Timmy said:
(I will try and keep my posts in the "spirit of the forum" as much as possible)
Of course the gap is widening.
One of the seldom-remarked successes that we had in the last boom was that rents were kept relatively low while prices skyrocketed. Because investors had this 'capital growth' mindset, they were willing to buy properties that only recovered about 1/3 of their costs (approx 3% yield).
This compares with the late 1980s where rents
and prices rose rapidly relative to people's wages (note the Accord between the ALP and the unions actually reduced real wages for a couple of years).
If I was a lowish income earner who was renting, I'd prefer the first. Low rents = low living costs and greater opportunity (although not always exploited) to save and invest (possibly including real estate)!
For every IP that an investor buys, that's another potential PPOR that is taken out of the market. So the supply of potential PPOR's for a home buyer is actually decreasing. Buying an IP is great for the investor, because not only does it allow the investor to increase their wealth, it also prevents someone else from owning that property, and hence increases the investor's wealth relative to the renter.
That is no different to families who buy homes. They tend to settle down and may hold the house for years (being less transient than renters), so they also lock houses out of the market for years.
But whereas owner-occupiers buy to house
themselves, investors buy to house
others.
Who is being the most greedy?
In a perverse way you could argue that the owner occupier is. However I am not willing to press this point very far because in both cases the house is being occupied, which I regard as a good.
In contrast, any empty house is at best bad economics and at worst almost immoral.
One could argue that seldom-used holiday houses (for example) are socially unjust since they deny a home to a local who needs it (rural coastal towns often have low wages and high house prices, so affordabilty is terrible). Unoccupied houses (and vacant land held by speculators in urban areas) are economically inefficient as they reduce supply unnecessarily for a given level of stock (which artificially inflates prices).
In both cases it is essential that the tax system treat unused non-income producing property punitively and income-producing property more liberally to maximise asset utilisation and thus efficiency. To a large extent it already does, but even higher taxes of holiday houses and unused vacant land in urban areas would not stifle productive enterprise. On this (as well as support for an inheritance tax and CGT on the family home) I am a high-taxing socialist, but only if it permits lower taxes for productive sectors.
This will never happen, and it shouldn't. But for first homebuyers to be given a decent go, investors would need to sell off and stop buying IP's.
The best thing about investors is that when they buy, the houses don't disappear. As mentioned before, made available for others. And there's a strong financial incentive for ensuring occupation, rather than leaving them empty.
Instead of a $200k house (rental value $200pw) being available to someone with $30-50k cash and $400pw spare (ie a buyer), they can be available to anyone with $800 bond money and $200pw (ie a renter).
Is the person on a low income more likely to have (a) $800 for a bond or (b) $40k for a house deposit?
(a) of course! The bank would just laugh at a person wanting a house for $800 + $200pw. But an investor won't because (rightly or wrongly) they reckon that capital growth long-term will make their -ve gearing loss acceptable.
Betting on unrealised capital growth may well be a delusion, but renters are vastly better off if investors hold such a delusion. Otherwise investors would insist on +ve cashflow and go on a buying strike until this happens.
And what would happen if investors stopped buying?
The answer is that the supply of affordable rental housing would dry up.
Yes, first home buyers might 'get a go', so they're happy.
But what about the renters?
Their rents go up since supply is down. More people occupying their own homes means fewer are available to be let to others. So there's less choice, supply falls and rents rise.
What are the implications of this on fairness, social justice, housing for all and a decent society?
The prospective homebuyer typically has this choice:
rent vs buy
So they get to keep a decent roof over their head at least, even if they can't afford to buy. And they'd have a surplus to invest in other areas, so their total wealth might not necessarily be less than if they bought their own home.
The renter has this choice:
rental house vs cardboard box/tent/caravan park
Pretty dire, eh? And those other options aren't really acceptable for a fair and civilised society are they?
If I was a welfare policy-maker (interested more in whether the population was adequately housed than its ownership status) and had to choose between favouring renters and favouring buyers, I'd give renters the benefit of the doubt.
And if the government refuses to provide sufficient commission homes, then this job must fall to private investors.
The more numerous investors are, and the more they believe that 3-4% yields are acceptable, then the more affordable rents should be. Which, for anyone genuinely concerned about social equity, cannot be a bad thing.
Peter
