affordability problem (instead of studying my commercial law text) and I’ve come up with a bit of an idea.

First of all I form a company, lets call it Deano’s Housing Service (DHS).

Someone like ant (above) wants to buy a house but they can’t cover the loan repayments on a typical home loan. Instead of ant buying the house, they enter into a contract whereby they pay DHS their deposit money in return for shares in DHS, DHS purchases the house and then rents it to them as a long term tenancy for a market rent.

Now, because DHS is a company with an indefinite life, it can borrow the money to buy the house on interest only terms with lower repayments. Any profits made from the market rents being greater than the interest costs are returned to the shareholders (ie ant) as dividends. As the value of the house increases the value of the shares in DHS increase also.

When ant decides its time to move, DHS sells the house and pays off the original loan. The profits from the sale are used to reduce DHS’s overall debt and hence increase future profits, dividends and share price. ant has the option of selling the shares back to DHS for their current valuation or keeping them as an ongoing investment.

The only thing that I can think of that would make the idea unfeasible is the ACT Government’s desire to suck the lifeblood out of residential investors through stamp duties and land tax.

Yep. Harrison is in Gungahlin; a stone’s throw from the Mitchell tip … ‘spensive land for something that looks like the outskirts of Kabul …

You can count the trees on one hand, and if the wind blows in the right direction, you get a whiff of the tip trucks doing their thing …

All the best Jemmy.

I read the plans for the West MacGregor subdivision – one of the headings was ‘Odour’. Apparently there are a number of ventilation stacks from the sewerage works running through it.

Thumper – Dunlop is a lovely suburb to live in.

Thanks for all that advice, peoples. Gonna have to look at it and try to work out what it all means! It used to be taht you could save away busily for a few years, and then end up with a small loan. Other way round now. But I’ll just keep saving busily, and see if any of these cunning schemes are doable. I’m eyeing off a Mordek house-shed right now!

West MacGregor? West Upper Charnwood. Povvos.

Ant – think about a managed share fund.

You don’t have to know anything at all about shares – they do all the work. It’s a bit like buying a house – you need a deposit, and then you take out a loan for the rest. So – 10-20 grand deposit, and you get a big loan with them. Then they invest in shares on your behalf, and either send you regular dividends every 3 months, or else they reinvest the profits in more shares.

Just pick a reputable one that has consistently made money – not one that makes big money then crashes. Several people I know have done well out of this. and you don’t need to know a thing about shares. And when you’re ready you just pay out the loan and cash in the profits. And somehow the loan part is even a tax deduction.

I wouldn’t put all your money into one though – I’d put half – I’m pretty cautious.

And I definitely wouldn’t get into investment property. It has been a disaster for us – I hate being a landlord, and it has cost us a fortune and a lot of stress.

Stuff all this housing chatter;

“the Riot-ACT is the most politically critical forum in the ACT”

POOL ROOM!

Oh, and if you aren’t looking to get into a house yourself, think about an investment property. Has a bit of an initial outlay, but can be used as a powerful asset well beyond the traditional buy, value increase, sell model that baby boomers carry on about. With 20% deposit and some careful buying you will not be using any of your own money to maintain the asset after only a year or 2.

Ant: With regard to the stock market, you need to have a very clear idea as to how long you are willing to wait to cash in an investment. I invest in the stock market regularly, but have a 15+ year timeframe before I expect to do anything with the $$.

If you are saving $1000 per month in an account that pays interest monthly, keep doing what you’re doing, and try to keep the saving going. You will find that developing the habit of living on less than you earn will reap financial benefits beyond what most investments could return anyway.

If you are looking to get a house, wait for another 6-12 months, then find something that you would consider modest (and can comfortably service at least 1.25 times the mortgage payments on). THEN, pay your extra savings into the home loan (use an offset account if you like), as this will reduce your future interest liability massively, and the benefit is not taxable because you don’t get the money into your pocket (but trade off against higher costs later).

Once you’ve managed that, start thinking about investing in shares and/or property. The key here is to buy in using regular amounts over the longer term. Eventually you will come to a point where you owe nothing on your home (because you reduced future liability through extra payments), and have an income stream from your investments that doesn’t require you to work. The sit back and survey your lifestyle options, which 99% of the population will never have…

argh, I don’t understand Maelinar’s term deposit scheme! In waht way is that better than just shoving my grands into that 6.?% account and getting monthly interest? I think, from memory, the interest in that is calculated daily, paid monthly.

what seems a really daunting mortgage payment now will seem easier and easier.

There is also no rule that says you must pay off your house before you die. The big house you buy today in a nice area won’t suit your needs in old age, so plan to sell it, settle up with the bank and retire on the capital gains profit. The advantage of buying over renting is that you get the capital gains instead of the landlord.

The ABC News has the following article in this afternoon’s bulletin:

“House prices throughout Australia are predicted to rise by up to 40 per cent over the next five years” with some economic analyst spouting on about how the lack of supply is driving up house prices.

The only problem is that 40% over five years equates to only 6.9% per annum, which is much less than the historical 7.5%pa housing has returned over the long term. The headline should have been “Don’t invest in real estate, you can do better elsewhere”.

With wages growth over time, what seems a really daunting mortgage payment now will seem easier and easier.

In some ways inflation is your friend.

and now rent a flat in Qbn along with all the other untouchables.

The age thing is a problem. Mum passed away last year and left me her Melbourne estate. After an 18 month legal battle with family members I now own it and a large mortgage with a 3o year sentence which means I will be 85 when it is all clear.

Found with my mothers will that Wills have the value of toilet paper and that the legal fraternity has no simple method to ensure succcession so I can leave said estate + Mortgage to my step son. They are only of value as long as no one contests. As soon as someone contests they are more or less null and void. I am not greedy. I gave up a good Govt position which was transferred to Canberra in 1988 to stay in Melbourne and look after mum. Will was written to reflect this but court takes no account of wills or cost of sacrifices one has incurred to preserve trhe estate.

I’m crap at money! I have looked around, and have been puzzled to find that many term deposits pay less than my 6.?% interest account (it’s a internet account linked to my credit union savings account, you have to move the money yourself). Teh interest gets credited to the internet account monthly. I think to get the princely rate of 6.5%, you have to put in 20K for 12 months or soemthing, so I can’t see why anyone would bother with that.

I always thought the share market was the zippy way to make mega-bucks fast, but it’s so complex I went the easy way. Depressing to learn that you only make mega-bucks if you can stick at it for years (and you have to read the really boring bits of the Fin Review, yuck).

Sadly, what would have been a useful deposit a few years back, is now still too small ($40k currently, I save $1000 per pay, so that’s every 2 weeks). And most mortgages are calculated on 30 years, and I will be in my 70s in 30 years! Taht’s why I’m scared. People like me have well and truly missed out, unless there’s some lower cost options in teh future. Build more Bega Flats…

Ant,

Money in the bank whick i normally wouldnt touch with a barge pole (I only keep as much there as i will need on very short notice) should do better than 6%.

Any financial advice on riotact should be taken with a very large grain of salt. If you dont have the patience to learn about share market investing (there are myriads of courses and books out there that will educate you on the subject) I would recommend finding yourself a financial advisor you feel comfortable with (i saw 4 before finding the one i liked) and get their advice on how to achieve your goals. Bear in mind though that higher returns generally come with commensurably higher risk.

If you are serious about term deposits (at $1,000/m you are), here’s a novel method I’ve seen implemented:

Step 1: put your first g on a 3 or 6 month t/d (quick win)
Step 2: every month thereafter, put that months deposit in a 12m t/d

Once you hit a rolling 12, you’ll be getting a payout every month. Rinse, double down (put your next g on top of the first + interest), repeat.

… actually I misread ant’s intentions and assumed he was saving for a house deposit.

In that case I’d advise hanging back for a couple of months until it’s clear we’ve hit the bottom. Then get in.

And follow Deano’s advice and read up on it before getting in.

I second Deano’s comment. I never buy anything unless its an item I have sought out myself. This policy includes charities.

If somebody is genuinely advertising something that piques my interest, I self-impose a 1 week no purchase clause. If I still want it after a week, then I’ll reconsider.

Often, fly by nighters cant work that cunning system out, or are a bit scared of me sitting for a week (read: hard sell), and clear out of dodge anyway, so it’s become a bit of a safety valve as well.

ant said :

Would more share markety investment things do better than that?

Not at the moment ant, +6% per year is better than -20% (or whatever) on the share market (which is still falling currently).

The share market’s more suited for those with money in it for the medium to long-term and it sounds like you will get to your goal sooner than that and need the cash for a deposit.

Probably a better option for you is term deposits (i.e. money locked up for a term (say 180 days) but a better rate than the bank account.

Lets try that again”

‘never buy an investment from someone who is keen to sell it to you’

Ant: 21 in Australia I think it was. BUT at census there were only about 320 residents, so hardly statistically valid. Lot more there now though – the burb is almost finished, and another 6 weeks should see our 6-star house done too.

Hax: see my article on the people being turned away from ballots.

If you’re getting 6% interest on a savings account then you’re miles ahead of the sharemarket at the moment!

Over the long term the sharemarket has returned around 16% where the long term is ten years or more. A market correction like the one we are having now can easily wipe out all of your gains for the past year or more.

If you are interested in the sharemarket I would suggest getting a copy of “Share Investing for Dummies” which is a good a place as any to start. If there is one maxim I have learnt with investing it is ‘never buy any investment from someone is keen to sell you’ – there’s usually more in it for them than for you.

VY (and anyone else who knows about such things), with regard to share market investmenty things, I’ve always been intrigued by that whole issue, but am not sure how to do it. Currently I’m pretending I’ve got a mortgage by trying to save $1000 every pay, and I stuff it into a savings account that gets (I think) 6.something % interest. Would more share markety investment things do better than that?

without wishing to be too rude, ‘high end’ and ‘harrison’ are not phrases that I have ever heard together before!

Isn’t Harrison on that list of top 10 ACT suburbs?! (I have no idea where it is, which means it’s probably in Gunghalin).

This (housing affordability) was one reason for me deciding to give Australia the flick.

Something is fundamentally wrong when homes selling for $700,000 to $1.3M are not regarded as “higher end” or “mid to upper” as I described them.

Harrison is indeed to the north Thumper – 4 minutes from Dickson. I’ll take my commute to the city over yours….
You’re not one of these Canberra people who regard a drive to Queanbeyan as an interstate journey, requiring packed lunch and a full tank are you?
🙂

“Try telling the 850+ people/couples/families that missed out at the last umpteen land ballots there is no supply shortage. The demand is there and growing, the supply is not and they are FAR behind in catching up. (unless you believe the propaganda)”

Exactly. We need to find a way to put pressure on govco to pull it’s finger out and release some damn land!

dobaman I greatly appreciate your efforts in correcting me, apparently without actually reading what I wrote.

I never said anything about whether or not tax incentives are responsible for housing prices & affordability. What I wrote merely covered some of the tax conditions that jemmy had mis-stated.

Try telling the 850+ people/couples/families that missed out at the last umpteen land ballots there is no supply shortage. The demand is there and growing, the supply is not and they are FAR behind in catching up. (unless you believe the propaganda)

House prices have hardly risen in REAL terms, whereas LAND has dramatically risen over the past few years – land that was 80k is now 250k or more.

Investors (many from interstate/overseas) are competing with first home buyers who have lived here their whole lives – and now miss out because they have no equity. There will always be someone with more money than you.

People in their 20’s are leaving Canberra in droves – you can only live with your parents for so long, especially if you want to start your own family.
Close teh skools and open up more retirement villages, Canberra will thrive.

“The old age thing is scary for those of us who …”

Ant: puts a new slant of your rating as “Veteran Rioter” ! 🙂
Sound investment advice from VY as always.

Thanks for reading it and your feedback Deano. I’d perhaps debate some of your points, but on there being a larger number of homes for sale, my guess is that it is becoming harder for higher end houses to achieve the prices people are hoping for, so they are staying on the market longer – noticed this around Harrison quite a bit. The extension of this being, I’d presume, prices have to come off the mid-upper end of the market soon. But I’d hazard a guess the others are still turning over.

Peter Martin had a very good oped piece (they usually *are* very good) over the weekend in which he dicussed the damage negative gearing and capital gains tax changes put through by the former govt have had in Canberra in particular. Worth digging out if you haven’t read it.

(PS: my beta tester premium status must have lapsed – can’t put a rating on this article of Jemmy’s)

It shouldn’t be that scary. If you are renting then your costs are lower than someone who has just taken on a mortgage (although over time they will become larger). What you need to do is rent at a level below your maximum capacity, and invest the difference. Put it in any low(ish) risk investment (like a shares fund) and let it grow. Even modest returns add up greatly when the power of compound interest is applied.

The old age thing is scary for those of us who don’t own our homes (and have no prospect of being able to). Teh old planning is predicated on people having a home paid off or nearly paid off at retirement. So living on that lesser income is do-able. Living on one’s old-age or superannuation pension while not owning one’s home is a scary, and unaffordable prospect.

The increase in residential investment over the last 30 years can also be explained by the population bulge of baby boomers having paid off their homes and then having spare cash to invest.

In the last few generations there has also been a realisation that the old age pension is not going to be adequate to support any sort of acceptable lifestyle. People are have been investing to provide for their old age.

m6.7 I would disagree. Tax concessions are a major factor in driving up house prices.

http://www.theage.com.au/news/in-depth/the-housing-crisis/2008/03/03/1204402367492.html

“Tax breaks for housing investors have lured more than a million Australians to invest in houses or flats, renting them at a loss, using the losses to reduce their tax (known as negative gearing), and then relying on capital gains, which are lightly taxed, to make the investment pay. Last year alone, housing investors borrowed $75 billion to buy existing houses, flats and units, up from $25 billion a decade ago and $2.5 billion 20 years ago. Investors’ share of home lending, excluding refinancing, has doubled from 20% in the 1980s to 40% over recent years. That is a huge change in the market, and much of it has been at the cost of first home buyers. Their share of new lending has shrunk from 19% to 14% in that time. People without deep pockets now have to keep renting rather than buy.”

What we have is a generation of boomers buying investment properties because of tax concessions and driving up prices for their kids and grandkids. Thanks Mum and Dad, I’ll remember that when it comes to taxes to fund your pension in a decade or so (after I’ve paid my HECS, cheers for that too).

DemoGRAphics are important though.

Canberra is growing up.

Where we once had the family home with a couple and their kids, we now have the oldies still rattling around in the big family home, and their grwn up kids trying to buy 2 or 3 homes of their own.

Gungahlin Al,

I would predict the outcome of your fixed price land proposal would be that people buying this artificially cheap land would end up building bigger houses just because they could now afford to do so. The net result would be no change in affordability.

Addressing the fairness issue is no easy task either. How do you compensate a buyer who elects to purchase an existing house over a new house on fixed price land? Your proposal would effectively force people to buy new houses.

I’m not totally convinced that a shortage of land is the real reason for the problem. A look at allhomes.com.au shows 2102 houses for sale in Canberra and Queanbeyan, roughly 1.6% of Canberra’s approximately 128,000 residences. If you work on the basis that the average home changes hands once every seven years and takes on average 6 weeks to sell, then the typical market in Canberra would have around 2,285 houses for sale at any one time.

Based on census figures, Canberra’s average population growth is around 1.2% or 3,900 people per year. Working on an average of 2.5 people per household this equates to a need for 1,500 new houses per year. The latest ABS dwelling approvals figures for the ACT show just over 2,100 new dwellings are being built per year.

So the figures just don’t show any significant shortage in actual houses, although I haven’t taken into account changing demographics.

House affordability then isn’t been driven by a shortage of supply.

Agreed. As for Canberrans not getting invlovled in politics… after a majority of the populus does it for a job 9 to 5, I think on a weekend and evenings a majority of Canberra just couldn’t give a shit. The only people working after hours should be dole bludging theives, the homeless and teenagers spitting in hamburgers.

Just looks like another Nyssaesq whige about how you can’t buy a house to me. With a political spin (whinge) on top of it.

All the best in the future Jemmy and keep throwing your 2c in here.

Jemmy’s case is evidence that the inadequate land supply is not just keeping people from coming to Canberra, but it is also driving people away.

The last 7 years have been make or break for people in Australia – all depending on whether you happened to own a house at the beginning of it or not. If you did, then you’re laughing. We didn’t, and breaking back into the market in Canberra of all places has been a knife edge proposition – and that was before the interest rates started their climb.

And it has been made all the more difficult for everyone by the ACT Government/LDA drip-feed of land supply, which I wrote about on the Gungahlin Community Council, after one of Peter Martin’s editorials in CT sparked a quite questionable response from the Chief Minister.

The issue is that the LDA determines the prices they set for land sales based on “independent valuations”. And of course the valuations keep going up, because demand exceeds supply so drastically – caused by – you guessed it – the LDA. So claims that “the market” is going up are flawed, because the gov’t IS the market. It’s either accidental or by design. Take your pick – either is as bad as the other.

IMHO

In my article I’ve proposed an approach that I believe (non-economist hat on) could work as a stop-gap until new land supply come to market, but without hurting existing owners. I’d be interested in feedback.

Housing prices are not the result of the current tax arrangements. Investors make up less than a third of the market, and rent their properties out, so the net available housing pool is unchanged, it’s just the names on the deeds that are different. Prices have risen for two reasons:
1) Supply is not keeping up with demand. If more land were released and appropriate infrastructure built (ie roads, town centres, etc), prices would tighten to the market demand. Of course, the number of people in the building industry would need to increase. But without better land release, it’s academic.
2) Expectations have risen massively over the past generation or so. Nowadays the mcmansion is common, and lots of people want to live in nice, inner city or otherwise convenient locations (and make excuses as to why). Demand drives prices up.

If you really want to solve the housing ‘crisis’, start handing out much more generous tax incentives to investors for building new properties on currently unbuilt land. Then get local councils (including the ACT govt) to stop jerking around with land release and get stuck into it. Let the market do the rest.

The reason the current housing ‘crisis’ will continue is simply because the govts (collectively) make heaps of $$ from land release and property development, and don’t want to relinquish this revenue stream. Factors aggravating the problem, primarily peoples’ aspirations and desires for bigger and better located property, are less easily addressed.

I’m not quite sure i agree with the cause of the problem although acknowledge that there aren’t many governments brave enough to risk the political backlash of addressing underlying issues.

I think what people often overlook when noting that the ACT has the highest rental prices in australia is that is in part driven by the very high cost of ownership in the ACT. Land tax and rates in particular are much higher than in other states and coupled with increased interest rates (particularly as its very easy to borrow 100% of a properties value) it is inevitable that the cost will be passed through to renters.

The first home owner grant has artificially boosted prices by 7,000 and 14,000 respecitvely on homes and also contributed in throwing natural market pricing out of whack.

IMO its a fairly simple supply and demand economic theory. Government intervention on either side only serves to unbalance it and require more intervention in the long run to keep things in balance.

Don’t forget the lack of accountability of ACT policing as well.

I’ll leave the emotional aspects of your arguments aside, because that’s a personal view, but some of your ‘facts’ are grossly inaccurate.

Home owners already get very significant tax breaks (no capital gains tax being the main one) in return for the recognition that the house and property is a home and not an asset or an investment. Yet owners demand it be an investment as well. You can’t have both tax breaks and investment income

And you don’t. CGT exemptions apply to your principal residence. An investment property will see you pay income tax, CGT, and state taxes like land tax & stamp duty.

Rents are tied to house prices (historically 10% of value, higher (much) in the ACT)

Take a look around. Rental yields are at best around 6% gross. Take out agent fees, expenses like insurance, and tax, and your yield is likely to be more like a rough 3.5-4%

I’m not making any argument about your social equity & housing bent, I don’t know the answer to that one. You’re way off the mark on some of the factors contributing to the issue though.

Very interesting stuff, Jemmy, and sad too. I agree with every word. It seems that the government doesn’t dare change the status quo as Homeowners won’t like it. I’m in a similar situation, on a normal single income, I simply can’t qualify for a mortgage to buy in this district. And yes, dealings with the ACT government are amazing and sometimes quite scary. There’s a closed-door unaccountability thing going on that seems incomprehensible.

Something’s got to give.