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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ant ant 12:39 pm 31 Mar 08

I’m not going anywhere NEAR options! or futures. Or any of that stuff. That’s why I stayed in teh CSS. All teh marketing guff about PSS emphasised the giant lump sum you could get. Yuck. I’d be one of those poor oldies who invested it in some sure thing and lost the lot for sure. I can’t think of anything worse than having to work out how to invest all that money, it’d be a constant worry.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 12:34 pm 31 Mar 08

Options are very effective in generating $$ quickly, but be VERY SURE you know what you’re doing. It’s not a good area for exeprimentation (unless of course you are using a practice account).

ant ant 11:32 am 31 Mar 08

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.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 11:27 am 31 Mar 08

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!

ant ant 10:47 am 31 Mar 08

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.

Deano Deano 10:47 am 31 Mar 08

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.

Mælinar Mælinar 9:59 am 31 Mar 08

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

Thumper Thumper 9:30 am 31 Mar 08

I’m sick of hearing about bloody ‘working families’.

You’d think they were the only people in this country that actually did anything.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 9:23 am 31 Mar 08

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.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 9:14 am 31 Mar 08

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.

ant ant 12:35 am 31 Mar 08

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.

The Jas The Jas 4:49 pm 30 Mar 08

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.

ant ant 1:47 pm 30 Mar 08

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.

Mathman Mathman 1:08 pm 30 Mar 08

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)

ant ant 12:10 pm 30 Mar 08

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.

Meconium Meconium 11:41 am 30 Mar 08

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

ant ant 10:37 am 30 Mar 08

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.

Holden Caulfield Holden Caulfield 11:51 pm 29 Mar 08

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.

Mathman Mathman 10:41 pm 29 Mar 08

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.

Gungahlin Al Gungahlin Al 5:32 pm 29 Mar 08

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.

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