Government to act as Housing affordability becomes major election issue

IV

"This is partially exactly what is happening..."

Is "partially exactly" like "almost zero" (being not zero), or is it more like "Army Intelligence" (being not intelligent).

Or maybe it's more like (to quote those muppet poets from Pommyland) "Definitely Maybe?"

:) Just curious...

sorry my time was distracted by other matters, i just typed as i thought.
The reason i wrote 'partially exactly' is because the pyschological effect is working out exactly as i predicted.

There is a significant movement of investment psychology away from shares (except for maybe resource based shares) towards residential property.

The supply issue is still being constrained, and this is the final condition that i think is required in order for a more serious correction in property prices at some future point in time (exact timing: i have no idea, just like i have no idea where share prices will move in the short term).

I should also point out here that i think the supply issue will be the catalyst, but predicting any future catalyst is difficult. Often things come out of left field to rectify imbalances. So there is a chance that the catalyst will be something that is not currently in the 'risk assessment' of most investors.

Eitherway i dont plan to subject myself to such risk (especially if under a heavily geared structure).

Whether its luck or skill i dont know, but i have never been caught in any bubble market (share market or property market). Yet over time my returns on investment have been satisfactory.

I should also point out here, that i could never have predicted the consequences of the GFC on the australian share market in 2007. I didnt think there was excessive 'bubbleness' in the share market in 2007, investment metrics were 'stretched' but not excessively bubble like.

Yet i had minimal investments in the australian stock market in 2007: why: because i couldnt see sufficient margin of safety to risk my capital.

Likewise now in 2010, i still see structural reasons to own residential property. Buti also see the investment metrics 'stretched'.
I have made very good returns from my property portfolio, and rather than just refinance to capture the higher asset prices, i also want to take 'money off the table'.

I could well be too early in starting to take my capital out of property, but precise timing has never been my strong point (note this relates specifically to the melbourne market, i have no idea on other areas).

Because i cant predict the bottom of markets i use dollar averaging downwards.

Because i cant predict the top of markets, i use dollar averaging outwards (ie slowly exiting my capital as prices rise above my intrinsic value range).


Over time these two combinations create more than satisfactory returns.
 
I want to add one futher point here, i am not suggesting exiting property and put eveything into the stock market, just because its 'less popular'.

Never in my investing life have i been more uncertain how to structure a 'buy and hold' portfolio of investment assets.

Residential property: with low levels of gearing, this could still be an option. Low levels of gearing will protect against short term disturbances.

Shares: the problem i have here is two fold:
(a) are we in a cyclical or a continuation of a secular bull market. Any structural weakness and people will flee for the exits given recent memory.
(b) the carry trade which is creating artificial trading confidence, but not structural confidence.

As with residential property, a balanced share portfolio with minimal debt should be able to weather any short term disturbances (however i use margin debt, so i dont have this option).

Traditional D&G'er stuff: GOLD:
(a) this is an asset class i would maybe consider investing a proportion of my wealth. BUT: everytime we have an increase in global uncertainty, GOLD DECLINES. This tells me that gold is caught up in the speculation trade, thus its not just a preservation of wealth, but also a means of speculation. I dont have the skill to calculate what proportion of the current gold price is supported by intrinsic value, and what proportion is just hot money.
Therefore i dont want to participate in this asset class at all, given that i receive no income on this asset class (which acts as a hedge against price decline).


Overall my conclusion:
(1) reduce debt levels
(2) increase investment allocation to liquid investment assets (this allows me to participate in the cyclical bull market(still using intrinsic value as my insurance: the consequence however is that this may result in potential portfolio subperformance as i have minimal exposure to the most popular liquid asset class: commodities), yet be flexible enough that i can change investment strategies without compromising price (try offloading an illiquid asset when the asset class moves against you).
 
hmmm - property overpriced? how about they removed the various level of developer "contribution funds" in sydney ... that'll knock $130,000+ of a block of land overnight.
 
hmmm - property overpriced? how about they removed the various level of developer "contribution funds" in sydney ... that'll knock $130,000+ of a block of land overnight.

they might.

the government might also:
(a) increase the first home buyers grant in favour of new housing. reduce the grant on existing housing.
(b) increase tax benefits for new housing, for example increase depreciation rates on new housing
(c) enact legislation to reduce the power of local council over the development process.
 
they might.

the government might also:
(a) increase the first home buyers grant in favour of new housing. reduce the grant on existing housing.
(b) increase tax benefits for new housing, for example increase depreciation rates on new housing
(c) enact legislation to reduce the power of local council over the development process.

Now the economy is looking positive the government will be looking to implement policies that would increase the supply of properties without the associated increase in price.

1. National Land tax - whereby Owner occupiers are not exempt (although it may be appropriate to apply a land tax concession to OO)
2. Federal govt to Subsidise infrastructure levies on greenfield developments - thereby reducing the cost of fringe blocks of land. This would be available for both FHB and Investors. This will have a ripple effect on reducing the price of existing outer suburban homes, if a subsidy policy is ongoing.
3. Special depreciation allowance on new properties. Investors would be attracted to adding new supply, this leaves the cheaper fixxer-upper places to the FHB market - a good thing.
4. As for the negative gearing thing, it would be MUCH easier for the government to implement LVR limits on investment properties say 60% (like what China has done) A similar effect, and it won't severely disadvantage those who purchased when NG was allowed.
5. Tinker with Centrelink rules regarding the family home and imputed rent as exempt under the income and assets test. The current system encourages people to pour their wealth into the family home not only as a tax haven, but also to maximise welfare payments in retirement or times of unemployment.
 
i have thought about this alot and can find a positive for every negative they come up with, its all positive for the true investor.
what can they do, raise interest rates, so their will be buisinesses going bust!
cut the negative gearing scenario, so there will be folks on the street, and more opps for the other investors.
bring in another tax, its all claimable because its like a buisiness expense?
realease more land, can't do it because it takes so long to build and we do not have the builders and trades to build them.
bring in more builders from the US , no the unions will not allow this! they cover their own ***.
cut the GST's and other stamps, it will be a buying frenzy, untill they change it.
the only thing that could stop this rollacoster event, is if they culled of the population. and yea, right!
they cant do it and if in any possible scanario they could, it would take all states and ministers with NO! investments to aggree. and it will happen. NEVER!

I think you are way too optimistic

Who are you going to sell those homes to if they cut negative gearing? Listings would go through the roof which would bring forward supply to the extent that there would be so much stock you create a massive shift towards a buyers market. That creates pressure on prices driving them down. All of a sudden those capital gains vanish.

What do you think is going to happen to the renters? You put the house up, it sells on the weekend, and they move out the next day? They are in there until their lease expires at the very least! And if you cant sell the place by the time their lease is up for renewal, you then have the job of deciding if you are going to keep them there a while longer helping you cover those massive bills while you try to find a buyer!

Other investors are only going to take the property on if its cash flow positive, which then means they wait until capital values drop to levels where the rent will cover their costs.

So you have the double whammy of trying to sell in a buyers market AND having to keep the renters in there until you can sell.

The only people on the streets are going to be the investors who were leveraged up the eyeballs and cant afford to cover their costs anymore.

I dont think they will ever cut NG though. It would be a bloodbath. I think we may see to a change going forward though. Perhaps going forward, it may only b e on new builds or something.
 
At the end of the day, property is the underlying indicator on the strength/weakness of the economy...and there's no way any government will mess with a sector that has the capacity to easily become unstable and threaten the economic viability of the nation.

Like I said, Ive been to Europe and all these things were discussed 20 years ago there, what happened? 80% of ppl rent, they came to accept it. Those that have property became wealthy.

The way I see it, barring any global economic catastrophe, hoard up on property, because you will have assets that the next generation and those that come after will be paying through the nose for.

Come now

Property is not the underlying indicator of any economy. Its shelter before its an asset class, as hard as that may be to accept for property investors. The most important indicators are employment and inflation.

The reason why most people rent in Europe is because they never had the credit markets we did. They also have a shortage of land and large populations. We dont have those problems. We have a problem with land banking and money being thrown around like it grows on trees.

But you are right. They are worried about its impact on the economy as a whole. THATS WHY THE BANKS ARE CUTTING BACK ON LENDING AND THEIR EXPOSURE TO HOUSING. If housing were always a safe bet, the banks would never cut back on home loans would they?
 
The average home ownership rate across the European Union in 2003 was 64%, with Germany having the lowest rates (42%), whilst the Mediterranean countries had the highest (80+%). (More here.)

And Bulgaria had the highest rates of property ownership in Europe in 2003, at 97%. (Source.)
These numbers by themselves are misleading. Many more family members lived in the same house, therefor less renting and the appearance of higher ownership.
One of those links concludes:
"the highest ownership countries are among those with the lowest levels of mortgage debt."
That's because they are poor countries, have low paid (or if any) work and people can't afford mortgages. And the culture of debt aversion is still prevalent.

You'd be unlikely to become wealthy fast in Germany off the back of property ownership. Prices have declined in real terms for around twenty years.
There are many places around EU where prices have gone nowhere for the last 20 years. And this while inflation has been high.
There are many market forces pulling in many directions, Australia is just a small raft in a big sea.
To think that this country has any meaningful influence on the global stage is nationalistic fantasy. Which is why nobody even noticed Kevin's "biggest moral problem of our generation".
Government propped economies can't generally last long.
What's the point of your house being worth $5,000,000 if nobody can afford to buy it?
Reality is that it won't be worth that much for long causing prices to fall till it meets affordability.
The grants & concessions that were supposed to increase affordability have only increased prices and now that credit is tighter affordability is lower.
Higher inflation and lower RE prices is possibility here as well.
But not all RE, there will always be sectors that outperform.

A few people mentioned "landbanking" as a problem.
There's plenty land out there released or just about to be released around Sydney outskirts, but it will not be developed unless the developers make a certain amount of profit.
Are you people blaming them for not undertaking potential loss making projects?

The gov is also going to build ~140,000 homes in the next 15-20 yrs.
 
I think you are way too optimistic

Who are you going to sell those homes to if they cut negative gearing? Listings would go through the roof which would bring forward supply to the extent that there would be so much stock you create a massive shift towards a buyers market. That creates pressure on prices driving them down. All of a sudden those capital gains vanish.

What do you think is going to happen to the renters? You put the house up, it sells on the weekend, and they move out the next day? They are in there until their lease expires at the very least! And if you cant sell the place by the time their lease is up for renewal, you then have the job of deciding if you are going to keep them there a while longer helping you cover those massive bills while you try to find a buyer!

Other investors are only going to take the property on if its cash flow positive, which then means they wait until capital values drop to levels where the rent will cover their costs.

So you have the double whammy of trying to sell in a buyers market AND having to keep the renters in there until you can sell.

The only people on the streets are going to be the investors who were leveraged up the eyeballs and cant afford to cover their costs anymore.

I dont think they will ever cut NG though. It would be a bloodbath. I think we may see to a change going forward though. Perhaps going forward, it may only b e on new builds or something.

deon, thanks for your advise, may i remind you of two things, as a builder, i build for a client that already wants to buy, or an invester that wishes to build wealth, if there are no homes being built, the demand grows due to immagration and new babies. then this cycle will start yet again, the govern ment cant stop this, its a win for investers,

lets say the interest rates go through to 11% again, like all buisinesess the costs reflect the products, some home owners will be on the streets and loose their homes , and the government will be ever so popular again.NOT! (sarcasim)
so any investers would be raising there rents to meet any negative gearing change, and for the record by value adding to an extreem , you start your first tennency nuetral, :rolleyes:
If the australian government wish to slow this bubble good luck to them, but IMO it would be like slowing a freight train down , with a garden hose..
 
couldn't help myself but laugh out loud at the sunday tele reporting that because only 33 first home buyers bought "houses" (units not included) within 10km of sydney cbd - that housing is obviously unaffordable to first home buyers.

what a load of ... :rolleyes:

i doubt many on this forum - even with their years and wealth - could afford to buy a decent house within that range
 
Gloomers have been telling me this since 2007. I'm glad I didn't follow their advice.
That's right! And in late 2007/early 2008 we saw prices start to fall (e.g. the bears were going to be right), but this price fall was reversed by:

- Increase to FHOG (e.g. boost)
- Change in foreign ownership laws
- Falling interest rates
- Relaxing of credit (after 2008 squeeze)
- Falling petrol costs

And what did this environment lead to?
* Record loan sizes
* Record numbers of FHBs (with shockingly high LVRs)
* Huge uptake of variable rates

hmmmm and what do we have now:
- Removal of FHOG boost
- Reinstatement of foreign ownership laws
- Increasing interest rates
- Rising petrol costs

uh oh...you may have been right for 1 year out of 2 Shadow, but that's not much of a streak. Let's see how 2010/2011 plays out shall we?
 
That's right! And in late 2007/early 2008 we saw prices start to fall (e.g. the bears were going to be right), but this price fall was reversed by:

- Increase to FHOG (e.g. boost)
- Change in foreign ownership laws
- Falling interest rates
- Relaxing of credit (after 2008 squeeze)
- Falling petrol costs

Not sure what your point is. The gloomers said prices would crash. I (and other bulls) said prices wouldn't crash because the fundamentals were strong and the government and RBA would implement fiscal and monetary stimulus. The gloomers said that didn't matter, because prices would still crash regardless of any fiscal and monetary stimulus.

Then when prices didn't crash the gloomers claimed that they would have been right if it weren't for the unexpected fiscal and monetary stimulus. :rolleyes:

Steve Keen is one of the worst offenders here. The fiscal and monetary stimulus had already been announced when he made his bet with Rory. But now Keen claims he only lost that bet because of the 'unexpected' stimulus.

The fundamentals are even stronger now, and so the stimulus is being wound back now because it is no longer needed. If it is needed again in the future then it will be reintroduced. Of course, when this happens, the gloomers will once again say it was unexpected and nobody could have predicted it. :rolleyes:

As for only being right for one year out of two... well, I've been saying since 2007 that house prices won't crash until the fundamentals change substantially (in a negative way). Those fundamentals haven't changed yet, and prices haven't crashed. Of course, the fundamentals might change sometime in the future, but so far they haven't, which means prices won't be crashing for a while yet.
 
Not sure what your point is.
You are trying to claim some sort of victory way too early.

The gloomers said prices would crash. I (and other bulls) said prices wouldn't crash because the fundamentals were strong and the government and RBA would implement fiscal and monetary stimulus. The gloomers said that didn't matter, because prices would still crash regardless of any fiscal and monetary stimulus.
Yes some of the most vocal gloomers/bears believe(d) in a crash, but certainly not all. Your generalisations are ridiculous. Can you please link me to yours and other bulls posts that suggest there would be implementation of fiscal and monetary stimulus (posts from 2007)?

Steve Keen is one of the worst offenders here. The fiscal and monetary stimulus had already been announced when he made his bet with Rory. But now Keen claims he only lost that bet because of the 'unexpected' stimulus.
The boost was introduced October 14th, you could be right, but can you link me to where the date of the bet was struck? All I can find is reference to the bet being made in October 2008...

For the record I don't particularly see Keen's outlook likely (40% drop in nominal prices).

The fundamentals are even stronger now
What fundamentals? General economic fundamentals or those that relate specifically to property? Please expand, because you selectively quoted from my post which listed several fundamental reasons that could lead to property prices falling, not to mention RPData's recent release showing that rents are falling in 4 out of 8 capital cities and yields are falling in all but 1....

rentalchanges.jpg
 
You are trying to claim some sort of victory way too early.

I'm not claiming 'victory'. This isn't a war. I merely pointed out that the gloomers have been predicting an imminent crash for many years, and they have been incorrect.

Yes some of the most vocal gloomers/bears believe(d) in a crash, but certainly not all. Your generalisations are ridiculous. Can you please link me to yours and other bulls posts that suggest there would be implementation of fiscal and monetary stimulus (posts from 2007)?

You know as well as I do that the forum in question no longer exists and can't be mentioned here. I'm sure you will also remember that my posts on that forum were deleted because my predictions turned out to be pretty much spot on, which was an embarrassment to the members there so they insisted that all my posts be deleted.

The boost was introduced October 14th, you could be right, but can you link me to where the date of the bet was struck? All I can find is reference to the bet being made in October 2008...

The details of the bet were confirmed between Steve Keen and Rory Robertson via an email on 27th October 2008. See below...

http://www.businessspectator.com.au...bble-debt-march-pd20100420-4P4MD?OpenDocument

What fundamentals? General economic fundamentals or those that relate specifically to property? Please expand, because you selectively quoted from my post which listed several fundamental reasons that could lead to property prices falling, not to mention RPData's recent release showing that rents are falling in 4 out of 8 capital cities and yields are falling in all but 1....

OK, I'll cover those one by one...

- Removal of FHOG boost - Yes, the FHOG is going back to level it was at prior to 2008 (and house prices were rising then).
- Reinstatement of foreign ownership laws - The FIRB rules only being partially reinstated (the price limit has not been reinstated) so this is still more 'stimulatory' than the FIRB situation was prior to 2008 (and house prices were rising then).
- Increasing interest rates - Still a long way to go before they get back to the levels they were at in 2007, when house prices were still booming.
- Rising petrol costs - petrol prices are roughly where they have been for the past few years. I can't see petrol prices having a major impact on house prices. I guess if petrol gets really expensive then that will increase demand for properties close to city centres or transport hubs.

Basically those 'negative' fundamentals that you mention are just reverting back to where they were between say 2005 and 2007 when house prices generally rose across Australia. The main difference now is that population growth is even higher, and dwelling construction is even lower, so demand is outstripping supply to an even greater extent than it was from 2005 to 2007.

As for rental yields, yes well of course we can expect yields to fall when house prices are rising so fast!
 
Basically those 'negative' fundamentals that you mention are just reverting back to where they were between say 2005 and 2007 when house prices generally rose across Australia. The main difference now is that population growth is even higher, and dwelling construction is even lower, so demand is outstripping supply to an even greater extent than it was from 2005 to 2007.
Yes, 2005-2007 when 100%+ loans were available, when yields were higher, when prices were lower (so FHOG was a larger deposit than the same sized grant today), when there was no such thing as the GFC, etc.

As for rental yields, yes well of course we can expect yields to fall when house prices are rising so fast!
Also you can expect yields to drop when rent drops, like it did in 4 out of 8 capital cities over the 12 months to Feb 2010. At some point yields will return to historical norms and those norms are not 4-5%. Of course PIs would tell you that this will occur via large rent increases, yet recent evidence shows this is not happening.

All bubbles burst eventually...
 
Yes, 2005-2007 when 100%+ loans were available, when yields were higher, when prices were lower (so FHOG was a larger deposit than the same sized grant today), when there was no such thing as the GFC, etc.

100% loans are still available. 105% is still available. The GFC is in the past (as far as Australia is concerned).

Also you can expect yields to drop when rent drops, like it did in 4 out of 8 capital cities over the 12 months to Feb 2010. At some point yields will return to historical norms and those norms are not 4-5%. Of course PIs would tell you that this will occur via large rent increases, yet recent evidence shows this is not happening.

I would expect rents to have fallen or stagnated last year, since a large number of renters became first home buyers.

All bubbles burst eventually...

I don't believe there is a bubble in Australia. If there was then it would have burst during the GFC, regardless of stimulus, as happened in Japan, USA, Spain, Ireland etc. when their bubbles burst. Stimulus didn't work in those countries because house prices were not supported by strong fundamentals. Similar stimulus did work in Australia, because Australian prices are supported by strong fundamentals. Have you ever asked yourself why the stimulus worked here when it didn't work anywhere else?
 
100% loans are still available. 105% is still available.
Not in abundance like they were in 2005-2007.

Have you ever asked yourself why the stimulus worked here when it didn't work anywhere else?
Which direct property stimulus (aka FHOG boost equivalent) are you talking about? I don't recall reading about any equivalent schemes over the GFC period...I do however recall reading about a direct car sales stimulus in the US called cash for clunkers, do you want to guess the result??
 

Attachments

  • chart-fo-the-day-us-car-sales.gif
    chart-fo-the-day-us-car-sales.gif
    52 KB · Views: 44
Which direct property stimulus (aka FHOG boost equivalent) are you talking about?

In the UK they had the HomeBuy Direct and Kickstart initiatives, and many people on variable rates or tracker rates had their home loan rates drop to zero percent, or in some cases the banks even paid interest to the borrower!

In the US they did this...

http://money.cnn.com/2008/01/25/real_estate/stimulus_plan_targets_pricy_housing/index.htm

as well as 'freezing' the rates on subprime loans so that they didn't reset to higher rates as planned.

Don't know what they did in Japan but I'd say there was probably some stimulus thrown at the property market back then too.
 
Back
Top