generational housing problem

[HiredGoon]

So is your goal to discourage us from investing in property?

For people who have done well out of property investement I imagine it would be very hard to convince them to self-sacrifice for the greater good.

I think my goal is to tease you guys

2/3 of landlords in this country make a loss, and the landlord industry overall makes a loss. It is Australia's most unsuccessful business. So in fact, land lords are currently LOSING - except for paper profits from dodgy valuations based on loose global credit standards.

Yes - GHPC has been predicting this global credit crunch and the fallout from US subprime for years, which is now starting to become apparent to everyone now and they are getting the fear - what did you only want us to tell you a week before the top?

 

[alexlee]

I think my goal is to tease you guys

2/3 of landlords in this country make a loss, and the landlord industry overall makes a loss. It is Australia's most unsuccessful business. So in fact, land lords are currently LOSING - except for paper profits from dodgy valuations based on loose global credit standards.

Yes - GHPC has been predicting this global credit crunch and the fallout from US subprime for years, which is now starting to become apparent to everyone now and they are getting the fear - what did you only want us to tell you a week before the top?

Ya can't prevent people from doing stupid things. If we're happy to wallow in our crazy delusions as property investors, who are you to tell us to wake up?
Alex

 

[VYBerlinaV8]

Besides, when it all turns pear shaped then us rich and evil investors (BWAHAHAHA) will all be in the poor house and our wealth will magically be redistributed to end world hunger.

 

[steveadl]

Hired Goon, Just as a matter of interest, explain to us using this average example, how IP investors/lanlords are in an overall loss making industry:

Buy a house for $300k that loses you $2k per year out of pocket but increases at a 5%pa rate. (yes that's right a LOSS of $2kpa! but keep it in perspective of the example)

In 5yrs the house is worth $382k and you have worn a loss of $10k over those 5yrs. You then have $72k in gains. Plus at this point, the rent has increased over the 5yrs to now cover all costs, and you are now no longer losing this $2k per year, in fact may even be making a small profit. Now hold for another 20yrs and look at the figures again...

And before you answer, a few points which I know you'll latch onto straight away:
- This example has been possible for the last 100+yrs, not just in the last 15-20yrs when the "loose global credit standards" have been around.
- I completely admit and illustrate how a loss is made at first, but for the greater long term gain. In a similar way that a big business will fund a loss for years in a new division until it breaks even.

 

[alexlee]

Besides, when it all turns pear shaped then us rich and evil investors (BWAHAHAHA) will all be in the poor house and our wealth will magically be redistributed to end world hunger.

Yeah, if we want to throw ourselves off the proverbial cliff, who are you to stop us, HG?

 

[VYBerlinaV8]

Y'know, I don't mind explaining how property investment works to those people who are interested, and ask sensible, critical questions, but it's probably not worth the effort for HG, given that she is just taking the pi$$.

 

[steveadl]

Yeah, if we want to throw ourselves off the proverbial cliff, who are you to stop us, HG?

Rest easy in the fact that your wealth is a lot greater than theirs. True they could be wealthy too, but with these sorts of attitudes towards the most basic of assets - real estate - I doubt it. So even if you 'fell of the cliff' tomorrow and lost 90%, you'd probably still be better off than them Sour grapes can be quite amusing when you're on the right side of it.

 

[Arkay]

what did you only want us to tell you a week before the top?

Actually. Didn't need to be told at all...

Cheers,

Arkay.

 

[J Martin]

But this assumes that prices can't keep increasing because at some point they will outgrow wage affordibility. So what happened in places like London and New York?

I am in complete agreement that high demand areas will continue to increase. They certainly will. But overall, IMO, I can't see a general doubling of house prices with the current wage and inflation environment over the next 10 years.

You have to remember that the targeted inflation band of 2-3% is going to ensure that wage growth for the general populous will not increase at much greater than this percentage. Unlike the past, when inflation rates of 5-10% eroded the real repayments of the house(essentially making it easier to pay off in a shorter period of time), will not occur now. So the younger generation are stuck with a not only a larger debt than ever before, but it will not be eroded by inflation. The one advantage of course is lower interest rates and a better job market. But I digress.

I can't comment on New York and London as I don't have any specific knowledge of the demographcis, but I imagine high prices are sustained by a very high propertion of high wage earners and net immigration of wealthy individuals etc.

 

[HiredGoon]

The whole business model relies on being able to sell your loss making business for even more than you bought it for. Yes, crazily enough this has worked (so far).

100+ years ago? WTF? There were plenty of cashflow positive IPs available even 5-10 years ago. Ask some people here.

People used to not touch properties below 8% yields, because they had a concept of RISK.

If you guys had just INVESTED your money by building new houses - I'd be happy and good luck to you, but instead 94% of landlords are _SPECULATORS_ who just bid up the price of existing property and so didn't add any new housing or any contribution to society, and pushed up existing asset prices causing the whole country to be up to the eyeballs in debt.

For those of you who built something, and INVESTED in Australia - thanks. For those who took out debt to bid up the cost of a house built by someone else - I hope you realise what you have done to this country.

 

[steveadl]

I am in complete agreement that high demand areas will continue to increase. They certainly will. But overall, IMO, I can't see a general doubling of house prices with the current wage and inflation environment over the next 10 years.

You have to remember that the targeted inflation band of 2-3% is going to ensure that wage growth for the general populous will not increase at much greater than this percentage. Unlike the past, when inflation rates of 5-10% eroded the real repayments of the house(essentially making it easier to pay off in a shorter period of time), will not occur now. So the younger generation are stuck with a not only a larger debt than ever before, but it will not be eroded by inflation. The one advantage of course is lower interest rates and a better job market. But I digress.

I can't comment on New York and London as I don't have any specific knowledge of the demographcis, but I imagine high prices are sustained by a very high propertion of high wage earners and net immigration of wealthy individuals etc.

You make some very good points J.

Totally agree with your inflation comment. I guess this is an issue which we won't know about until it happens, but as far as houses no longer growing because it's unaffordable - this assumes that young people will keep buying in the same suburb 5km from the city. The prices will go up and sooner or later, young ones will be forced further out, the same as in previous generations.

I'm the same with you as New York & London, but I just threw them out there as an obvious example of cities which are clearly no longer affordable to the average person. Were people having the same conversations about affordibility in these cities 30yrs ago - maybe? But at some point, they kept rising, and became no longer affordable, which is what I believe will happen here at some point.

This is just totally theoretical, but let's say the newlyweds in NY 35yrs ago wanted to buy in Queens, but could'nt afford it - so they were forced to buy 5km further out. Then 15yrs ago, their kids could'nt afford to buy where their parents bought, so they are foced out a further 10km - you see the pattern? Just beacuse the original suburb of Queens became unaffordable, it doesn't mean that the prices there can no longer go up. (and this will work when you replace it with subrubs in other cities)

 

[Ausprop]

, and pushed up existing asset prices causing the whole country to be up to the eyeballs in debt.

.

So what did the sellers do with all the cash? who took the money from the cookie jar?

 

[steveadl]

The whole business model relies on being able to sell your loss making business for even more than you bought it for. Yes, crazily enough this has worked (so far).

100+ years ago? WTF? There were plenty of cashflow positive IPs available even 5-10 years ago. Ask some people here.

People used to not touch properties below 8% yields, because they had a concept of RISK.

If you guys had just INVESTED your money by building new houses - I'd be happy and good luck to you, but instead 94% of landlords are _SPECULATORS_ who just bid up the price of existing property and so didn't add any new housing or any contribution to society, and pushed up existing asset prices causing the whole country to be up to the eyeballs in debt.

For those of you who built something, and INVESTED in Australia - thanks. For those who took out debt to bid up the cost of a house built by someone else - I hope you realise what you have done to this country.

But you didn't answer my question. Explain how that typical example shows that IP investors are in a loss making industry (over all, not just first few years) . I was'nt talking about the moral 'create something' issue - you specifically said we are in a loss making industry that is "Australia's most unsuccessful business".

Here you go:

Buy a house for $300k that loses you $2k per year out of pocket but increases at a 5%pa rate. (yes that's right a LOSS of $2kpa! but keep it in perspective of the example)

In 5yrs the house is worth $382k and you have worn a loss of $10k over those 5yrs. You then have $72k in gains. Plus at this point, the rent has increased over the 5yrs to now cover all costs, and you are now no longer losing this $2k per year, in fact may even be making a small profit. Now hold for another 20yrs and look at the figures again...

And remember, this is true over the last 100yrs, not just during the current credit climate.

 

[alexlee]

I can't comment on New York and London as I don't have any specific knowledge of the demographcis, but I imagine high prices are sustained by a very high propertion of high wage earners and net immigration of wealthy individuals etc.

Isn't that happening to Australia already? In professional services, I'm seeing salaries go up much faster than 2-3%. As economies mature from manufacturing to services, you'll see less even income distributions.

The population keeps getting bigger, and you have a bigger and bigger group who make more and more money.
Alex

 

[FHB]

You make some very good points J.

Totally agree with your inflation comment. I guess this is an issue which we won't know about until it happens, but as far as houses no longer growing because it's unaffordable - this assumes that young people will keep buying in the same suburb 5km from the city. The prices will go up and sooner or later, young ones will be forced further out, the same as in previous generations.

I also agree that certain areas will always outperform the median, this will happen regardless of affordability. And to some point a small percentage of the market don't need to rely on wage growth or debt limitations to improve buying power. But the majority of owner occupiers do. Even in the case where you are comparing a median house today being in a better location than a median house tomorrow, to sell that house someone needs to sell their previous house to a first time buyer. The amount the first time buyer can pay generally has some influence on the amount the upgrader can afford to pay to buy yesterdays median house. The recent debt boom wiped away those restrictions to some extent.

 

[FHB]

Isn't that happening to Australia already? In professional services, I'm seeing salaries go up much faster than 2-3%. As economies mature from manufacturing to services, you'll see less even income distributions.

The population keeps getting bigger, and you have a bigger and bigger group who make more and more money.
Alex

Well, in our case the proportion of the population earning income and buying houses is set to reduce, as I said in an earlier thread, the growth rate of the 20-30 age group has been going into negative in recent years.

You are right, some income earners have bigger wage increases than others, and they will most likely be buying in particular areas, but on the whole, particularly in the mortgage belt areas, this most likely won't have the same impact.

 

[alexlee]

Well, in our case the proportion of the population earning income and buying houses is set to reduce, as I said in an earlier thread, the growth rate of the 20-30 age group has been going into negative in recent years.

You are right, some income earners have bigger wage increases than others, and they will most likely be buying in particular areas, but on the whole, particularly in the mortgage belt areas, this most likely won't have the same impact.

What areas were considered the mortgage belt a generation ago?
Alex

 

[Timmy]

I wish I were smart enough to contribute to this post.

I am truly amazed at how much people know about:

* House prices since Australia was settled.
* The entire Australian economy.
* The entire world economy.
* Future house prices for the next several decades.
* Everyone else's property portfolios.
* The sharemarket.
* The entire mortgage industry.
* And whatever else seems convenient at the time.

I can see this thread going on for years simply because everyone is so knowledgeable about everything, and hence needs to correct the inaccuracies of what everyone else is saying.

I find this ironic because property investors make the majority of their money from people who DO NOT share their point of view.

How much money can you make from a guy with his own house and ten IP's?

Not much.

But how much can you make from ten families all with the perception that property is too expensive, we can only afford to rent?

I'm guessing you could fund a nice little retirement out of this.

Differing opinions is what makes property investing profitable. And this forum has and always will be dedicated to increasing the number of renters in Australia. And the average renter doesn't think like you guys!

But forgive me, I'm contributing to something I know nothing about. I'll save the thread space for the intellectual savants.

 

[steveadl]

I also agree that certain areas will always outperform the median, this will happen regardless of affordability. And to some point a small percentage of the market don't need to rely on wage growth or debt limitations to improve buying power. But the majority of owner occupiers do. Even in the case where you are comparing a median house today being in a better location than a median house tomorrow, to sell that house someone needs to sell their previous house to a first time buyer. The amount the first time buyer can pay generally has some influence on the amount the upgrader can afford to pay to buy yesterdays median house. The recent debt boom wiped away those restrictions to some extent.

I see your point, but there are so many variables involved too, which is why I'd still lean towards historical trends which say sooner or late RE always rises, and will continue to do so.

It relies on many variables, what happens if it's not a first home buyer buying that place as even that is unaffordable, it's just someone else moving that little bit closer to CBD.

You can almost picture it like a ripple going across a pond, except in this situation the ripple is heading in. In theory over time, everyone picks up and moves that little bit closer to the CBD, and it's the first home owners who always start at the outside of the pond and work their way in. Does that make any sense or have I been staring at the screen too long today?

 

[FHB]

I'm not pretending to know what WILL happen, just pointing out that current indicators point to possible restraints on general growth over a medium to longer term. Smart people will make money in any market, and I'm sure generally prices will increase, by how much?

Those who bought a few years ago did well, and this would reinforce a positive perception about the market, regardless of indicators. The market may be able to replicate previous gains, but it will likely have to overcome these restraints to do so.