Up or out. These are your only choices. Decide and follow through.

johnboy 25 November 2010 142

[First filed: Nov 24, 2010 @ 12:53]

Option 1 an Inner City where only the very rich can afford to live in block hogging monstrosities.

block hogging monstrosity

Option 2 an inner city looking like this in which normal people might manage to live.

apartments

That’s it as far as the options go.

Accommodating Canberra's expanding population

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Some background for the confused:

    — The Baby Boom generation, the largest demographic in our society, are planning on taking the longest retirement in human history, past or future.

    — To do this they will eat both the past and the future.

    — It is too late to talk of generational warfare, the war has been fought and won by the Baby Boom generation.

    — There is no point getting angry about this. Adapt.

    — To fund their immense retirements the boomers have created two pyramid schemes, compulsory superannuation and real estate.

    — The bottom of the pyramid is the children of the baby boomers. (Do not dwell too long on the monstrosity of this)

    — They did not have enough children to support the pyramid, so they are importing new australians at a phenomenal rate to gouge in the pyramid, and keep wage pressure from their children down which would also upset the pyramid.

    — None of this is within the remit of the ACT Government, or our community, we just have to deal with it.

    — To accommodate all the new Australians, and keep the property pyramid scheme going until the boomers are dead we are going to need a huge number of new dwellings in this town.

    — That can either be:
    — Terrible broadacre tracts over the NSW border while Canberra proper gentrifies (think Sydney’s Western Suburbs).
    — Planned and regulated higher density in the city (think Sydney’s Eastern Suburbs).

    Make your choice. It would have been nice to have more options. But we don’t.


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142 Responses to Up or out. These are your only choices. Decide and follow through.
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sepi sepi 9:44 am 05 Dec 10

Thing is, road infrastructure is already at bursting point. And how can it ever be increased if unit blocks line the existing skinny roads.

It would have been smarter for the govt to buy up the old houses along LImestone Ave, and knock them over to widen the road for light rail or more car lanes. Instead they have allowed 2 storey unit blocks. Not really enough to make a dent in housing problems, but making it much harder to do anything useful with Limestone avenue.

Their only solution to clogged roads is that more people should use public transport. Yet they can’t provie enough buses for all the people who want to use them.

Sydney’s most congested road travels at 35km and hour – well Limestone is slower than that I’d say during morning peak.

Time for some imaginative solutions – schools in the civic area should start at 8.30, or at 9.30. Public servants should be encouraged to start work at 9.30. Anything to stop the insane gridlock of 8.30-9.00 on the roads.

jasmine jasmine 12:06 am 05 Dec 10

Just what Australia needs is another person to engage in generational wedge politics.

Going up is fine especially given many people in Canberra no longer desire a lot of garden space, as long as the road infrastructure can be developed at the same time to cope with an increase in traffic locally at those built UP areas.

Higher density has its problems as I experienced in Europe. Often too many people crammed into a smaller area creating problems with neighbours and petty spats. And what about the pet problem that will ensue with high rise living – unless pets are banned. It is bad enough in Canberra with lack of control over barking dogs in the ‘burbs where there is more space.

I remember dodging numerous dog deposits in the cities (along pavements, roads and pathways) and people not giving a toss about it – but that was some years ago, maybe that mentality has changed OS.

georgesgenitals georgesgenitals 4:42 pm 30 Nov 10

peterepete said :

I like the analysis – pyramid scheme you say. Where can I get me some.

Easy – find yourself a property where you can borrow 100% of the acquisition costs, and where the yield will cover all the ongoings after tax.

Actually, such properties are pretty rare within Canberra these days. But if you were to look at small NSW towns within a hour or so drive of Canberra you’d almost certainly find a few.

peterepete peterepete 8:19 pm 29 Nov 10

I like the analysis – pyramid scheme you say. Where can I get me some.

georgesgenitals georgesgenitals 8:51 pm 27 Nov 10

urchin said :

good on you for taking the p&i option. if you are going down that road you will, as you say, be fine regardless of any short/medium term trends in the market as you will end up owning the properties free and clear. IO loans are a mugs game in my book b/c if prices drop you are just left with negative equity. if you keep pulling equity out in a rising market to buy more properties on io loans that just leaves you with more negative equity.

you’re a lot more risk tolerant than me, though. i’ve lived in places that have seen long and extended crashes (in japan housing is a depreciating asset, rather than the opposite) and i see absolutely no reason why it couldn’t happen here. perhaps it won’t, perhaps australia is somehow magically different, but i think not.

still, if you are paying down principle and you picked your properties strategically and they are largely self-supporting i imagine your plan will probably work out ok in the long run.

best of luck.

Cheers.

I think my strategy is probably less risky than some, but I pay a price for that (which is fine). IO loans are a great strategy while the market is rising, but nothing rises forever.

I think we just have to agree to disagree about a crash coming. And that’s ok. There will definitely be some bargains to be had in the years ahead. Hopefully just not mine!

urchin urchin 1:26 pm 27 Nov 10

good on you for taking the p&i option. if you are going down that road you will, as you say, be fine regardless of any short/medium term trends in the market as you will end up owning the properties free and clear. IO loans are a mugs game in my book b/c if prices drop you are just left with negative equity. if you keep pulling equity out in a rising market to buy more properties on io loans that just leaves you with more negative equity.

you’re a lot more risk tolerant than me, though. i’ve lived in places that have seen long and extended crashes (in japan housing is a depreciating asset, rather than the opposite) and i see absolutely no reason why it couldn’t happen here. perhaps it won’t, perhaps australia is somehow magically different, but i think not.

still, if you are paying down principle and you picked your properties strategically and they are largely self-supporting i imagine your plan will probably work out ok in the long run.

best of luck.

georgesgenitals georgesgenitals 8:14 am 27 Nov 10

2604 said :

Hi George. Lots of stuff to address.

#113 – I’m not sure why the government would single out superannuantion investors as being “rich” and try to discriminate against them as opposed to other wealthy groups (like share or property investors or those with large bank deposits). Indeed, given that every self-funded retiree is a person who doesn’t need to access the aged pension, I would expect superannuation to continue to be incentivised. This seems like a small risk to me and is certainly not enough to avoid using something with such obvious tax benefits over.

Although I agree with your focus on positive cash flow I think that you (we) are in the minority in focussing on this and not on tax – certainly most people I know are interested in the tax benefits of investment property. I don’t think that 70% of investors would tolerate losing money if negative gearing wasn’t available to recoup some of their losses. I agree that this is wrong-headed.

PSS/CSS were available to Commonwealth and ACT public servants, ACT school teachers, AFP officers and so on, so I think they are quite pertinent to a discussion on the RiotACT. State gov’t public servants and teachers have or had access to similar schemes, so they are more widespread than you think. Don’t really care about whether they are an artificial investment or not – I think they are a fantastic way to make money and any consideration of moral or theoretical correctness is irrelevant – and I just hope that your wife is maximising her contributions as the opportunity costs of not doing so are huge and get worse with time.

As for risk, you don’t need to take big risks to get good returns. For example, share investors putting all their money in only 2-3 companies are taking a risk (bankruptcy, poor management, entry of larger competitors into the market). Share investors putting their money into an index fund only face a risk that the entire market will go bust, which is miniscule. As for cash, savings for short-term goals (money you want to spend in the next 1-20 years, like for house extensions or upgrades, kids’ education expenses, family holidays etc) should always be in cash and never in speculative investments like shares or real estate. This is standard investment advice.

georgesgenitals said :

What this means, then, is that the income from the properties is now paying for all the holding costs (even including the principal component on the loan repayments). As such, I am now having someone else pay these assets off for me. I am getting them for free. Several of these properties were even bought with loans covering 100% of the property costs PLUS the acquisition costs.

You aren’t quite getting them for free George…don’t forget that you had several years of negative cashflow. Anyone understanding the time value of money (as I’m sure you do) would acknowledge that this cash could have been invested elsewhere and compounding away in the meantime.

georgesgenitals said :

That 6.2% the bank gives you for your savings, which you then pay tax on, is fine. But in 15 years I’ll own a property portfolio worth several million dollars that I didn’t have to pay for.

Capital value is one thing, but yield is far more important. If you are barely breaking even now there will need to be some serious growth in the rents you’re charging before you can replace two full-time adult incomes. Don’t forget that you’ll also be paying income tax at your full marginal rate (just like a bank depositor) on any positive cash flow.

Super is one of those subjects where my opinion is a bit out there, and definitely not shared by many. My main issue with it is that I don’t want to wait until my 60’s (or later) to retire. I don’t think the current level of incentives will continue, although there’ll always be some. I completely understand that most people won’t agree with this opinion. As for govt super being artificial, I’m not really concerned, expect that it’s not available to me, so I don’t think a lot about it. My better half is, of course, maximising her contributions.

I completely agree with your comments about share investing, and only use funds myself. Long term, with compounding, the results have been very good. I also have a margin loan facility which has worked really well, even through the last few years its been OK.

As for the getting them for free… As I’ve developed the portfolio, I’ve definitely put some of my own cash in, probably a couple of hundred thousand. However, I’ve ALWAYS bought properties with good initial yield (for property), which means once the initial capital is in, the actual holding costs after tax have been almost zero (across the whole portfolio I’ve had to put in a few thousand before tax). After tax, things look pretty good – we haven’t had a tax return of less than $25k in years. I’ve only been investing for 6 years, and in that time the net return in cash to my pocket has been positive. But here’s the kicker: unlike most investors, I pay principal and interest on a large part of the loans, not just interest. I have hardly anything left on the loan for my own home, and have zero other debt. Other investors think I’m strange (hey, they’re probably right). But because the rent is paying down the principal, in about 15 years the portfolio will be owned outright with zero loans (even with only very moderate rent increases). Then, I’ll simply receive the rents from these properties (and because of the lack of holding costs there’s quite a few), and add to this the yield from my shares. The end result is that put in a couple of hundred thousand bucks, with the end result being 20 years later I’ll have the rent from all the properties (at current rental rates, without loans and in todays dollar terms this will be an income of significantly more than $100k per year), to which I will add half again from the shares yield. With no home loan and no other debts, that will be a pretty dam good retirement before 50. If and when super comes in later, great.

I guess what I’ve tried to explain here is that property can be much more than simply buy, negative gear, wait for growth. Although a lot of people do just that, that doesn’t mean there’s a problem with the underlying asset class, simply that people haven’t figured out hwo to make it work for them. Also, I don’t expect others to do what I do. Financially I’ve always seen the world a bit differently to others, and that’s fine.

2604 2604 12:50 am 27 Nov 10

Hi George. Lots of stuff to address.

#113 – I’m not sure why the government would single out superannuantion investors as being “rich” and try to discriminate against them as opposed to other wealthy groups (like share or property investors or those with large bank deposits). Indeed, given that every self-funded retiree is a person who doesn’t need to access the aged pension, I would expect superannuation to continue to be incentivised. This seems like a small risk to me and is certainly not enough to avoid using something with such obvious tax benefits over.

Although I agree with your focus on positive cash flow I think that you (we) are in the minority in focussing on this and not on tax – certainly most people I know are interested in the tax benefits of investment property. I don’t think that 70% of investors would tolerate losing money if negative gearing wasn’t available to recoup some of their losses. I agree that this is wrong-headed.

PSS/CSS were available to Commonwealth and ACT public servants, ACT school teachers, AFP officers and so on, so I think they are quite pertinent to a discussion on the RiotACT. State gov’t public servants and teachers have or had access to similar schemes, so they are more widespread than you think. Don’t really care about whether they are an artificial investment or not – I think they are a fantastic way to make money and any consideration of moral or theoretical correctness is irrelevant – and I just hope that your wife is maximising her contributions as the opportunity costs of not doing so are huge and get worse with time.

As for risk, you don’t need to take big risks to get good returns. For example, share investors putting all their money in only 2-3 companies are taking a risk (bankruptcy, poor management, entry of larger competitors into the market). Share investors putting their money into an index fund only face a risk that the entire market will go bust, which is miniscule. As for cash, savings for short-term goals (money you want to spend in the next 1-20 years, like for house extensions or upgrades, kids’ education expenses, family holidays etc) should always be in cash and never in speculative investments like shares or real estate. This is standard investment advice.

georgesgenitals said :

What this means, then, is that the income from the properties is now paying for all the holding costs (even including the principal component on the loan repayments). As such, I am now having someone else pay these assets off for me. I am getting them for free. Several of these properties were even bought with loans covering 100% of the property costs PLUS the acquisition costs.

You aren’t quite getting them for free George…don’t forget that you had several years of negative cashflow. Anyone understanding the time value of money (as I’m sure you do) would acknowledge that this cash could have been invested elsewhere and compounding away in the meantime.

georgesgenitals said :

That 6.2% the bank gives you for your savings, which you then pay tax on, is fine. But in 15 years I’ll own a property portfolio worth several million dollars that I didn’t have to pay for.

Capital value is one thing, but yield is far more important. If you are barely breaking even now there will need to be some serious growth in the rents you’re charging before you can replace two full-time adult incomes. Don’t forget that you’ll also be paying income tax at your full marginal rate (just like a bank depositor) on any positive cash flow.

georgesgenitals georgesgenitals 6:37 pm 26 Nov 10

urchin said :

sorry george – missed your earlier response answering my question about yields… pls ignore that bit of my post

No worries at all. It’s just a discussion between people of differing viewpoints anyway. 🙂

The reason property can be made to work is leverage, which significantly magnifies gains or losses. Provided you can hold for the longer term, and your yield is OK, there shouldn’t be an issue. I don’t see sagging property prices, if that happens, hurting my long term plan much.

The housing crash in the US was an interesting thing, caused in large part by banks writing loans to people who couldn’t possibly repay them. In Australia, we have much higher standards. Even at it’s peak Australian property loans only comprised about 4% sub-prime loans (also called lo-doc and no-doc). In the US it was more than 4 times this amount, and the requirements for borrowers was less even if they could prove they could repay. As such, we have a far smaller exposure.

The point about holding cash in a mortgage offset account is that a mortgage is required. If you have one of these, the actual result is far better. Banks generally charge the same minimum repayment regardless of whether the interest incurred is lower, so the real effect is that the cash is there whenever you want, and removing it doesn’t change your repayments at all.

As for your point about making more shares, well, I buy shares on a monthly basis, partly using borrowed funds. My shares portfolio is pretty substantial for someone of my age, and I expect it to be a major contributor to my (early) retirement. Of course, you can’t leverage shares as safely as property, hence having lots more property than shares…

urchin urchin 5:20 pm 26 Nov 10

sorry george – missed your earlier response answering my question about yields… pls ignore that bit of my post

urchin urchin 5:17 pm 26 Nov 10

“There’s no risk to holding cash in an offset account either, but the real return is at least double the savings account.”

Well sure there is! The money in the offset account is tied to an asset which you have borrowed money to buy. Your offset account reduces interest you have to *pay*. Savings accounts give you interest which you *get*. You can take all the money out of your savings account and do what you like with it. You take all the money out of your offset account and you have to pay more…. they are actually pretty different things. If you have a mortgage anyway, then yes, it makes more sense to put your money in an offset account than a savings account, but there is no comparing a savings acct+no mortgage with offset account…

“* Canberra has the highest, and most stable, incomes in the country
* There’s one big even known to crash markets, and that’s a big jump in unemployment. If that happens again you’ll most likely see a repeast of the 1990’s”

Sorry but that is just blatantly wrong. The housing crash in the US caused the unemployment, not the other way around. In australia it will be the same thing.

“* Prices have tripled in 10 years, but they did nothing in the 10 years before.
Comparing now with 2000 is less valid than comparing with 1990.”

Actually I think price growth vastly outstripping wage growth is very valid…

“Investors only own about a third of the market. They don’t all act as a group, and many of them have seen enough up and down cycles to hang on. I wouldn’t hold my breath waiting for that crash.”

I think 1/3rd of the market is a pretty huge figure. it wouldn’t take anything like all of them to move a market like canberra. in oct 2008 we had a peak of about 2800 listings on allhomes and prices started to drop. we are at 2600 now…

Earlier you said that you don’t expect prices to rise faster than inflation, if so why do you stay in houses–that was my main point. it’s a lousy price to earnings ratio if you don’t expect capital gains… you’d be lucky to get 2% net. you make more in a savings account and if you are willing to accept a risk threshold equivalent to houses today you could make significantly more in shares…

mathematically, investing in houses right now doesn’t make sense. when you buy shares you watch the price and if a company is severely overvalued, you sell (well if you are a fundamental investor you do, if your a technical investor you have other priorities). i understand that houses are more expensive to buy/sell than shares but if you don’t see prices going anywhere in the near future it just seems reasonable to put your money elsewhere…

rosebud rosebud 2:32 pm 26 Nov 10

I can’t believe that up or out are our only choices. How depressing.

Holden Caulfield Holden Caulfield 2:00 pm 26 Nov 10

Ryoma said :

…I am glad to hear that you and Mrs HC managed to get in before the boom, and good luck to you (by the way, Mrs HC sounds like quite a catch!…

That she is and while she’s moved well above the APS1 level she started at, I still need to work, so, y’know, she has some improving to do, haha.

georgesgenitals georgesgenitals 1:57 pm 26 Nov 10

Ryoma said :

@ Georges genitals (post #107). I agree with much of what you say, I think we had a very regulated economy before the 1990’s, and many of the basics of life were much more expensive relative to the average wage.

I also agree that Gen X (and maybe gen Y) do think that their 20’s is all about living it up. I can recognise that within myself, but it does me little good now (grins ruefully). In part, i think it was because when I was younger, I simply thought that it would just “happen’…other people seemed to manage OK, and I thought I was reasonably smart, so I figured when I was ready for settling down, buying houses,etc, that I could do it too.

There’s nothing wrong with some healthy balance. Even I managed to have some. 🙂

Ryoma said :

Having said that, that’s only me, and I think that my point about financial education still stands. We have a culture that is very much impulse driven, and a lot of stuff we do reflects this, from our politics and housing through to our communication styles. So I’m not surprised that people younger than me also seem to think that they have forever to get on board :). For many people, they will learn the hard way just like me because there is nothing much in society generally that will correct their assumptions that things will “just happen”.

This is SPOT ON. Financial literacy is a huge problem, worse than ever now people have access to very easy credit. It goves them enormous buying power, and directing that at the wrong stuff (ie stuff that’s worthless or loses value quickly once bought) can be a recipe for disaster.

Ryoma said :

@Holden Caulfield (post #109). Thankyou for your point of view on what I said. I don’t think I am actually complaining per se, just reflecting that the world has indeed changed.
If you look further down my post I refer to my immaturity at that point in time.

I am glad to hear that you and Mrs HC managed to get in before the boom, and good luck to you (by the way, Mrs HC sounds like quite a catch! :D)

I agree with many of your points about location, and that people should start with what they can afford, even if it’s not their dream home. I also agree that many people have inflated expectations these days, and in large part I think that’s because many younger people haven’t been through a recession. I am old enough to have come out of high school into the last one, so I do recognise that things come and go in cycles.

But I also think that so much has changed societally since then that it’s quite hard to compare apples with apples. We now live in a very open economy, with much greater extremes of wealth and poverty – and those extremes are concentrating geographically. That’s part of the issue with housing. People are willing to pay a premium for access to certain schools, health care, and public transport that while prices soar everywhere for housing, they do so more in the inner suburbs of our capital cities.

As pointed out by #121, I believe you are missing the point of the original post. What I’m commenting upon generally is that services and urban planning needs to adapt to changes in our society and economy, in Canberra as much as anywhere else.

While I still do not intend to buy housing for a while, I would not be averse to buying a smaller (read: live within my means) apartment in a good location. In short, I’d be happy to trade off living space and a garden for the convenience of a more urban lifestyle. While I am now saving hard towards al of those goals I mentioned in my earlier post, I am not looking to buy at present because many of the existing apartments are full of top-of-the-line appliances, marble benchtops, etc. All I’m after is something basic that is energy-efficient.

Buying something simple in a good location gives to a terrific upgrade path if you decide you want some of the luxuries later.

georgesgenitals georgesgenitals 1:52 pm 26 Nov 10

urchin said :

1. there are many savings accounts that offer 6%+
2. there is no risk to the principle in a savings account.

There’s no risk to holding cash in an offset account either, but the real return is at least double the savings account.

urchin said :

you assume that house prices never go down. if that were true you would be correct. when the aussie bubble bursts canberra will be slaughtered for a few reasons that i can think of…

*the location doesn’t justify the prices (don’t get me wrong, i like canberra but its not like the location of the city adds tremendous value. it’s not hawaii)
*the market is small and the rapid exit of a segment of the investors will drown the market in listings
*if there is a massive hole in the federal budget the PS will get slashed, disproportionately affecting canberra.
*prices have tripled in 10 years. the bigger they are, the harder they fall

* Canberra has the highest, and most stable, incomes in the country
* There’s one big even known to crash markets, and that’s a big jump in unemployment. If that happens again you’ll most likely see a repeast of the 1990’s
* Prices have tripled in 10 years, but they did nothing in the 10 years before.
Comparing now with 2000 is less valid than comparing with 1990.

urchin said :

people whose investments have only been marginally profitable (or not at all profitable) when prices are charging up will not be so keen to accept lousy returns on investment when prices are stable or dropping. we can look forward to investors bringing the market crashing down.

Investors only own about a third of the market. They don’t all act as a group, and many of them have seen enough up and down cycles to hang on. I wouldn’t hold my breath waiting for that crash.

georgesgenitals georgesgenitals 1:44 pm 26 Nov 10

urchin said :

That’s certainly the case if we expect prices to continue to rise above the rate of inflation. But realistically, I don’t think we do. Just be aware, though, that this rule applies to the property market as a whole. Don’t forget that the ex-govvie house that our parents bought in 1970-something for a few thousand was on the outskirts of the city. That same property now is in a desirable inner suburb because the city grew. Also, 1970’s inflation was high, and this made property seem to appreciate faster than it did in real terms.

If you really believe that why in the world do you continue to hold property? a house that sells for about 600k these days can probably get around 500/wk in rent income (that’s what its like in my small corner of the world). so that’s a gross return of what..a little over 4%. from that you deduct interest paid on the mortgage, property management fees, water connection fees, rates, insurance, maintenance, etc.. so as a return on capital you are getting little to nothing. even if you are doing everything yourself and have no mortgage, you are still only going to get 4%.

Why would you do that if you didn’t think prices would continue to grow faster than inflation? What possible reason could there be? It would be much wiser to sell up now and stick that money in a savings account earning 6.2%. your principal is guaranteed, your income stream is guaranteed, and its liquid so that when things do fall to pieces you will be in a position to buy an undervalued asset.

what possible reason could there be for holding investment properties in this market if you don’t expect prices to go up faster than inflation?

Great question, and I’m glad you asked.

Firstly, bear in mind that we don’t expect prices to rise above inflation for the next few years, beyond that, I think we’ll have another significant boom. We’re likely to have rental increases during that time also.

Now, when people talk about ‘the property market’, they are referring to the overall thing (even if that’s within an area like Canberra). But when we actually buy a property, we buy only once instance. That instance, if well located, becomes better located *compared with the rest of the market* as time goes by. As new suburbs are built, the overall market average becomes a property located further from the city centre, and on a smaller block of land. That property we bought, therefore, has a greater group of people (within the growing population) competing for it, and as such the value rises above inflation.

For me, though, this isn’t enough. So I’ve taken a slightly different view and approach. I buy properties that have good yields (typically units) in really well located areas (think 5 mins walk from Canberra centre or Woden plaza). I also bought some units in Queanbeyan (at firesale prices). I have bought these properties over the past several years, and bought at what were considered to be low prices at the time. Because I bought over the past several years, the rents are now covering all my costs (and then some) after tax is taken into account. I reckon I’m probably 2-3 years from having the whole thing cashflow positive before tax.

What this means, then, is that the income from the properties is now paying for all the holding costs (even including the principal component on the loan repayments). As such, I am now having someone else pay these assets off for me. I am getting them for free. Several of these properties were even bought with loans covering 100% of the property costs PLUS the acquisition costs.

Bottom line, I have a property portfolio that I am not paying anything out of my pocket for, but in about 15 years I will own outright. I have also had capital growth over the past few years of several hundreds of thousands of dollars (because of how much I paid and growth since). I also have options to increase my rents by renovating or finsing other ways to add value. I now just sit back and wait.

So, if we have a few years of little or no growth (even stagnation), I don’t really care.

That 6.2% the bank gives you for your savings, which you then pay tax on, is fine. But in 15 years I’ll own a property portfolio worth several million dollars that I didn’t have to pay for.

I will agree, though, that if someone is going out now to buy that $600k house that rents for $500 a week you mentioned, hoping negative gearing will make them wealthy, they’re likely to be disappointed.

Ryoma Ryoma 1:05 pm 26 Nov 10

@ Georges genitals (post #107). I agree with much of what you say, I think we had a very regulated economy before the 1990’s, and many of the basics of life were much more expensive relative to the average wage.

I also agree that Gen X (and maybe gen Y) do think that their 20’s is all about living it up. I can recognise that within myself, but it does me little good now (grins ruefully). In part, i think it was because when I was younger, I simply thought that it would just “happen’…other people seemed to manage OK, and I thought I was reasonably smart, so I figured when I was ready for settling down, buying houses,etc, that I could do it too.

Having said that, that’s only me, and I think that my point about financial education still stands. We have a culture that is very much impulse driven, and a lot of stuff we do reflects this, from our politics and housing through to our communication styles. So I’m not surprised that people younger than me also seem to think that they have forever to get on board :). For many people, they will learn the hard way just like me because there is nothing much in society generally that will correct their assumptions that things will “just happen”.

@Holden Caulfield (post #109). Thankyou for your point of view on what I said. I don’t think I am actually complaining per se, just reflecting that the world has indeed changed.
If you look further down my post I refer to my immaturity at that point in time.

I am glad to hear that you and Mrs HC managed to get in before the boom, and good luck to you (by the way, Mrs HC sounds like quite a catch! :D)

I agree with many of your points about location, and that people should start with what they can afford, even if it’s not their dream home. I also agree that many people have inflated expectations these days, and in large part I think that’s because many younger people haven’t been through a recession. I am old enough to have come out of high school into the last one, so I do recognise that things come and go in cycles.

But I also think that so much has changed societally since then that it’s quite hard to compare apples with apples. We now live in a very open economy, with much greater extremes of wealth and poverty – and those extremes are concentrating geographically. That’s part of the issue with housing. People are willing to pay a premium for access to certain schools, health care, and public transport that while prices soar everywhere for housing, they do so more in the inner suburbs of our capital cities.

As pointed out by #121, I believe you are missing the point of the original post. What I’m commenting upon generally is that services and urban planning needs to adapt to changes in our society and economy, in Canberra as much as anywhere else.

While I still do not intend to buy housing for a while, I would not be averse to buying a smaller (read: live within my means) apartment in a good location. In short, I’d be happy to trade off living space and a garden for the convenience of a more urban lifestyle. While I am now saving hard towards al of those goals I mentioned in my earlier post, I am not looking to buy at present because many of the existing apartments are full of top-of-the-line appliances, marble benchtops, etc. All I’m after is something basic that is energy-efficient.

urchin urchin 12:59 pm 26 Nov 10

“Holding cash in a 100% offset account against a loan is better than a bank account, because your real rate of return is the same as the loan interest rate, but there’s no tax liability (against your 5% savings there is tax).”

1. there are many savings accounts that offer 6%+
2. there is no risk to the principle in a savings account.

you assume that house prices never go down. if that were true you would be correct. when the aussie bubble bursts canberra will be slaughtered for a few reasons that i can think of…

*the location doesn’t justify the prices (don’t get me wrong, i like canberra but its not like the location of the city adds tremendous value. it’s not hawaii)
*the market is small and the rapid exit of a segment of the investors will drown the market in listings
*if there is a massive hole in the federal budget the PS will get slashed, disproportionately affecting canberra.
*prices have tripled in 10 years. the bigger they are, the harder they fall

people whose investments have only been marginally profitable (or not at all profitable) when prices are charging up will not be so keen to accept lousy returns on investment when prices are stable or dropping. we can look forward to investors bringing the market crashing down.

urchin urchin 12:52 pm 26 Nov 10

That’s certainly the case if we expect prices to continue to rise above the rate of inflation. But realistically, I don’t think we do. Just be aware, though, that this rule applies to the property market as a whole. Don’t forget that the ex-govvie house that our parents bought in 1970-something for a few thousand was on the outskirts of the city. That same property now is in a desirable inner suburb because the city grew. Also, 1970’s inflation was high, and this made property seem to appreciate faster than it did in real terms.

If you really believe that why in the world do you continue to hold property? a house that sells for about 600k these days can probably get around 500/wk in rent income (that’s what its like in my small corner of the world). so that’s a gross return of what..a little over 4%. from that you deduct interest paid on the mortgage, property management fees, water connection fees, rates, insurance, maintenance, etc.. so as a return on capital you are getting little to nothing. even if you are doing everything yourself and have no mortgage, you are still only going to get 4%.

Why would you do that if you didn’t think prices would continue to grow faster than inflation? What possible reason could there be? It would be much wiser to sell up now and stick that money in a savings account earning 6.2%. your principal is guaranteed, your income stream is guaranteed, and its liquid so that when things do fall to pieces you will be in a position to buy an undervalued asset.

what possible reason could there be for holding investment properties in this market if you don’t expect prices to go up faster than inflation?

Holden Caulfield Holden Caulfield 8:23 am 26 Nov 10

Jethro said :

‘Holden Caulfield whinges that the youth of today have too much of a sense of entitlement.’

That just made my day. Solid gold.

Haha, yeah, I guess there is a delicious irony there. 😉

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