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 3:58 pm 29 Mar 08

Hey Jemmy, keep posting from where ever you may end up.

Cheers

ant ant 11:03 am 29 Mar 08

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.

Duke Duke 10:26 am 29 Mar 08

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

Thumper Thumper 10:18 am 29 Mar 08

Nemo,

Nothing against Dunlop, I just don’t like the America50s housing estate sort of thing that’s apparently going on.

Reminds me a bit of a kinks song, ‘Shangri-la’

All the house in the street have got a name
all the houses in the street that look the same
same chimney pots, same little cars, same window panes

Thumper Thumper 10:13 am 29 Mar 08

Samey same here Duke,

any mention of finance and my brain goes MIA

Duke Duke 9:28 am 29 Mar 08

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.

jube_V8Fairlane_235kw jube_V8Fairlane_235kw 9:21 am 29 Mar 08

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!

ant ant 9:15 am 29 Mar 08

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).

hax hax 1:51 am 29 Mar 08

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$)

Deano Deano 12:32 am 29 Mar 08

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.

CanberraResident CanberraResident 11:23 pm 28 Mar 08

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.

Nemo Nemo 9:38 pm 28 Mar 08

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.

ant ant 9:34 pm 28 Mar 08

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!

Thumper Thumper 8:03 pm 28 Mar 08

East Dunlop….

Which is much scarier

Growling Ferret Growling Ferret 7:57 pm 28 Mar 08

West MacGregor? West Upper Charnwood. Povvos.

sepi sepi 7:55 pm 28 Mar 08

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.

Thumper Thumper 7:55 pm 28 Mar 08

I’m crap with money as well. I earn it, I spend it, and some I keep.

And I agree with the above post.

Joe Canberran Joe Canberran 6:38 pm 28 Mar 08

Stuff all this housing chatter;

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

POOL ROOM!

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 5:10 pm 28 Mar 08

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.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 5:06 pm 28 Mar 08

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…

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