Jemmy Is Off (with Gratuitous Thoughts)

jemmy 28 March 2008 93

[Ed. the discussion on this is great, and as housing is an issue that affects all Canberrans as either renters or owners i thought this was worth wider exposure.]

Jemmy is off, scuttling back to where he grew up, tail between his legs. The reason? Housing prices, pure and simple.

I moved here two years ago to semi-retire. I’d been visiting relatives here for years and knew about Canberra’s beautiful landscape, great facilities, easy lifestyle and, best of all, no crowds. I also knew housing was disproportionately expensive for a small country city, but figured I’d adjust. What I hadn’t counted on was housing prices in the ACT becoming the most expensive in the country, ahead of Sydney and Perth. This in a small population surrounded by land! 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.

You learn in 1st-Yr Politics about the “tyranny of the majority”, which is where a majority acts to further its interests at the expense of a minority. This is different from a government having a mandate from the voters; it is where, say, a majority of 60% acts against a minority of 40%. This is generally held to be bad government since a very high number of citizens are adversely affected.

In Australia, and especially in the ACT, we are seeing home owners form a tyranny of the majority against non-home owners. Home owners in the last 30 years have changed from wanting a home to wanting a home that is also an investment. 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, since it distorts the market and drives up demand and prices in that sector, to the point where homes are unaffordable. So, we are now starting to see signs of the social conflict that will continue for the next one or two decades. Since most home owners are older, 30s+, this will be the main inter-generational war for Australia from now on, and governments will struggle, really struggle, to find an equitable solution that is politically do-able.

I know that the home owners are reading this and thinking, “I’m ok, I’ve moved into the majority and am sitting sweet.” If you get nothing else, get this. People need somewhere to live. Either they own or they rent. Rents are tied to house prices (historically 10% of value, higher (much) in the ACT), so high house prices means high rent means fewer private renters and a higher proportion of public renters, who don’t pay market rent. The government, then, has to bear two costs: cost of providing public housing and the opportunity cost of not getting a market return from the asset. When governments bear costs, it simply means we pay through taxes or reduced funding in other areas. This must happen because people need somewhere to live, it’s not like other government services that can be cut back.

The correct answer is that tax breaks for home ownership are removed and that land is released for housing (supply increases to bring down prices). However, no government can implement that as they would be voted out by the 60% majority at the next election. I honestly don’t know the answer. I do know that more and more people will rely on public housing and that governments will end up bearing the cost through having to build more public housing. This is not good policy as both the ‘victims’ along with the ‘oppressors’ end up paying through their taxes, whereas it should be only the ‘oppressors’ (who as a group have benefited for decades) who should pay.


The main issue facing the ACT is the complete lack of scrutiny of government. This is because the public is quite laissez-faire: lifestyle is good, and the media is uncritical and inactive in stirring up local passion. We can’t blame a good lifestyle, so I sheet home the blame to the media. (Older RAers may remember my rant against the ABC when I first moved here.) Neither the CT or the ABC subject our politicians to any sort of competitive hard criticism. In fact, IMO, the Riot-ACT is the most politically critical forum in the ACT. The media is always trumpeting its status as the fourth estate, and it needs to be called to account for the privileges it enjoys from that.

Government policy-making and public administration in the ACT is the worst I have seen anywhere, and I worked in government in Perth during the Brian Bourke era! My gratuitous advice is that you become politically active. Demand better scrutiny by the media. Write or ring the ABC to complain after yet another soft interview by Alex Sloan in the Morning program. Demand from government that public administration be best practice. Demand well-designed roads. Demand funding into needed areas. Demand government focus on the ACT and stop posturing on the national stage. Demand that government get the basics right. Start acting like a local council for a start. Plus, a few more seats to allow in new talent would really help.

I’ll stop before I start frothing. (It’s only because I care.)

Jemmy thanks you, especially johnboy and Thumper and the admins for RA, and ex-pat Ralph who made such entertaining reading.

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93 Responses to Jemmy Is Off (with Gratuitous Thoughts)
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Thumper Thumper 11:29 am 28 Mar 08

I wish they weren’t building that Dunlopesque eyesore they are going to call West Macgregor.

It spoils my views when I go running along the creek.

Thumper Thumper 10:21 am 28 Mar 08

Um, where is Harrison?

Is that one of those ACT/ NSW border suburbs out towards Gundaroo?

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 10:15 am 28 Mar 08

“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!

m6.7 m6.7 8:20 am 28 Mar 08

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.

hax hax 6:31 pm 27 Mar 08

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.

Gungahlin Al Gungahlin Al 5:56 pm 27 Mar 08

“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)

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 5:16 pm 27 Mar 08

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.

ant ant 4:55 pm 27 Mar 08

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.

Deano Deano 4:40 pm 27 Mar 08

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.

dobaman dobaman 4:16 pm 27 Mar 08

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

“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).

sepi sepi 4:13 pm 27 Mar 08

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.

Deano Deano 3:20 pm 27 Mar 08

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 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.

S4anta S4anta 3:01 pm 27 Mar 08

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.

Special G Special G 2:55 pm 27 Mar 08

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.

Gungahlin Al Gungahlin Al 1:34 pm 27 Mar 08

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.


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.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 11:40 am 27 Mar 08

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.

Jazz Jazz 11:32 am 27 Mar 08

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.

sepi sepi 11:18 am 27 Mar 08

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

m6.7 m6.7 11:16 am 27 Mar 08

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.

ant ant 11:03 am 27 Mar 08

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.

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