It's all you Investors to Blame!

[Macca]

Quote :
"Traditionally, in Australia, the median house price has been around three times the median household income. For example, when the median income was $10,000 per annum in the 1970s the median house price was $30,000. And when the median income was $1,000 per annum one could buy a basic house on a basic block of land for $3,000. Young couples got a start in the housing market and worked up from there.

Today, in Adelaide, Melbourne and Brisbane, the median house price is more than six times the median income and in Sydney and Perth more than eight times. The social and economic consequences and long-term ramifications of this problem are horrendous and by and large not at all understood. "


When comparisons like this are made, it really highlights how stupid or naive some of our so called experts are.

Back in the 70's, when a woman married she was sacked, all banks, ins co's, govt jobs etc etc, if you got married you HAD to resign.

The wages they are quoting were all ONE income families, today they are virtually all TWO income families.

A house is only worth what someone can afford to pay for it, if both work they can borrow more, so the prices are affordable, the sale is made and the market is maintained.

If we brought in a law which took all households back to ONE income, house prices would crash overnight.

In Sydney for example, a couple who both work could easily be earning 100k, multiply by three you have 300k, plenty of basic houses or apartments in Sydney suburbs for less than that. By saving $700 $800 a week for five years they have $150k to $200k deposit, they borrow $150k to get a home, I don't think that is any harder than back in the 70's.

In reality most couples would be earning $120,000 so that would be $360k to buy a house, in the height of the boom it would have been hard, but just be patient and wait for a reasonable deal and you can get there.

 

[wylie]

Just to clarify, back in the 70's when a woman got married she was not sacked. I worked in a bank in the 70's and there were married women all over the place.

I was born in 1960. However, my mother's generation certainly did have to leave the workforce when they married. So it would have been the 50's (not the 70's).

Wylie

 

[Peter Parker]

I was born in 1960. However, my mother's generation certainly did have to leave the workforce when they married. So it would have been the 50's (not the 70's).

For the public service it was 1966.

http://www.apsc.gov.au/media/shergold080397.htm

I would expect that big corporates would have been similar.

With the 2-income household improving serviceability, banks were happy to oblige by reducing the size of deposit required and increasing permitted LVRs.

The difference between an 80%, 90% and 95% LVR might not look much, but provided the serviceability is there, one can borrow FOUR TIMES as much with a 95% LVR as one can with an 80% LVR.

Peter

 

[Dazz]

the landlord said that I should say I was with the an oil company or I will be out of that pub as well.

That's classic.....you big bad property developers have got such a bad name you need to hide behind the squeaky clean image of the oilfield worker....

 

[Macca]

My wife worked in the Commonwealth bank and she had to leave when we got married in 1971.

It may not have been compulsory after 1966 in the PS, but I recall that if you kept working after marrying you were certainly looked down on.

Looking at Spidermans numbers, from memory, I think it was 25% deposit needed back then, so that would also effect how much we could borrow.

I do think that land and houses have increased more than other things but virtually everything else has gone down, after taking inflation into account.

I guess that also leaves more money to be chasing after houses doesn't it

ps: it was also very common to start breeding at an earlier age, most parents were under 25 when their first child was born, that would also limit the money for RE.

 

[grossreal]

hi dazzling
I did think of used you advar and say I was dazzling not grossrealisation.
I did meet a very interesting italian guy that was a company rep that just checked on the productivity of the plants and we had a very interesting chat as he was from italy it was more of a chat about roma and venice instead of real estate.
we have got a very bad name
we are responsible for half the worlds woes and the other half is our fault as well, just that people haven't worked out how to blame it on developers yet.

 

[WinstonWolfe]

Maybe some of the diehard property investor perspective above could be tempered with a modicum of objectivity, as found in this RBA document.

http://www.rba.gov.au/PublicationsA...ommision_inquiry_on_first_home_ownership.html

There, an impartial mind not punch drunk on its own smallsville bravado, nor one bubbly cycle's IP profits, will learn that investors are indeed responsible for the greater portion of the last cycle's historically unprecedented affordability blowout.

But then, many investors are just the witless automatons of banks (and property semineering screwyous (I mean gurus).

If banks had not loosened credit on an asset class that is essentially traded via debt, and property guruhood and religiosity was not the fastest growth industry of the noughties, then property investment would not have changed as significantly between 2002 and a decade earlier.

 

[alexlee]

I don't necessarily disagree with any of that, but it's reality, and another bit of reality is that many of us started with no property and bought them one by one. What stopped everyone else from doing so? If people revel in cheap rents and buy plasmas and cool cars you can't turn around and say 'well, it's the nasty investors pushing us out of the market'.

As for being tools of the banks...... so what? The fact is that banks HAVE increased lending. Whether that's a good or bad thing is up to debate, but it is what it is. People who have taken advantage of this new development (though I'm also expecting a liquidity crunch sometime soon) have done well. As it is with any new development: people who take advantage of it prosper and people who insist the world is what it used to be suffer.

I don't believe a country makes an implied promise to its people that they should all be able to own nice homes near to their place of work. Europeans certainly don't, and many major US cities are totally unaffordable to ordinary people. Maybe this is a natural development of capitalism. You can argue that it is not a good thing, but I try not to fight reality but try to prosper within it.

Incidentally, I don't support most of the 'gurus' out there either. But it's a stretch to lump your ordinary investor who just buys IPs conservatively to create a nestegg for him/herself and the family and a seminar presenter who is only interested in flogging overpriced properties.
Alex

 

[WinstonWolfe]

As for being tools of the banks...... so what?...........
(though I'm also expecting a liquidity crunch sometime soon)

and that will benefit one's offspring how?

the issue with downplaying the importance of those in the too hard basket, long term, consequences, is that a civilization tends to extinguish itself....or lose the competitive advantage, which leads to the same thing....but if you are only aspiring towards your own material comfort over the next 60 years, and have no interest in perpetuating your knowledge and values via offspring or culture, then it's perfectly understandable to say "so what?"

We'll all be better off if we think smarter about how capital can best be utilized. Indeed, that is an imperative of a successful free market economy.

When we think only of how capital might satiate us as individuals, then who ya going to trust?

Incidentally, I don't support most of the 'gurus' out there either. But it's a stretch to lump your ordinary investor who just buys IPs conservatively to create a nestegg for him/herself and the family and a seminar presenter who is only interested in flogging overpriced properties.
Alex

Alex, I was referring to semineering, not marketeering.

 

[alexlee]

and that will benefit one's offspring how?

My offspring can take care of themselves.

the issue with downplaying the importance of those in the too hard basket, long term, consequences, is that a civilization tends to extinguish itself....or lose the competitive advantage, which leads to the same thing....but if you are only aspiring towards your own material comfort over the next 60 years, and have no interest in perpetuating your knowledge and values via offspring or culture, then it's perfectly understandable to say "so what?"

Now we're on the same page. You definitely do NOT want me to perpetuate my values. I'll teach my offspring my values, though I'm not sure what they'll turn into if they get my values from birth.

We'll all be better off if we think smarter about how capital can best be utilized. Indeed, that is an imperative of a successful free market economy.

Still don't see what that has to do with whether we invest in property or not.

When we think only of how capital might satiate us as individuals, then who ya going to trust?

To do what? I'll make people trustworthy by aligning their profit motives with mine.

Great philosophy, Winston. Given that this is a property forum, we're naturally disposed towards seeing things from the landlord point of view.
Alex

 

[tubs]

I can't see how investors are driving the market.

First of all, around 80% of houses are owned by owner occupiers, and not investors.

Secondly, investors try to get houses for as low a price as possible (as also pointed out by Les).

If only 20% of the market is investing, and they're trying to pay low prices, then its got to be the 80% who want to pay high prices that are pushing it.

In fact, I bet that most of the houses that sell for the upper half of the hoped for price are owner occupiers, not investors.

In fact, its all these owner occupiers who are making life difficult for us poor investors!

 

[Rixter]

If only 20% of the market is investing, and they're trying to pay low prices, then its got to be the 80% who want to pay high prices that are pushing it.

Bill Zheng at his seminar in Perth last night quoted "1 in 1000" people purchase & hold 4 IP's or more.

Thats 0.1% of the population!

 

[McBrain]

There's been a raft of anti-property investor editorials in The Age (Melbourne) recently. I was quite taken-aback at the strong views from their economics editor and others. There seemed to be a new story every day about how battlers were being priced out of the market, anti negative gearing, etc, etc.

I always assumed that the journos that wrote these articles were well-rounded economists that had a good grasp of how things worked and gave balanced views of what was going on. But after the recent spate of articles I will read any future ones with a pinch of salt.

Tuesday February 27, 2007
The shortage that needs building on
As the real estate market sizzles, the rental housing crisis worsens.
http://www.theage.com.au/news/tim-colebatch/the-shortage-that-needs-building-on/2007/02/26/1172338542675.html
"the invasion of tax-driven investors priced them out of the market."

Tuesday February 13, 2007
Home, sweet dream
For the first time, the average household can no longer afford the average home.
http://www.theage.com.au/news/tim-colebatch/home-sweet-dream/2007/02/12/1171128895298.html?page=2

 

[yo yo ma]

And it's not just News Limited publications doing it. Here is one from the new Fairfax paper, The Brisbane Times
http://www.brisbanetimes.com.au/new...ing-off-tenants/2007/03/15/1173722657554.html

"Landlords are taking advantage of low rental vacancy rates to force tenants to accept high prices and unreasonable conditions.
Renters with little option, and in some cases nowhere to go, were sacrificing their rights to put a roof over their heads, according to one advocate."

I would think it is the simple economics of supply & demand.
Steve

 

[alexlee]

Indeed, not many years ago tenants were being offered rent free periods, and if I'd been looking for a place to rent I would have asked for rent free periods or a decrease in rent. How is this different? It's not. But for your average 'battler' its great when you can 'get revenge' on the bloodsucking 'landlord class' and a violation of your rights as an Australian when the landlord class gets its own back.

The irony is that most of the 'bloodsucking landlords' being vilified in the press for exploiting 'battlers' ARE battlers themselves, often owning one IP and getting killed by negative cashflow.
Alex

 

[WinstonWolfe]

Of greatest pertinence at the link I posted above, are Pages 17-27.

I take it posters on this thread do not comprehend the importance of this document or its influence on future federal, state, and local govt policy.

 

[Norwester]

It's all my fault...........

That some poor battlers ended up paying 2.5K more than they should have, and that over the next 20 - 30 years that will cost a packet in interest and they wont be able to pay for their kids schooling, braces or some other stupidity like that.

I wanted it for its yeild and untapped development potential. They wanted it as PPOR because they liked it........

I feel so guilty about it that I'm not even sleeping at night now..........

.........and I wouldn't even class myself as an *investor*

Isn't this what capitalism and free markets are supposed to be all about?

Grossreal,

Sorry to hear about the poor reception you got up here. The folks over here never seem to take kindly to *Eastern Staters* coming over and telling or even suggesting that there are other ways to do things. They always seem to like to find out for themselves...............

I think it has something to do with the Nullabor...........although with the internet and other technology I think they are starting to catch up a bit...........

ciao

Nor

 

[Peter Parker]

I can't see how investors are driving the market.

Different sub-markets behave differently.

Speaking generally, units are mostly investor-owned rentals whereas most houses are owner-occupied.

Since there are some suburbs where units are hardly cheaper than houses, this must indicate that some (possibly inexperienced) investors are willing to pay dearly for a unit relative to what an owner occupier would pay for a house in the same area.

The nature of being a landlord (ie rental income) and the existence of tax deductions makes the consequences of such overpaying easier to bear than the owner occupier who paid too much for their home.

The third (but less known) factor that affects a person's ability to afford to service a leveraged property, apart from their income and the property price, is the way in which the property is held (ie owner occupier or investor).

Given identical incomes and properties, an individual can generally afford to buy about twice as much property if bought as rentals than if purchased as a PPOR and/or holiday home. This is largely due to income from the tenant supplemented by help from the taxman. And as others here have found this ratio can be even higher if buying higher yield IPs or in cheaper areas.

I am of the view that financially people generally do not grow up. Give most people more money and they will misuse it. A child may want his mum to buy a new toy because 'all the other kids have them'.

40 years later when he is a company executive or board member he will be comparing his pay to what others apparently get. The only exception is that such behaviour is not called 'whinging' or 'being a spoilt brat' but dignified by names such as 'benchmarking', but exactly the same mentality is there. A suit, tie and a $200k package do not change human nature. *

And I suspect that just as subsidising first homebuyers mean that they just buy a bigger house (until prices go up so they're back where they started but worse), the much better affordability of IPs vis a vis PPORs is also responsible for some less than prudent decisions.

Peter

(*) Comparison owes heavily to W. Buffet's latest annual report.

 

[buzzlightyear]

Of greatest pertinence at the link I posted above, are Pages 17-27.

I take it posters on this thread do not comprehend the importance of this document or its influence on future federal, state, and local govt policy.

Winston, you obviously have an opinion as to what this document means for future policy, I would be interested to here it?

 

[Les]

G'day Winston,

I think your quoted link must be a year or two out of date:-

In Australia, where the top marginal tax rate on income cuts in at a relatively low income ($62,501), there is a large proportion of taxpayers who are attracted to investments which will lighten their tax burden.

I'm not an accountant, but I have a vague feeling that the $62,500 (top marginal rate) disappeared a year or two back. Not that I'm complaining, mind.

Aren't we just a couple of months away from $150k as being the "top marginal cut-in rate"? This means I'll pay less Tax, but (in direct proportion), I'll get less of a Tax rebate on negatively geared properties. Que sera sera.

Of greatest pertinence at the link I posted above, are Pages 17-27

Do you mean points 17 - 26? I'd be working to stay focussed long enough to read a 27 page document (unless it was rivetting stuff).

If banks had not loosened credit on an asset class that is essentially traded via debt.... ...then property investment would not have changed as significantly between 2002 and a decade earlier

Ah, come on, Winston. Would you have REALLY wanted for Australia to persist with the recession that we really DIDN'T have to have? Do you want to bring us back to the early 90's? What would that achieve?

For me, the 90's were a period of "enduring" that I guess we need to go through now and then. But to CONTINUE in "enduring" mode? No, not a good idea. We (all) need peaks and troughs - a bit of hope that "things will be better" - are you saying "things should NOT be better?"

I'm lost with understanding just where you are coming from... Do you want to spend a bit more time on this subject? We are all here to learn (and can learn from everybody),

Regards,