Real(i)ty bites - Canberra house prices fall seven per cent

Shame on me! Regurgitating the party line. Not so fast on the increased rents part. I present data (REIA I think) on median rental prices for your review. Scaremongering by the beneficiaries of negative gearing?

QUARTER SYD MEL BRI ADE PER CAN
1982-Mar NA 94 87 82 74 82
1982-Jun 130 108 90 76 78 84
1982-Sep 115 102 96 92 79 82
1982-Nov 108 96 103 85 75 85
1983-Mar 105 95 95 95 87 90
1983-Jun 116 103 108 100 81 NA
1983-Sep 109 106 95 107 79 NA
1983-Nov 125 110 94 99 79 117
1984-Mar 125 108 99 110 88 110
1984-Jun 132 116 97 108 88 130
1984-Sep 128 115 101 118 80 127
1984-Nov 131 117 102 111 102 145
1985-Mar 137 124 101 108 83 142
1985-Jun 160 119 97 114 89 140
1985-Sep 161 125 102 113 86 152
1985-Nov 163 123 109 114 85 144
1986-Mar 157 123 110 118 102 150
1986-Jun 152 129 110 120 136 152
1986-Sep 162 129 106 119 131 160
1986-Nov 181 136 104 119 142 149
1987-Mar 187 133 105 119 130 145
1987-Jun 252 136 128 125 123 153
1987-Sep 230 138 122 122 120 149
1987-Nov 215 139 123 125 124 158
1988-Mar 205 140 125 120 120 150
1988-Jun 223 143 128 123 130 152
1988-Sep 210 145 140 120 125 150
1988-Nov 220 140 140 125 135 153
1989-Mar 220 145 147 131 135 155
1989-Jun 200 150 150 130 135 155
1989-Sep 200 150 150 140 135 150
1989-Nov 200 160 150 140 138 155

…rents went up and house prices didn’t go down, and the government got shit scared and put negative gearing back. I suggest it wasn’t gone long enough for it to work through the system, not to mention vested interests determined to get it back. An earlier comment of yours might indicate one of the reasons preventing the 1985 legislation from working:

“There’s really only one thing you need to do if you want to improve affordability: improve supply. Hound govco to release more land. Lots more. Personally, it’s not in my interest for that to happen, but to me it’s the only viable solution. Of course, it will take a while for builders to catch up, but when that happens, house prices will return to a lower price point.”

I do believe the Federal Government controls tax laws, whilst state and local governments are responsible for land release. They are now and they were in 1985.

No federal government will ever have the guts to change this again. But if they did, lower house prices wouldn’t happen overnight, but they would happen.

If navtecv8’s justification for negative gearing the provision of public housing, then why isn’t negative gearing only applicable to newly built houses?

What’s interesting is what happened when labor removed negative gearing for a while in the late 80s…

navtecv8,

The policy aim of negative gearing may have been to subsidise public housing. I however, am concerned with the outcome. I belive that, all things being equal, house prices would be cheaper if negative gearing were not permitted. Furthermore, I believe the costs of negative gearing outweigh the benefits.

To begin, as you have said yourself:
“If we wern’t, most of us wouldn’t buy new property because the rental yield is nowhere near the interest payments and we’d all go broke.”
My take on this is that negative gearing as a long term strategy means that the viability of property as an investment is disconnected from rental yields. Thus, the price of the house does not matter, you can make a loss every year until you pay off the mortgage, all the while making tax deductions against your personal income, giving you more money to pay off the mortgage. Combine this with a growing credit supply and the gateway for speculation on capital gain is wide wide open. Remove negative gearing. Now as you rightly say, most property investments would be unviable. Without the tax deductions the rental yield becomes the important factor for whether the investment is viable. Now there are two possibilities for what would place a ceiling on house prices: what home owners are willing to pay, and what rental yields will permit. If rental yields are the determining factor, and I think they would be, then property investment must compete with other investment vehicles, and it may turn out that they are not that competetive, and demand from property investors would lessen further, all the while resulting in lower prices for people who want houses just to live in.

But that is not all, negative gearing results in other costs on our society and economy. Following the entry of non-bank lenders into the Australian market in the 1990s much of the funds lent as mortgages in Australia were borrowed from overseas. As identified above negative gearing promotes higher house prices, and thus higher mortgages. The interest paid on those mortgages gets sent back to the creditors overseas, exporting our wealth, impoverishing our nation. It is not a pathway to prosperity.

Furthermore, as a use of capital, property investing is quite unproductive. The higher house prices provided by negative gearing employ no more people than would the same houses sold at lower prices and rented in a positively geared fashion. Property investing as a whole creates very few jobs, and certainly does not make Australia a more productive or advanced nation. You dont build prosperity with expensive housing, all it does is make banks rich on money that could be used elsewhere. If the tax advantages provided to property investment were removed, more of that money may go into productive forms of investment. I would trade negative gearing for a flow-through share scheme any day.

“Capital Gains are not the be all and end all. So what if the value improves? it’s not the depreciating house asset but the land component in most cases and that’s as a result of buying in competitive areas. No harm done there.”

Asset speculation is asset speculation. Buying in competetive areas is asset speculation (why else would you care if the price went up?). By definition speculation is unproductive investment.

What really gets me, is that I as someone who pays their tax via income tax, I am effectively subsidising the mortgages of investors (via their tax deductions), which fund their unproductive investments, which are a tax on society.

How about: “If you want a picture of the future of the rental market, imagine a boot stamping on a human face, forever.”

With apologies to George Orwell.

All these quotes between JB & Jakez are so reminiscent of a particular scene out of Good Will Hunting. I’m sure you all know the one.

tylersmayhem said :

Oh good grief Jakez – save it for quotes.com! ;\

Well I was going to explain the invisible hand in my own words but….I suck.

Johnboy: Very good, I’m also aware of that Adam Smith quote. I think he was right to caution against big businesses colluding. This is why I so vehemently oppose the power of Government as this power finds itself in the hands of those very businesses.

Self regulation absolutely fails when businesses have the backing of Government. I don’t view Government chartered businesses, operating on legislation supporting subprime loans, with billions of dollars of indirect subsidies from the Government, a direct line of credit with the Treasury, and the implicit backing of risk by the US Federal Government, as good examples of the free market in action.

There is a reason people like Ron Paul, and various free market economists have been ringing the alarm bells for many many years on this issue.

jakez said :

“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” – Adam Smith, Wealth of Nations

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” – Also Adam Smith.

If you’d been paying attention to recent events Jakez you might have noticed the abject global failure of self-regulation.

tylersmayhem said :

One trend I’ve seen on this post is some particularly over-defensive views and comments by investors.

I think the term “defensive” is the key here, as in responding to some pretty daft comments. Let’s start throwing terms like unethical and illegal about your perfectly legitimate personal affairs and see what you reckon.

Interesting that clueless hasn’t still managed to come back and have another crack to support his/her original “unethical” claim.

Oh good grief Jakez – save it for quotes.com! ;\

wycx said :

Oh! The humility of that altruistic class of our society, the landlords! Their generosity, at taking their hard earned capital and putting it towards providing housing to provide for those that cannot afford to own their own homes.

Based on what I have experienced of human nature, I find myself offended by those pedalling the “property investors provide housing” line. You can use that as an argument, but dont expect any of us to believe that this is the reason you invest in property. You do it because it is profitable*.

“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” – Adam Smith, Wealth of Nations

tylersmayhem – I apologise to wycx as I was not particularly diplomatic there, but in my opinion his post was just a diatribe with no discussion value whatsoever. I enjoy meaningful discussion and have especially enjoyed our conversations, but his post came after what is 103 other posts which he clearly did not read or chose to ignore.

If you’re espousing inflammatory views about the motives or ethical position of a group of people, peppered with incorrect or vague generalisations, you can certainly expect a frosty reception, right? I haven’t sat here and cast aspersions on those who invest in shares, don’t invest, rent, don’t rent, etc. An argument is always close to conclusion when the participants begin to resort to insults. I prefer a discussion based on facts.

It would be fair to say that many investors think that non-investors don’t understand what they do (whether rightly or wrongly). Our explanations probably reflect this. That said, it is all about opinions here, and it would be kinda boring if everyone’s was the same.

As a final point, I’d like to honour you with the distinction of having made the most uninformed and arrogant post in the entire conversation. Congratulations!

I’d just like to say (and this is coming from me of all people), the this is a kind of unnecessary snipe man. I quite likes WYCX’s contribution, and it was a vastly contrasting view to yours NATECV. So what – it’s that the point of this site?

One trend I’ve seen on this post is some particularly over-defensive views and comments by investors.

Hi wycx

I already covered this earlier, but let’s rehash. Negative gearing is used to subsidise property investors for supplying rentals that would otherwise necessitate full public investment in housing. There’s a great, great difference between funding 30% of an investor’s losses or funding the entire purchase/build and maintenance of a property.

Capital Gains are not the be all and end all. So what if the value improves? it’s not the depreciating house asset but the land component in most cases and that’s as a result of buying in competitive areas. No harm done there.

The value that I derive from investment in property is that I’m able to leverage an asset which once paid off will provide me with an income stream. I don’t need nor want the money now and am happy to use my income to help pay off the asset over time with help from rental income, however eventually I will have a number of unencumbered properties which will assist me to be more flexible with my lifestyle in the future.

Illegal is a ridiculous term to describe the status of negative gearing in other countries. To say that it does not exist as a strategy would be far more salient and would also put things in context: many tax systems do not operate the way ours do. In the US for example, homeowners get tax relief on their primary residences even. Without considering the context of what is and is not taxed and why it would make sense to relieve that tax, you are comparing apples with oranges.

As a final point, I’d like to honour you with the distinction of having made the most uninformed and arrogant post in the entire conversation. Congratulations!

Oh! The humility of that altruistic class of our society, the landlords! Their generosity, at taking their hard earned capital and putting it towards providing housing to provide for those that cannot afford to own their own homes.

Based on what I have experienced of human nature, I find myself offended by those pedalling the “property investors provide housing” line. You can use that as an argument, but dont expect any of us to believe that this is the reason you invest in property. You do it because it is profitable*. Why is it profitable?

clueless70 provided us with some thoughts on the tennants situation, and natecv8 provided the other half of the equation: Negative gearing.

A significant proportion of property investors are not positively geared, that is to say, their rental income does not covers their mortgage payments, property maintainence etc. Many are negatively geared, renting properties at a loss to take advantage of Australia’s anachronistic tax laws (both negative gearing and capital gains related).

If negative gearing was taken away, most investment properties would be unviable as investments. So, if properties are loss-makers when it comes to renting, in what are they profitable? Capital gain. Many property investors are speculating on house prices rising to make a capital gain when they sell the house.

Let us contrast oil prices and house prices:

Oil prices went high this year as speculators moved in buying and selling contracts for oil they never held or had any intention of delivering, hoping to make a profit off rising oil prices. Meanwhile, the rest of us, the people that actually use the oil to achieve things, had to suffer the high prices that had nothing to do with demand for the specific properties of oil. Negatively geared property investors are just like the speculators. They dont want houses to live in. They cant make money being positively geared, they are just speculating on capital gain. Meanwhile, people who would like a house to live in have to suffer the inflated prices that have nothing to do with the demand from people who want houses to live in.

I do hope that none of the negatively geared landlords here were whinging about high petrol prices. That would be hypocritical.

I am not against property investment, just negatively geared property investment that is essentially capital gain speculation. If you are positively geared, I say good on you. Negative gearing for property investment is illegal in all countries bar some Commonwealth countries. Perhaps it is illegal for good reason.

*Only as long as house prices keep rising. See Tokyo real estate, 1989-present.

No need to guess ACT region sales price trends ->

http://www.allhomes.com.au/ah/ah0052?st=y

Just shy of 4% down on houses over 12 months…

VYBerlinaV8_the_one_they_all_copy said :

It’s actually a pleasant change to be able to have a proper debate without it descending to whingery.

Indeed. There were quite a few nuggets of wisdom there, and very little of the usual bickering about which generation has (or had) it tougher.

Blaming investors for inflating the price of real estate is quite misguided. The biggest cause of this inflation is lower lending standards. If all banks required a 20 per cent deposit and limited repayments to 30% of the borrower’s gross income (as is the case in France), prices would fall rapidly.

Investment property is just like any other class of investment. I’m surprised no-one here has mentioned investment properties within self-managed super funds, which surely must rate as the biggest tax minimisation exercise (ie: scam) ever: save for a deposit and pay off a property using salary sacrificed money (taxed at 15% max), and get a concessional tax rate on the rental income and any capital gains. Or, if you’re over sixty, the income and any capital gains are not taxed at all.

Increasing supply isn’t the answer to increasing affordability. There’s an oversupply of unsold homes on the market right now, whose owners are refusing to drop their asking prices to meet demand. But, if they want to sell, they will have to do so eventually. While building lots of new, lower-cost dwellings might seem like a good solution, all those dwellings would need roads, drainage, sewerage, and other infrastructure, which would probably be paid for by the tax payer. Either that, or capitalised into the sale price of the dwellings, which would make them less affordable. Why go to all the expense of providing this infrastructure when there are empty houses on the market that aren’t being sold? Sounds like unnecessary duplication to me.

Hear Hear.

I’m here to learn, share, debate, inform, be challenged, change.

It would be a better place here if more people were open to learning, or changing their mind even.

It’s actually a pleasant change to be able to have a proper debate without it descending to whingery.

I’ve learned a thing or two as part of this post. Cheers NateCV8 and the others. Some good points.

What a load of crap. I think it would be more accurate to say that most landlords will pay what the market can BARE!

I think we’re actually violent agreement here. Market rent IS what the market will bear. Many landlords (including myself on occasion) will charge below market rent, usually to reward and retain a good tenant. I have one such situtaion at the moment, where the tenant’s yearly increase is about half what the market would theoretically bear (because he’s looked after the property really well and always paid rent on time).

There’s really only one thing you need to do if you want to improve affordability: improve supply. Hound govco to release more land. Lots more. Personally, it’s not in my interest for that to happen, but to me it’s the only viable solution. Of course, it will take a while for builders to catch up, but when that happens, house prices will return to a lower price point.

Investment property earnings are taxed at the nominal rate for investors, which is more tax than a company pays on its profits in my (and most) case. We also pay capital gains tax on capital improvement in the property value and pay rates and land tax in the ACT to boot. Don’t get me started on the accuracy of the unimproved land value used to calculate said rates and taxes, it’s a rort.

Mind you, we do get the ability to negatively gear as any business is given the opportunity to carry their losses. It’s not special in any way except that negative gearing on property is able to follow the tax model of profits and be claimed against an investor’s income. If we wern’t, most of us wouldn’t buy new property because the rental yield is nowhere near the interest payments and we’d all go broke.

And then the Government (folks, the Government means the people, this is your tax dollars here) could fund all the property and utopia would prevail… or not.

PS. Are you aware that if I do not rent my loss making property at true market rates and attempt to claim negative gearing I can be pursued by the tax office? Do you think that promotes the lowering of rents?

tylersmayhem said :

… if people own more than one property (ie and investment property), it should be seen as a business (in essence exactly what it is) & extra income and investors be taxed accordingly.

I know there are some perks that smarty-pants can take advantage of, but fundamentally this is already the situation. If you personally own an investment property, and get net income from that, it is taxed as your personal income. If you invest in a company that invests in property, and it returns income to you, that is also taxed as your personal income. If you are already on the top marginal tax rate because of a high salaried job, that is the effective tax rate for this extra personal business income.

tylersmayhem said :

I’d like to work a second job, but the lack of tax free threshold makes it hardly worth the while.

The only issue that is different here is timing. As a PAYG taxpayer, you cannot change when you pay the tax, but in running an investment property, you have some choices. If you have more than one job, you need to do the sums to see what your final tax give will be – after your tax return – rather than just what you get in your pay packet each fortnight. If you are arguing against progressive taxation, well those arguments apply whether your income is from one salary, two salaries, or investments.

tylersmayhem said :

Investment properties avoid this type of income tax.

How do they avoid it? Do you mean they illegally fail to declare the income or the capital gain?

I assume you meant charge instead of pay

Quite right Jakez. It makes quite a difference getting that part right for my argument indeed.

As for negative gearing – this is one of the very valid points I had in mind, and I agree that it is quite the can or worms. But if you were to look into all options available to investors, tax breaks and offerings which are at times abused to boot, I think it’s would be fair to assume that investors properties are not being taxed at a higher rate in line with personal earnings, or against other properties held. I’d live for confirmation by a learned tax pro though.

tylersmayhem said :

I wonder where all the renters would live if there were no investment property owners?

Haven’t we already covered this – and haven’t I already said it’s a very good point?! Unfortunately it’s a little too late in the ACT property market for that scenario – not that it could ever happen.

Are we going to go along the ridiculous line of the suggestion of legislation to not allow investment properties again?

One point that comes to mind though is that if people own more than one property (ie and investment property), it should be seen as a business (in essence exactly what it is) & extra income and investors be taxed accordingly. I’d like to work a second job, but the lack of tax free threshold makes it hardly worth the while. Investment properties avoid this type of income tax, but benefit the investors financially – often big time.

Besides negative gearing (shall we open that can of worms?) I think investment properties are taxed like a business. It’s income just like anything else. Corporations have a tax rate however when profits are passed down to Australian investors, this tax rate is discounted from income tax in the form of a franking credits. That way investors pay their correct income tax rate instead of having company profits double taxed.

It’s been a while since I did tax law though so somebody drive a truck through what I just said if I’m wrong (I might be missing some other taxes as well that I can’t think of).

> Wow, I didn’t know that justbands and heavs were the Corsican Brothers.

Haha…well I’m at work, hopefully Heavs is about to get lucky! *waits*

Wow, I didn’t know that justbands and heavs were the Corsican Brothers.

“What a load of crap. I think it would be more accurate to say that most landlords will pay what the market can BARE!”

I assume you meant charge instead of pay, ignoring the Government policies that work against competition, isn’t charging what the market can bare the same as the market rate? The market rate is simply what the market will pay. I’m not sure what you are trying to say here.

Certainly the current equilibrium prices from the relationship between demand and supply in Canberra is too high in my opinion.

> Haven’t we already covered this

Maybe…sorry tylers, I’ve lost track of this thread.

I wonder where all the renters would live if there were no investment property owners?

Haven’t we already covered this – and haven’t I already said it’s a very good point?! Unfortunately it’s a little too late in the ACT property market for that scenario – not that it could ever happen.

Are we going to go along the ridiculous line of the suggestion of legislation to not allow investment properties again?

One point that comes to mind though is that if people own more than one property (ie and investment property), it should be seen as a business (in essence exactly what it is) & extra income and investors be taxed accordingly. I’d like to work a second job, but the lack of tax free threshold makes it hardly worth the while. Investment properties avoid this type of income tax, but benefit the investors financially – often big time.

The one question that Tyler or Clueless have not answered is where would the people who currently rent live if all investment properties were taken off the market?

I wonder where all the renters would live if there were no investment property owners?

Landlords will charge at or below market rent, or have empty investment properties.

What a load of crap. I think it would be more accurate to say that most landlords will pay what the market can BARE!

This is based on quite a lot of research I was doing when breaking my lease earlier in the year for unforeseen circumstances, and the landlord increased the rent beyond the “market rate” for the new tenants. It was in my interest to do so becuause if the landlord could not find “suitable” tenants by our move out date, we were quite rightly obliged to compensate the owner. The thing is, regardless of if it was above the market rate or not, the renting community out there are desperate. They have no choice but to find a way to cough up the extra. The lady who ended up renting the place was a single Mum with a little bub and was prepared to pay the rent that 2 of us were able to afford. This was apparently because she was finding it nearly impossible to find landlords prepared to rent out a property to a single mum with a baby. How f**king sad! I just hoipe my former landlord considers putting in SOME insulation for summer and winter, and possible replacing the “new curtains” with something other than $5 see through curtain liners. Hopefully the single mum hasn’t had a critically ill bub as a result of the landlord providing the bare minimum for the renters.

Many comments on this post suggest that I might not know about costs involved in renting out properties. I can assure you I do. My whole slant on this topic is a personal opinion and view that it’s a shame that so many people just want a “home”. I agree that there are many people out there who like the freedom of renting, and like that they don’t have to pay rates, repairs etc. I’ve used renting to my advantage for several years, and it’s allowed me the freedom I need at the time. It’s those stuck with paying inflated rental prices and trying to scrape enough cash together for a minimum deposit and buy into a market which is largely a forum of investors buying and selling from each other.

There are 2 strong sides of the story here, and there always will be. Some very interesting points – and hopefully each others points of view may enlighten one another and allow for a wider perspective.

Canberran landlords just must be more greedy than Nowra landlords. Personally, I blame the water.

What a few of the people bellyaching about high rents are missing is that landlords are only charging such rents because SOME PEOPLE ARE WILLING TO PAY THEM.

Exactly. Landlords will charge at or below market rent, or have empty investment properties. The real costs being borne by the landlord have very little to do with it.

You did say near Nowra though didn’t you Felix?

What a few of the people bellyaching about high rents are missing is that landlords are only charging such rents because SOME PEOPLE ARE WILLING TO PAY THEM. This is basic supply and demand. If no one was prepared to pay rents that high, rents would have to fall. Of course the vast majority of landlords are going to charge as high a rent as they can get away with. Always have, always will.

Thank you clueless70 for putting all my thoughts down so eloquently. I’d like to be able to explain things with more fact and detail – so again thank you and some excellent points.

It’s obviously not illegitimate because it is within the law. But it is unethical. There is no reason to buy more housing than you need to keep a roof over your head. Real property is a finite resource, so more housing for you, means less for others with equal need of shelter.

Absolute bollocks. What do you think happens when people build homes or develop older blocks? New stock is added to the market. Also, the fact that so many people want to rent indicates that owning investment property is entirely legitimate and ethical. Where the heck would all these people live otherwise? Many can’t afford to buy, and can’t afford to KEEP a place even if they could buy. The reason govco gives investors a tax break is because without them, there’d be a lot of people on the street. Govco doesn’t have the kind of money needed to house them all!

most landlords want more, more, MORE! Of the 4 people I know who have just or are about to renew their lease, the rent has jumped to around 10%. Hardly justifiable after all the interest rate reductions – but hardly surprising either.

If people stuck to the non-greedy and easy money making mind set, there would be plenty of property for everyone. It’s not an ideal world though. People want their millions now, want early retirement, at the cost of renters and those who cannot enter the housing market. An idealistic view I suppose, maybe I’m just old fashioned in that sense!?

I have owned an investment property (near Nowra) for ~3years and in that time the rent has not gone up one cent.

clueless70 said :

…It’s obviously not illegitimate because it is within the law. But it is unethical. There is no reason to buy more housing than you need to keep a roof over your head. Real property is a finite resource, so more housing for you, means less for others with equal need of shelter…

What a load of baloney!

Can you explain, properly this time, how owning more than one property is unethical? We don’t live in some dreamland utopia where everyone gets a turn.

Seeing as you seem to be more concerned with the simple provision of shelter, rather than home ownership per se, then why does the name on the title deed disturb you so greatly? If a punter can’t afford to buy a house and an investor fills the gap by providing the shelter, then how is this the unethical monster you allude to?

I accept that investor stock can affect prices, but its not as if investors get a discount when buying. They’re still paying market rates just like anyone else. For every investor that supposedly prices a potential home owner out of the market, there’s probably one walking away because the figures don’t add up from a pure investment point of view.

To use my own example of property investment, we bought off the plan, built the house new. There were plenty of other opportunities available in the same area for all these down trodden people I am supposedly forcing out of the market. Granted this was in 2003, but I didn’t see us pipping anyone at the post for the last house on offer. We saved maybe 20-30K by purchasing off the plan (going on prices from the time we paid our deposit to the time the property was complete). This opportunity was available to anyone else willing to show some foresight and take the same risk.

Our first tenant paid his bond, but nothing else for the next 8 weeks. It then took us a further 4 weeks to have him evicted, and a further 4 to have his bond released into our account. So, the bleeding heart stories work both ways, not all landlords are arseholes, and not all tenants are butter-wouldn’t-melt-in-their-mouth angels down on their luck.

After that experience we decided to seek a DHA lease. That required further works to our property to bring it up to DHA’s requirements, in addition to the repairs required from our dodgy tenant. This meant redrawing on almost all of our extra payments from our primary residence, while also covering the cost of the two mortgages.

I can tell you there weren’t too many nights out or luxuries in the Caulfield household at that time. It was bloody hard work.

As mentioned earlier we want to sell our investment property, largely to fund extensions/modernisation to our own home. Again, as noted previously, it’s not a great time to be selling, but as you can seem property investment is not a sunny walk in the park as the detractors would seem to believe. We’re still going to come out of this quite nicely, but I also put to you that we’ve reached that outcome by putting ourselves at considerable financial risk at various times throughout the 5 and half years we have owned a second house.

The missus and I are honest hard workers, like most people out there, be they evil landlord scum or perfect examples of human existence renters, and we just wanted to see if property investment would be a good way to assist securing our financial future. As it turns out we’re going to do the wrong thing from an investment view point and use our asset to fund home improvements to our primary residence.

At some stage in the future I dare say we’ll consider property investment again, but calling this unethical is the biggest load of horse shit I’ve read on this site. A there’s quite a bit of that around.

I’m not saying there aren’t unethical investors out there, but I’ve also given a first hand example of an unethical tenant. I would suggest the unethical characteristics of an individual’s personality existed well before they were either buying their first investment property, or renting their first property.

I reckon some people responding to this article need a big can of HTFU along with a dose of reality. But then, that’s nothing new for the innernet I guess, haha.

:p

‘Someone before even made the distinction between owning rental property and a “real business” as if buying bricks and mortar and leasing it out to someone whilst providing maintenance is some sort of illegitimate way to make money.’
It’s obviously not illegitimate because it is within the law. But it is unethical. There is no reason to buy more housing than you need to keep a roof over your head. Real property is a finite resource, so more housing for you, means less for others with equal need of shelter.

‘Boil any business down to its roots and you can make it sound opportunistic really.’
How true! It would be interesting to discuss why.

‘When did home ownership become a right?’
As no-one suggested. A roof over your head is a need, not a right. Don’t try to slide from the need for shelter to a purportedly soft-headed or self-indulgent ‘need’ for home ownership. A rented roof is the same as an owned roof, physically, perhaps, but the conditions of the lessor in Australia are tenuous and in these conditions the urge to own a house outright is usually rational. A lessor can be kicked out at any time for any reason. His rights as to the decoration of the walls and other uses of the property are limited. Landlords have little incentive to add value and improvements to their properties, and so generally don’t. It need not be the case that to rent property renders one a second-class citizen. A 30-year lease would satisfy the need for secure shelter almost as much as home ownership. But oddly there is no provision for this arrangement in the present housing ‘market’.

‘Not everyone can afford a house.’
How true! It would be interesting to discuss why.

‘The waiting lists for [government housing] are already years long.’
Do you think a change in goverment policy and funding could change this situation?

‘As for increasing the rent, why shouldn’t I charge market rates to tenants?’
Because that is irrational. The logic of ‘market rent’ is circular. It depends on the fiction that the lessor is a rational agent with freedom not to buy the good and with perfect information. However, the good involved is a necessity, and the lessor does not have the time or energy at his disposal to obtain perfect information, so that, for example, he could spend six months doing nothing but drive around Canberra finding the property affording him the least cost and greatest benefits. ‘Market rent’ is the rent people pay because of ‘demand’. But the demand is dependent on irrational profit-taking. Since it is bound by two factors – necessity and landlords’ greed – which are not in the control of the person actually ‘making the demand’, it is nothing the dictionary would call ‘demand’ at all. This kind of demand will not be reduced by suppliers’ profiteering. In fact it will increase with profiteering if population increases while the number of rental properties remains stable. The lessor, having no choice but to pay rent, is captive to the conditions that the landlords, collectively, apply to the pool of available rental properties. The demand for a roof over one’s head is not discretionary. You would have to be crazy to think ‘the market rate’ is determined by reasoned choices of consumers or is an explanation or justification of anything except someone somewhere’s greed.

‘[Buying a house] wasn’t easy then….isn’t easy now.’
False comparison. Average purchase cost of a house being 9-11 times greater than average household income: wasn’t then, is now.

(2 post nutbag) (2604) “The sooner we can forget about…a whole generation never being able to afford to buy a house, the better.”

This ‘whole generation’ has never had it so good. Low unemployment, high wages, easy finance.

Since we’re generalising, IMO every generation except the current one would say that many of this generation wants everything now, with no concept of waiting, saving or accepting second best.

VYBerlinaV8_the_one_they_all_copy said :

(V8)”To talk about this being ‘fair’, or ‘unfair’ is simply ridiculous. Some people choose to do what is required, at the right time, and some don’t. It’s very easy to bag sensible, conservative people who manage money well”

I agree. Capitalism has its faults, and its winners and losers -but what are the alternatives? Drab, Soviet-style apartment blocks? Government-controlled rents? We live in a society where MOST people can afford to buy some kind of house, if they are prepared to make the relevant sacrifices in other parts of their life.

It ain’t perfect, but I think its the best we’ve got.

Interesting thread – I just read through it all.

As one of those people who started small, saved like buggery and lived simply to get into my first home, I’d suggest that mindset has a lot more to do with whether you can ‘afford’ a house that what many people think. Most people I know who rent simply aren’t prepared to give up their lifestyles. Also, there is a window when you are young and starting work where you don’t really have many expenses, which is really the best time to save for a home. Of course, this is when many people choose to go overseas, buy nice cars, and socialise in expensive pubs and restaurants. Choices.

Frankly I agree with NateCV8’s points. There ARE ways to get into the market, but you have to be prepared to not run with the crowd. It’s also worth remembering that if investors weren’t allowed to hold property, the same renters would be competing for the same stock, except now they’d be stuck with buying, effectively narrowing their choices. I don’t believe the market would be any lower (especially given that most property investors are good at buying property at ‘cheap’ prices).

To talk about this being ‘fair’, or ‘unfair’ is simply ridiculous. Some people choose to do what is required, at the right time, and some don’t. It’s very easy to bag sensible, conservative people who manage money well as being boring and unhappy (which is actually rarely true) – in fact much easier than making the necessary sacrifices you need to in order to buy a house. Think too that the property market is cyclic, and now might be a better time to buy than last year or next year.

As an investor, my tenants are well looked after And knowing the basics of their circumstances, they are people that don’t seem to want to buy a house. Which is their choice.

A frequent explanation given for the house prices in many of the comments above is that there is a significant undersupply of housing in Australia. This is false. See here:
http://ozbubble.wordpress.com/2008/11/26/the-undersupply-myth/

I don’t see the problem – unless you’re planning to sell your house in Canberra and buy in a location where prices aren’t falling, or if you were unfortunate enough to buy a few weeks ago and also have a 90 or 100 per cent mortgage. I don’t understand the mentality where people regard their main house as actual wealth. It isn’t. It’s a roof over your head. Unless you would be happy to exchange your house for a smaller one and use the difference in value, your house doesn’t constitute a fortune no matter how exxy. My house has probably dropped 20 per cent in value this year (in an inner-city location) and I would only care if I was planning to sell AND buy somewhere that’s booming at the same time. e.g. the mining boom housing in the Top End vs Canberra house prices a couple of years ago would have presented a problem. Sydney house prices appear to be down just as much as Canberra prices.

tylersmayhem said :

When you see people with multiple properties jacking up rent prices in a climate when interest rates are dropping, taking more than their fair share of the property market while others stand by because they missed the boat, and simply want their own place to call home – it can become quite interesting to know these investors business.

You really believe interest is the *only* cost for an investment property? As for increasing the rent, why shouldn’t I charge market rates to tenants? OK, currently I’m renting one place to a couple of mates cheaply to help them accumulate enough savings to get into property of their own, but they’re friends. The other places have rents set by the agents, I’m paying them for advice and that’s the rate they recommend, go cry to them about current rents.

What’s my fair share of the property market anyway? And if I buy an existing house, or build houses on blocks of land I bought, how am I depriving other people from buying houses of their own? It’s a free market, and everyone else is free to bid on houses for sale, or buy house and land packages.

You could have done exactly what I did, saved up and bought a shitty one bedroom unit with a neighbour that you would have happily killed if it was possible to get away with it, put everything into paying off the mortgage, then saved up and sold the unit to buy a house, then paid off the mortgage on that. No double income, I did it all by myself on the wages of a small cog in the government machine. Then after saving enough I bought the first investment place, and went on from there. Exactly what’s unfair about that?

What you have is a first home-buyer competing with a number of investors.

People selling houses aren’t a charity service, so they sell their house for the highest price – the ‘investors’ already have equity etc. behind them so generally have access to more debt.

First home-buyers don’t have that equity to artificially bump up their borrowing power, and the price has gone beyond their means – and really it just seems like investors and buying/selling amongst each other with just a few high earners entering the market (at the lower end).

If you were in government and managed to pass a law that nobody could own an investment property and you gave them, say, 6 months to divest themselves of all second properties what do you think the outcome on the rental market would be?

Hang on…who said anything about introducing laws so nobody could own an investment property? I don’t recall making such a suggestion. I do recall offering my own view and angle on the topic. Talk about reading weird stuff into comments?!

Good idea though BTW!

tylersmayhem said :

Jakez: you are one on here who I don’t waste my time with. So your belly is sure to remain “unsparked”. I just don’t pretend to know stuff – it’s just purely my personal view based on my own, albeit narrow views.

I’m sorry tylersmayhem but words have meanings. If you can’t get your words right, how do you expect to be taken seriously. Your problem is that you DO pretend to know stuff.

Way to get pissy over different opinions on cinema.

but you won’t pay stamp duty

Just one last thing Natecv8 – is Stamp Duty scrpped now as well as the increased First Home Owners Grant?

I like your ideas in theory, but I think for most people it would just not work.

But I’ll go on agreeing to disagree 😉

Tyler –

If you were in government and managed to pass a law that nobody could own an investment property and you gave them, say, 6 months to divest themselves of all second properties what do you think the outcome on the rental market would be?

Not everyone can afford a house. You would be penalising people and putting them on the street because they don’t earn enough money to service even a moderate mortgage. The rental affordability crisis would be even worse because the supply of rental properties would drop to zero. The only providers would be government housing and the waiting lists for those are already years long.

tylersmayhem: I wholeheartedly agree with agreeing to disagree on this one, I do understand the point you’re making and at the same time respectfully disagree, but I have nothing more to add to the conversation

For those hoping to get into the market I also wish you luck. My advice would be to take advantage of the first home buyer’s grant to build a property, if you can afford it. It might take a little while to complete, but you won’t pay stamp duty and you’ll get the whole $21,000 payment.

Also, after the prescribed amount of time (1 year?) if you could hack doing it, move in with family and rent it out for a few years. If you live back in that house within 6 years, you won’t have to pay capital gains tax on any gain in property value over the time it was rented, and you’ll get a great amount of depreciation on your new property, plus interest payments not covered by rent can be negatively geared, which can be reinvested into your property or even better, can be adjusted with the tax office to lower your PAYG tax and therefore allow you some room to breathe (and live).

There’s many ways to tackle a problem folks.

When did home ownership become a right?

Jakez: you are one on here who I don’t waste my time with. So your belly is sure to remain “unsparked”. I just don’t pretend to know stuff – it’s just purely my personal view based on my own, albeit narrow views.

Natecv8: I suspect that you have not caught any of my points whatsoever. Perhaps I could have been more clear. Obviously you are not someone who has been in a situation any time lately when the idea of getting into the housing market is just a hopeless wish. When you see people with multiple properties jacking up rent prices in a climate when interest rates are dropping, taking more than their fair share of the property market while others stand by because they missed the boat, and simply want their own place to call home – it can become quite interesting to know these investors business.

I guess we will have to agree to disagree. My main point on this post was to wish those keen to get on the ladder good luck, and that it’s been a long time coming.

No, I’m explaining to you how arbitrary it is that you should care how many properties one owns, or that you should believe it is any of your business.

Tylersmayhem, it is absolutely ridiculous to suggest that the ACT housing market is a monopoly. It doesn’t even come close to an oligopoly. It is a monopolistic competitive market like most markets which is the most competitive situation you can have outside of a text book.

As for the whole rental properties existing equals why housing prices are high, well I’ll see whether your response (if there is one) is sufficient to spark the fire in my belly.

Why you’re against the idea of investors buying houses to rent out to people is beyond me. Some people own several cars.. I own one. I don’t care how many they own and I don’t see why it should matter how many properties I own either?

Hang on…are you comparing the housing shortage to the number of cars one might own?! Surely not!

has = have

I feel like this argument has reached a point where it’s stuck in a circle intended to bring the blame back on investors. Someone before even made the distinction between owning rental property and a “real business” as if buying bricks and mortar and leasing it out to someone whilst providing maintenance is some sort of illegitimate way to make money.

What about buying a car, painting it yellow, and using it to move drunk people around for money? Or building a heap of apartments, furnishing them and renting them out short-term? What about installing shelves, buying products wholesale, marking them up and selling them to people? I find it incredible that the vitriol against landlords has reached the stage where people cannot accept it as a legitimate form of business. Boil any business down to its roots and you can make it sound opportunistic really.

Investors wouldn’t be clamoring to buy an asset which was depreciating in value, I assure you. The point is that if the construction met demand then the prices would fall, there would be no “housing affordability problem” and it wouldn’t matter how many properties an investor bought because nobody would be holding them to account for rising prices, which wouldn’t exist.

Why you’re against the idea of investors buying houses to rent out to people is beyond me. Some people own several cars.. I own one. I don’t care how many they own and I don’t see why it should matter how many properties I own either?

As for supporting construction, I’m talking about financing loans for construction which don’t require outrageous interest payments, factor in the difficulties of the industry (including delays and modifications) and therefore don’t send the few builders still able to operate after this year’s previous incredible interest rate hikes sent many of them broke.

I’m also talking about investing in apprenticeships and education to ensure that there’s sufficient skilled labour to increase the production of dwellings.

I’m sure there’s a million other ways the construction industry could benefit from financial assistance the same way the financial and retail industries has throughout the recent “credit crunch”.

If we were able to invest in supporting construction, and we produced twice as many dwellings as we did previously, then prices would lower, investors could keep their properties and more people who wanted to could buy a house.

To use your quote “au contraire”. Investors would continue clamber over each other to buy up – pushing out needing home buyers. It’s still happening!

When you say “support construction” – how so? I’m not sure what you mean.

I must say that I didn’t consider the impact of property sale en mass and the effect it would have on renters. Good point. That said, I’m sure several renters would then jump at the chance to finally buy after renting to save as best they can.

To by-pass the agony of trying to save while renting in Canberra, I fast tracked it by moving to the UK and saving pounds. This allowed my wife and I a strong foothold to enter the market.

“But what do I know”

You should know that idly wishing for an end to capitalism in a free market isn’t an effective way of improving property prices?

Hi tylersmayhem,

What I was referring to was the housing affordability crisis, which is caused by lower housing stock. It doesn’t mean that no houses are on the market – au contraire, there’s plenty available, all the time.

The problem is that the overall demand is high and this is pushing prices up. Yeah, investors could sell a few houses off and there’d be more on the market, for the short time that it would take for them to be purchased by other people. It would cause prices to become somewhat lower, until the problem resurfaces again later on.

At the same time, a whole lot of families living in those rentals (as 54-11 pointed out) would now be homeless and require accomodation of their own. There’s no way that the sale of investment properties would lower the market enough to allow every renter to buy… some have circumstances which just don’t allow for it at all, and others choose not to buy.

Think about this for a counter-point. If we were able to invest in supporting construction, and we produced twice as many dwellings as we did previously, then prices would lower, investors could keep their properties and more people who wanted to could buy a house.

Why wouldn’t we do that? Because it’s easier just to blame the investors. That doesn’t cost us anything, we don’t need to contribute, and nothing ends up being done at the end of the day because the entire purpose of blaming investors is to shift the onus of doing something from those who have the ability to improve the situation onto investors, who are unlikely to sell their properties at loss or break-even point just because some people who don’t have properties think they should.

tylersmayhem said :

…Landlords are hardly providing a public service you know…

Well, our place is currently leased to DHA, so I guess you could say we are providing a public service. :p

What you blokes seem to be missing is that there is also a rental housing crisis. If all these rentals went on the market, where would the renters go?

It all comes down to supply and demand. Increase supply of houses for sale, then certainly prices would be constrained. Remove those properties from the rental market, rents would go higher, and these people would have no chance of ever saving for a deposit.

I’d go as far as to say if investors off loaded even 1/4 of proprieties tied up as rentals, plenty more property would be available to the masses.

This is pretty much the way I see things. If one in four of the rental properties in the ACT were put on sale tomorrow, then all the people who would love to be first home buyer would have more choice, and the flood would lower the price enough that many could afford it. Of course all those owners are kinda happy with what their asset is “worth” and therefore not really into the idea of selling. Especially since rents are pretty high in Canberra generally.

But what do I know.

….and whilst I won’t be drawn into political arguments about how all landlords are arseholes….

Actually, I think most landlords are probably nice enough, it was the real estate industry I was making generalisations about.

Not entirely true.. whilst there’s a shortage of property stock to buy thanks to slow construction, that’s not the investors’ fault.

I’m sorry Natecv: I’m still not getting my head around this. If for arguments sake 50 said people own 2 properties, that means there is 50 less propertied for those who are desperate to get a foot hold in the market. Times that by the real number of investors, and the real number of properties collectively owned – that has to have a significant impact?

To re-clarify my first post, I do own property, and I personally don’t feel like I’m missing out. But I do think that it’s about time that potential home owners should have a fairer go to get into the property market. To emphasise my point, I’d go as far as to say if investors off loaded even 1/4 of proprieties tied up as rentals, plenty more property would be available to the masses.

Hi tylersmayhem,

Not entirely true.. whilst there’s a shortage of property stock to buy thanks to slow construction, that’s not the investors’ fault. Laws of supply and demand however do state that we should expect to see the current situation continue at particularly high prices until either construction meets demand, or investors sell stock.

I would be banking on the investors selling, especially those approaching retirement, before I’d expect to see construction catch up. The current gap between housing starts and required stock is large and continually growing.

The point to underline, though, is that you percieve that you’re potentially missing out due to investors – that means that you’re one of the priviledged lot amongst us who can actually aspire to owning a house. There’s many others out there in less fortunate situations who rely on landlords to provide them with accomodation. I’m not saying we’re all mother theresa, and you need to understand that the choice to increase rents is an individual decision and may well have come after years of rents remaining stable. If the rents were priced so high that they were untenable, then there’d be more than a current sub-1% vacancy rate out there…

At the end of the day, there is nowhere near enough public housing to accomodate people who rely on rental stock. There’s a shortage of rental stock just as there is construction stock and the same effect is being seen – prices are rising due to demand. If all the investors who are prepared to take negative losses and wear great risk for many years to realise a profit did not exist in the market, you’d be paying for public housing in your tax, and it would cost you a lot lot more than we do. It is always more efficient for one person to manage the maintenance and administration of a couple of properties than for the government to do it across tens of thousands.

Final point – the No Job / No Income thing is just an illustration of exactly how destitute the borrower is – not only do they have No Job, which would immediately disqualify 99.5% of the population in Australia from obtaining finance, but they have no additional sources of income including investments, berevements, pensions, annuities, etc. They’re broke…

@Natecv8: Nice perspective, and some great points. But the topic of “there was literally a loan class called NINJA loans.. No Income, No Job or Assets” Doesn’t “No Income” = No Job” mean the same. I suppose it fitted into a fancy acronym for all intents and purposes though.

@SheepG: At least half the people I know own more than one property. Every additional property that someone owns, is one less available for someone to buy. this has created such a ridiculous monopoly within BOTH rental and property markets. It the usual top percentage of the population with wealth and control I suppose.

I don’t honestly believe you can ask with a straight face how individuals owning multiple properties is not adding to the problem of this monopoly of over priced rentals?! Landlords are hardly providing a public service you know. They have inadvertently created this environment where there is not enough property to go around for people to buy, so the other choice is to rent, and most landlords want more, more, MORE! Of the 4 people I know who have just or are about to renew their lease, the rent has jumped to around 10%. Hardly justifiable after all the interest rate reductions – but hardly surprising either.

If people stuck to the non-greedy and easy money making mind set, there would be plenty of property for everyone. It’s not an ideal world though. People want their millions now, want early retirement, at the cost of renters and those who cannot enter the housing market. An idealistic view I suppose, maybe I’m just old fashioned in that sense!?

tylersmayhem – You can currently lock in well-under 10% interest rates for 10 years. ANZ’s current 10-year rate is 7.99% and only going to go lower in the short term. Not only that, by the time you come off the 7.99% interest rate, your wage has increased but your loan balance has decreased.

I have a number of mortgages, and whilst I won’t be drawn into political arguments about how all landlords are arseholes, I can tell you that managing a mortgage is not difficult. I’ll be waiting for 5 year rates to drop down a bit further and I’ll be locking in – why not, I’ll be guaranteed cash flow positive for the next 5 years and won’t have to touch the loans in that time.

I spend a lot more time doing my hair in a year than I do worrying about mortgages or house prices. This same discussion has swirled around since the dawn of time and will continue to forever. People swing around wild numbers about 20% and 30% property value drops across Australia without realising that a good current day reference point, the US market, has dropped only 20% after three straight years of losses sparked from massive foreclosures thanks to risky loans.

I don’t care if people agree with me that it’s different here, but I can assure you it is. The collapse in the US was caused by incredibly risky loans made to people with no assets and no jobs (there was literally a loan class called NINJA loans.. No Income, No Job or Assets). In addition, the US mortgage holders held non-recourse loans, that is they could walk out at any time without any liability for the difference between the loan balance and asset value. Banks, not wanting to hold on to an asset class dropping in value, artificially accelerated the crisis by attempting to offload the assets at even more reduced prices, further reducing the market expectation.

None of the above applies in Australia. Don’t let me forget the fact that they had a massive debt fueled over-construction binge prior to the whole market collapse, whilst we have marked shortages being made worse by the current credit crisis.

Finally, because I’m firmly in rant mode here – the affordability issue. Yes, affordability is worsening, that’s why the assets are appreciating as they are. Here’s why: construction is slow, and not keeping pace. Inner city areas are now high density and built out, and people are seeking areas closer to the city. The population today is higher than it was 10 years ago when people were buying properties, and land is more scarce. People have become more competitive when it comes to buying inner city areas not just because they have lifestyle expectations (it’s no Gen Y thing, it’s just what’s portrayed in movies and popular culture these days) but also because we now realise that this land is scarce, that there’s competition for it and that if we don’t buy now we may miss out. Earlier generations never had to deal with this issue, certainly not to this extent.

In 1991, the population of Australia was 16.7 million. January last year, it was 20.7 million. That’s 4 million more potential competitors in the marketplace, and quite likely a large proportion of those are in capital cities. We don’t have the distribution that countries like the US have, which makes the competition for these areas much more heated.

Here’s the thing – your children won’t miss out, and hopefully theirs won’t too.. but at some point we have to accept that the issues that countries like Spain and Brazil face, where capital city residences are so expensive that there may be 8 people to a 2 bedroom unit, to avoid having to live in the poor villages on the outskirts of the city, are still possible in Australia were the population to grow dramatically. What are you going to do, complain your way through it? I can’t afford an office block in the CBD either but that’s no impediment to them being built and sold in a market populated by those who can afford it.

It’s quite simple – if you’re priced out of the market, you need to enter a market you can afford. If you can’t enter a capital city market you need to go regional. Who says any of us have the right to demand prime real estate when we chide Gen Y for wanting the same thing? Expecting the market to drop just so that we can get “what we deserve” is an appalling attitude and yet it seems to have been made okay by glorification in the media.

tylersmayhem said :

Not multiple investment properties which I believe is somewhat of a greedy mindset and has caused much of the housing price problems, housing shortages and ridiculous rental prices over the last 10 years or so.

How do you figure that? Not many people have investment property, very very few have three investment properties or more, how is that causing housing price problems, housing shortages and ridiculous rental rates? Especially as building investment properties would increase the properties available.

Dunno where you’re getting the ”I want the best house in the best location NOW!” spiel from though. Have you actually heard people saying this?

I want the best house in the best location. I would be crazy to desire anything less. In fact, by definition, a house I want is the best for me.

If I am fixated on the NOW! part of your sentence, it won’t do anything except make me grumpy, ’cause I will still have to save up, then pay it off over 25 years.

How is that whole thing different from 20 years ago?

I hear the RBA are still not excluding further interest rate drops in January.

Don’t forget that the lowering interest rates are just temporary. You’ll see them hit over 10% again in the next 10 years. An important consideration before taking on a huge load. You can afford it now…but can you afford it in years to come? I think several American families could answer that for you right now.

jakez said :

Housing prices vary widely depending on the market. Canberra is isolated and one of the most highly priced markets.

Very similar to Perth, which is specifically mentioned in the report.

grundy said :

Look at how many years worth of your salary it takes to buy a house now compared to 20-30 years ago.

My in-laws ( who are very sensible with their finances ) pointed out that when they built their first house, the home loan was as little as 3-4 times the fathers annual income.
These days, if I was to buy much smaller house in the same town, it would cost closer to 10-12 times my annual income!

I agree

And 3-4 times the fathers annual income – these days that will barely buy you an empty block of dirt (a small one at that).

Also, people saying to scrimp and save and not expect as much – the problem is you either earn enough annual combined income.. or you don’t. Plus the banks wants a 20% deposit.

> You might like to consider the different employment environment that exists today

Exactly the same as when I first bought a house…although wages are higher now. 😉

You might like to consider the different employment environment that exists today, as another reason, young people feel it is hard to enter the property market. Changing jobs/careers, contract work, high stress work environments, all tend to make people nervous about paying a mortgage for twenty years.

Jim Jones said :

justbands said :

> Caf actually presented data, which has been comprehensively ignored in favour of ‘in my day we did it tough’ anecdotes.

Pfft. We live in Canberra, comprehensively ignored in the data Caf presented. Different market, different wages, different.

I’m sorry. I thought Canberra was in Australia. Obviously we live in some sort of magically walled off free-trade zone, thus housing prices and wages in Canberra bear no relation to the rest of the country.

Housing prices vary widely depending on the market. Canberra is isolated and one of the most highly priced markets.

> Dunno where you’re getting the ”I want the best house in the best location NOW!” spiel from though. Have you actually heard people saying this?

My words those ones…but I have heard along those lines from people I know looking to buy their first house. Perhaps not phrased as “best house, best location”, but certainly “I’m not going to live way out there!”.

Fair point re: $14K…although I’m not sure that it’s really done that..perhaps it has, I don’t know. Prices have dropped recently, the $14K is still available.

Some salient points, justbands.

Dunno where you’re getting the ”I want the best house in the best location NOW!” spiel from though. Have you actually heard people saying this?

I suspect it’s a media beat up along the “Gen Y are selfish” lines. The younger people I know who are involved with property are either (a) living at home and saving for a deposit, or (b) living in tiny apartments/houses in the styx.

The $14k gift from the government doesn’t do much except for artificially raising the prices of houses by around $14k. It doesn’t do anything regards assisting housing affordability.

OK, Jim Jones….I’ll read the report in full.

“Most of the increase in real house prices occurred in two episodes, in the late 1980s boom and the subsequent boom in the late 1990s and into this decade”

As mentioned, I first entered the market in 1991….smack bang in the middle of the period of MOST OF THE INCREASE. Like I keep saying, wasn’t easy then..isn’t easy now.

Graph 6 highlights that in 1991 real gross household income was significally lower after loan repayments than it is now. Wasn’t easy then….isn’t easy now.

The report also suggests that the better the location, the sharper the increase…another of my points (“I want the best house in the best location NOW!”). Buy further out & it’s more affordable…still.

& where was our $14K gift from the Government? Didn’t exist.

justbands said :

> I’m sorry. I thought Canberra was in Australia.

It is in Australia…but that report specifically deals with prices in Sydney, Melbourne, Perth, Brisbane & Adelaide.

The data is averaged across Australia and is just as pertinent to Canberra as it is to State capitals, or places that weren’t mentioned in the report — such as Wollongong, Newcastle. There was no case of the data ‘comprehensively ignoring’ Canberra at all.

Ignoring the actual data is just retarded, whatever your point.

Apologies for the double post.

justbands said :

It is in Australia…but that report specifically deals with prices in Sydney, Melbourne, Perth, Brisbane & Adelaide.[/quote>

The data is averaged across Australia and is just as pertinent to Canberra as it is to State capitals, or places that weren’t mentioned in the report — such as Wollongong, Newcastle. There was no case of the data ‘comprehensively ignoring’ Canberra at all.

Ignoring the actual data is just retarded, whatever your point.

> I hear the RBA are still not excluding further interest rate drops in January.

Hehe…raises another point “from the olden days” (1991). Interest rates at the time were HUGE! I think we were paying well over 15%, perhaps close to 20%.

And remember that for many of us, when we bought into these (now older) areas, they were on the outskirts, a bit like Gunghalin is now. It’s just that growth has caught up to us.

justbands, you’ve summarised ny views very nicely. It isn’t easy now, but exp[ectations are often too high and there seems to be an unwillingness to make the necessary sacrifices.

Instead, there is an expectation that “the government” will solve the problem. PCA, HIA and other vested interests are very actively pushing this view, not to provide better affordability, but to increase profits (not that they say that, but it’s pretty obvious).

Did you ‘ave t’get up in morning und clean bottom of lake with ur tongue?

For the first time since getting shafted in a divorce settlement six years ago, it’s looking like I may be able to afford to get off the rent-a-go-round. Yay for the economic meltdown.

I hear the RBA are still not excluding further interest rate drops in January.

> I’m sorry. I thought Canberra was in Australia.

It is in Australia…but that report specifically deals with prices in Sydney, Melbourne, Perth, Brisbane & Adelaide.

Anyway, as I’ve mentioned…I’m not claiming it’s easy to buy a house….just pointing out that it never really has been & that young buyers need to make sacrifices in order to get into the market…just like we all had to. We got the smallest townhouse, in the furthest away suburb available for our first house. So, so many first buyers at the moment seem to want the mansion in their preferred area straight up….& then they complain that they can’t afford it. They even use us as an example “Awww, but you guys have a nice house in a nice area, why can’t we have one too?”. Well..because this is our third place, we worked our way up…it wasn’t easy then, it isn’t easy now.

Thanks PB – you saved me saying it. Except that there were no cardboard boxes then, butwe were up market and had a tea chest. As for the TV, we hadn’t even moved from B&W to colour, as it didn’t exist.

Those were the days!

justbands said :

> Caf actually presented data, which has been comprehensively ignored in favour of ‘in my day we did it tough’ anecdotes.

Pfft. We live in Canberra, comprehensively ignored in the data Caf presented. Different market, different wages, different.

I’m sorry. I thought Canberra was in Australia. Obviously we live in some sort of magically walled off free-trade zone, thus housing prices and wages in Canberra bear no relation to the rest of the country.

We used to dream of having a massive LCD TV, there were fifteen of us living in’t cardboard box in middle of road….

Holden Caulfield said :

@grundy – post #16
In fact, your post only serves to add weight to their argument (well, that how I read it anyway).

Maybe. I didn’t exactly argue against our generation being more lazy and expecting more for our money. 😉

*Goes home to hug his massive LCD TV*

54-11: I agree and I disagree. The numbers show that houses have become more ‘unaffordable’ for a number of reasons.

However I absolutely agree with you that the youngins these days don’t seem to want to put in the hard yards to get a home. When my fiancee and I get a place together, it will be a small unit, because not having a gigantic mortgage makes the most economic sense for us. That is our sacrifice and we will still have to sacrifice to make the payments. Better to do that than to have a 30 year mortgage.

@grundy – post #16

I doubt 54-11 would disagree with you on the wage-housing cost ratio. It’s a good point too. But that wasn’t really their point. In fact, your post only serves to add weight to their argument (well, that how I read it anyway).

Precisely because house prices are now higher in contrast to wages makes their view stronger. How can one complain about housing affordability if the wage-house price ratio is so much more out of whack, while one is still keeping up with the Joneses in other retail pursuits?

Woody Mann-Caruso said :

Annualized, that turns into a whopping 28 per cent fall!

Wow! Using your dubious mathematics, I calculate that in less than four years houses will be free!

ROFLMAO

> Caf actually presented data, which has been comprehensively ignored in favour of ‘in my day we did it tough’ anecdotes.

Pfft. We live in Canberra, comprehensively ignored in the data Caf presented. Different market, different wages, different.

grundy: In 1991, my wife & I had a combined income of $45K, our townhouse cost us $130K…so yeah, just over 3 years of our *combined* income. That same townhouse would now cost approx. $320K…which is nowhere near 3 years of our combined income now…though I admit that we’re hardly in the average first home buyer stage of our lives/careers at this point.

grundy said :

I’d be happy to go get specific numbers/facts for the above, but I’m not sure how easy it will be to find that data online at the moment. (e.g. Average house price and family income 30 years ago compared to today)

All that info is in the link Caf gave at #5.

grundy said :

I’d be happy to go get specific numbers/facts for the above, but I’m not sure how easy it will be to find that data online at the moment. (e.g. Average house price and family income 30 years ago compared to today)

I wouldn’t worry about it.

Caf actually presented data, which has been comprehensively ignored in favour of ‘in my day we did it tough’ anecdotes.

I disagree with 54-11.

Look at how many years worth of your salary it takes to buy a house now compared to 20-30 years ago.

My in-laws ( who are very sensible with their finances ) pointed out that when they built their first house, the home loan was as little as 3-4 times the fathers annual income.
These days, if I was to buy much smaller house in the same town, it would cost closer to 10-12 times my annual income!

House prices have grown much faster than normal inflation/cpi etc… which is one of the reasons why everyone is in such a financial mess at the moment.

I’d be happy to go get specific numbers/facts for the above, but I’m not sure how easy it will be to find that data online at the moment. (e.g. Average house price and family income 30 years ago compared to today)

I have a house in the UK, I rent here. When I bought my house there, I saved for five years just to raise the deposit. The first four years I lived in it the mortgage took up over half of my income.

I think it’s about time that potential home buyers get a break, and have a chance to make it in to the market. I recently bought, and were lucky enough to buy in what was almost a 2 week lull in the market.

While I;m a home owner now, and prices seem to be falling, and I think would be fair to drop quite a bit more, I have no real concern because I am of the old school mentality of wanting one family home for the next 20 or so years. Not multiple investment properties which I believe is somewhat of a greedy mindset and has caused much of the housing price problems, housing shortages and ridiculous rental prices over the last 10 years or so.

Good luck new home buyers – you all deserve the chance. And for those with investment property owners, I think Holden has a great perspective about it all. Good on you Holden.

justbands said :

> It may be anecdotal but there’s a lot to be said for simply knuckling down and doing it.

It’s the only way Thumper. I’m not saying that houses are easy to afford, they’re not. I’m just pointing out that sacrifices need to be made & that less & less people seem prepared to make them. It’s the “I want it all & I want it now” attitude that seems to be everywhere nowadays.

I agree with you guys on the knuckle down and get on with it attitude.

However, getting a housing loan in 1991 was a bit different to getting one (or any form of credit) in the early-mid 2000s. As a society we’ve come to expect/demand more from our lifestyles. Even in that short 10-15 year period.

So most Gen Y types probably don’t know anything else other than big plasmas, McMansions and easy credit. Looks like they’re just starting to find out how Gen Xers and Baby Boomers grew up.

I agree with the “how tough it was in my day” comments to some degree. I remember when I was a kid exactly what my parent thought was normal, how big a house they bought, etc…

But I suggest to you that society has change (not saying I think it’s all good, just that is has), and that the two are not really comparable.

I also know that my Dad at the time was on a pretty low wage, and my Mum stayed at home to raise the kids, yet they could (barely) afford the repayments. I think that is much harder to do now, with or without plasmas.

And anyway, that’s what the baby bonus is supposed to pay for isn’t it?

> It may be anecdotal but there’s a lot to be said for simply knuckling down and doing it.

It’s the only way Thumper. I’m not saying that houses are easy to afford, they’re not. I’m just pointing out that sacrifices need to be made & that less & less people seem prepared to make them. It’s the “I want it all & I want it now” attitude that seems to be everywhere nowadays.

> 54-11/justbands: How about some evidence instead of your back-in-my-day anecdotes?

My wife & I purchased our first place in 1991….smack bang in the middle of a massive boom, as referenced in the link you’ve provided.

Anyway, that report doesn’t mention Canberra at all…so, what evidence?

We’ve got an investment property in Gungahlin coming off lease in February that we’d like to sell. Not the ideal time to be flogging off a house, but we built/bought it at a good time, so have to take the good with the bad.

Given the way the share market has gone tits up, I dare say we’ll be miles ahead of where would have been had we put all the money spent on our property into shares over the same time frame.

I just hope we can find a buyer in a reasonable amount of time.

Annualized, that turns into a whopping 28 per cent fall!

Wow! Using your dubious mathematics, I calculate that in less than four years houses will be free!

The ABC reports that house prices in the ACT have fallen by seven per cent in the past three months. Annualized, that turns into a whopping 28 per cent fall!

I hate to be a pedant, but it doesn’t work that way. If they fall 7% a quarter, that’s not the same as falling 28% over the year. Take a $400,000 house:

1st quarter: $400,000 * .93 = $372,000
2nd quarter: $372,000 * .93 = $345,960
3rd quarter: $345,960 * .93 = $321,742.80
4th quarter: $321,742.2 * .93 = $299,220

However for a straight 28% fall:

$400,000 * .72 = $288,000

“Annualised”, it is actually a 25.2% fall (not that I’m suggesting that’s not still a significant fall, but let’s get our elementary maths right please).

Probably of more interest than maths games, however, is the claim I heard that there aren’t enough house sales per quarter in the ACT for a single quarter-to-quarter change to be seen as indicative of the overall state of the market (since you can’t guarantee a sufficient spread and distribution of property types for the values to be directly comparable quarter to quarter). While I have neither the data nor the statistical acumen to evaluate this one way or the other, it does seem like a reasonable argument for what is a relatively small market.

Don’t get too excited about affordability….house prices are always on the way up & up long term.

True, although “long term” may be very long indeed – the Japanese market suffered a decade straight of declining prices (which tends to make a bit of a lie of the “land supply” argument). Assuming they grew at the same rate once the market recovered, that’s still 20 years before you start to see your “long term” gains 🙂

54-11/justbands: How about some evidence instead of your back-in-my-day anecdotes?

54-11: You’ve highlighted a view I’ve long held myself. There’s a lot of whinging & whining about affordability nowadays..but as you’ve mentioned, was it really any easier when we got our first places? Like you…we scrimped & saved to buy a 2 bedroom townhouse. We moved in with my parents for 18 months, I drove a 1976 Lancer, we ate cheap, we rarely went out. Now we have friends that complain about not being able to afford a house whilst playing xbox360 on their HD large screen plasma, drinking imported beer that they ducked to the shops in their $40K car to buy.

I am hoping to enter the property market for the first time in the new year. If prices keep falling it can only be good for me. Unless no one is selling that is.

2604, you say that there are negative consequences for those who bought at peak prices. This is somewhat true, in that some may be moving toward negative equity, but that will only be reality if they sell. When things pick up again in a couple of years, then they move back into positive territory very quickly.

As a boomer, I’m also somewhat sceptical of the whole concept of housing unaffordability. At the risk of inviting some derision, when we bought our first house, oh, many years ago, it was a small 2-beddy (en suites didn’t exist back then) we had sheets for curtains and furniture was all second-hand and very basic. We used public transport, because of the two mortgages and a loan from the olds, and a non-existent social life for several yaers until we got rid of the second mortgage.

I look at kids now, no problem having a good car, buy their toys, a full-on social life, expectations of the 3-bedroom en suite home, and then claiming lack of affordability.

Whatever happened to perspective and balance, and accepting that life-styles will change if they want it all.

Why would people now have no choice but to sell?

Don’t get too excited about affordability….house prices are always on the way up & up long term.