It's all you Investors to Blame!

[WinstonWolfe]

Les, the view I have expressed here is based on the objective information presented in the document I provided a link to above.

Reading that document will clarify all, and be a lot more persuasive than a no one with an unpopular antagonist view. Some may easily dismiss and ridicule Winston, but not so easily the RBA and the objective methodology adopted by its authors.

As for the document being outdated, well that depends on when you believe the last unprecedented boom occurred, and its relationship to the median wage.

 

[buzzlightyear]

Some may easily dismiss and ridicule Winston, but not so easily the RBA and the objective methodology adopted by its authors..

Talking about yourself in the third person! Interesting...

Back on topic, as for the influence on government policies, given the higher proportion of individuals owning investment properties and the role the latest property boom had in this, this increases the political cost for any government to change the rules on property investment. I don't see this report as a catlayst for future change.

The recent endless articles about rental hikes (and the associated hysteria that has ensued from this) has been attributed to the lack of investors in the market for the past three years. Let's be sure to understand, any changes in the rules for PI (ie reduce taxation benefits or reduce all other things being equal, returns) will be reflected in increased rents.

Subsequent to this report (November 2003), the states haven't shown a desire to release more land for development, in fact they have added to the cost of development, making it more cost prohibitive.

I see no collective impetus from the report from any level of government to radically change the policy settings around property investment. Their only involvment has seen to increase the demand for properties. which has only exacerbated not mitigated this problem.

Finally, I would challenge the assumption that the so-called great Australian tradition of owning a home is an entitlement. The fundamental assumption of the RBA's report is predicated on this fact.

 

[alexlee]

The problem is that people's sense of entitlement is GROWING. It's not just a block of land with a house anymore. People want shopping, cafes, restaurants and a reasonable commute to the city.

There is no such entitlement mentality in Europe about owning a home. In the more expensive cities such as London and New York, sure everyone wants to live on Manhattan, but people don't think it's 'unfair' that they can't. Instead they see it as a GOAL to live on Manhattan or Kensington or whatever.

I'm sure plenty of young people say 'I'll buy a little property way out and then upgrade into the city' instead of just complain. However, the media (and govt) plays to the view of the average Australian people, and it does seem the Australian public thinks they 'deserve' an affordable home with all the amenities despire all their crazy consumer spending and financial stupidity.
Alex

 

[sailor]

I don't have much tolerance for the investor-bashers. Everyone has a choice in our society, and they can choose to fritter away their cash on doodads or invest in property. In our economy, supply and demand drive property prices...it's that simple!

 

[WinstonWolfe]

Talking about yourself in the third person! Interesting...

It's a form of rhetoric Buzz....

Back on topic, as for the influence on government policies, given the higher proportion of individuals owning investment properties and the role the latest property boom had in this, this increases the political cost for any government to change the rules on property investment. I don't see this report as a catlayst for future change.

Ergo your position is that if investor activity continues to grow, and further compete with first home buyers, the political cost of intervention becomes
ever more prohibitive.

So Buzz, it follows that you support a hypothetical scenario where 95% of under 35s rent at rates that make it extremely difficult to save a deposit faster than the price of housing is increasing...

The recent endless articles about rental hikes (and the associated hysteria that has ensued from this) has been attributed to the lack of investors in the market for the past three years. Let's be sure to understand, any changes in the rules for PI (ie reduce taxation benefits or reduce all other things being equal, returns) will be reflected in increased rents.

Subsequent to this report (November 2003), the states haven't shown a desire to release more land for development, in fact they have added to the cost of development, making it more cost prohibitive.

Sounds like you haven't read beyond the local dailies Buzz....

State and Local Level
http://www.ipa.qld.gov.au/ipaReview/expurpose.asp
http://www.ipa.qld.gov.au/ipaReview/IPA-Discussion-Paper.pdf
This acknowledges, at least in Qld, that the Integrated Planning Act and the IDAS are evolving in an effort to smooth LGA process.

There is a growing trend in major cities towards small lot housing and medium to high density. This is a far more logical solution than the belief that releasing more land solves all, especially staring down the barrel of more expensive petrol...... Infrastructure costs can be better contained by bunching people closer together near work places and current infrastructure, and allowing for more public green space. And Eslake and Crotty agree....
http://www.theage.com.au/news/business/the-great-australian-struggle/2007/03/08/1173166895673.html


Federal Level
http://www.theage.com.au/news/natio...wnership-scheme/2007/03/08/1173166895533.html

http://www.alp.org.au/media/0307/tvitre120.php
SWAN: No, it’s certainly not, and that's why we have to put maximum downward pressure on inflation and interest rates. We have to look at things like the First Home Owners’ Grant. We have to look at land release. We have to look at leadership from the private sector. I don't think there's one major solution. We haven't got in place a national strategy to deal with the problem. That's what I'm calling for.

http://www.alp.org.au/media/0107/dsi230.php
PLIBERSEK: There’s a real responsibility on all three levels of government to do something about housing affordability. What we’ve seen up to now is a lot of finger pointing and not much responsibility taken. Local government needs to do better with development application processes - cutting red tape. State governments need to do better in their areas of responsibility. We’ve had a federal government until now that completely has abrogated responsibility for housing affordability. They say it’s nothing to do with them and that’s just not right. We need all three levels of government working together to make housing more affordable for Australia’s young people

Finally, I would challenge the assumption that the so-called great Australian tradition of owning a home is an entitlement. The fundamental assumption of the RBA's report is predicated on this fact.

There's a lot of difference between entitlement and dream... I don't agree with you about the report's fundamental assumption. I think it is a very logical and objective look at why property prices moved so quickly and extremely in the last cycle.

 

[buzzlightyear]

Ergo your position is that if investor activity continues to grow, and further compete with first home buyers, the political cost of intervention becomes ever more prohibitive

So Buzz, it follows that you support a hypothetical scenario where 95% of under 35s rent at rates that make it extremely difficult to save a deposit faster than the price of housing is increasing... .

I made that comment in context of your position that this report would be a catalyst for future policy change. I simply make the point, that the greater numbers of individuals that will be adversely affected, make policy change more difficult for all levels of government (especially state and federal)

As for your hypothetical scenario, I won't bother responding to emotive and fanciful facts that are self-serving or should I say Winston-serving

Sounds like you haven't read beyond the local dailies Buzz....

State and Local Level
http://www.ipa.qld.gov.au/ipaReview/expurpose.asp
http://www.ipa.qld.gov.au/ipaReview/IPA-Discussion-Paper.pdf
This acknowledges, at least in Qld, that the Integrated Planning Act and the IDAS are evolving in an effort to smooth LGA process.

There is a growing trend in major cities towards small lot housing and medium to high density. This is a far more logical solution than the belief that releasing more land solves all, especially staring down the barrel of more expensive petrol...... Infrastructure costs can be better contained by bunching people closer together near work places and current infrastructure, and allowing for more public green space. And Eslake and Crotty agree....
http://www.theage.com.au/news/business/the-great-australian-struggle/2007/03/08/1173166895673.html .

Sorry, Winston, I am more than across the Qld government planning, it is one the reasons, along with population increases in SE Qld why I bought there in 2004. However, one state does not an integrated national approach make

As for medium density development, I ask you who is going to do this? The government with tax payer funds or investors?

Federal Level
http://www.theage.com.au/news/natio...wnership-scheme/2007/03/08/1173166895533.html

http://www.alp.org.au/media/0307/tvitre120.php
SWAN: No, it’s certainly not, and that's why we have to put maximum downward pressure on inflation and interest rates. We have to look at things like the First Home Owners’ Grant. We have to look at land release. We have to look at leadership from the private sector. I don't think there's one major solution. We haven't got in place a national strategy to deal with the problem. That's what I'm calling for.

http://www.alp.org.au/media/0107/dsi230.php
PLIBERSEK: There’s a real responsibility on all three levels of government to do something about housing affordability. What we’ve seen up to now is a lot of finger pointing and not much responsibility taken. Local government needs to do better with development application processes - cutting red tape. State governments need to do better in their areas of responsibility. We’ve had a federal government until now that completely has abrogated responsibility for housing affordability. They say it’s nothing to do with them and that’s just not right. We need all three levels of government working together to make housing more affordable for Australia’s young people
.

Unfortunately, I cannot access these links (company server has blocked these). However, it is easy in opposition (fed or state) to spout what should be done, unfortunately they cannot be tested unless you win government. I look at what the states have done since 2003, and that has been negligable on this issue. The states are all Labor too. Demonstrated performace doesn't provide confidence based on the comments of Swan & others

There's a lot of difference between entitlement and dream... I don't agree with you about the report's fundamental assumption. I think it is a very logical and objective look at why property prices moved so quickly and extremely in the last cycle.

A few things I do agree with you Winston. The report's information is logical clear and very informative. And yes there is difference between entitlement and dream. But to expect that under 35's (as you refer) can have the home that they will be living in for the next 30 years is unrelalistic.

A real life example, my parents bought there first home (actually a flat) in 1970, located in Elwood (Melbourne), well before it was gentrified and trendy, where they lived for 4 years. Then moved into a somewhat run down Victorian weatherboard in East Brunswick, which my Dad and grandfather progressively fixed over the next 5 years. They then moved into the house where they live today. No-one can expect to purchase their first home and expect this to be commensurate with their parents.

There is more than one way to skin a cat. Yes, it is difficult to save for a deposit I agree and I remember. But that doesn't stop you from investing elsewhere in the interim, even a small amount (shares for example) and building your wealth. Or you could purchase with family or friends (as many people do in the UK) if you cannot do it yourself. Or could look at investing in your education, or take a second job, or critically assess whether you need the latest plasma, mobile phone etc...

It doesn't take much to come up with simple and proactive ideas to meet the current challenges. Every generation has them.

 

[J Martin]

The argument put forward that speculative demand by investors was not the primary cause of the last property boom is ludicrous. Property prices are dictated by supply and demand. Did the population suddenly increase? Did first home buyers flood the market? Did everyone all at the same time decide they wanted to sell and move? The answer is no. What happened was the halving of CGT in '99. This led to property becoming an artificially attractive investment relative to other asset classes. The demand equation dramatically changed in a short period of time.

I don't begrudge the investor who is following the best allocation of their capital. I would, and will do the same. However, it would be naïve to claim that this provided little or no impact to housing prices.

Here's the one problem with property investing in "established" property. It's a zero sum game. You are LITERALLY taking a property out of the finite pool of established properties. That's one less property that could be bought by an owner occupier, increasing demand on what is essentially a finite resource.

Right now, there's a lot of talk about rental vacancies being at an all time low. And investors would argue that this alone is justification that we need investors in the market to keep rents under control. And I would agree with you, we do need property investors, but not in the same way you think we do(I'll get to that point in a minute). Ironically, it is investors who actually create this situation. Prices have been pushed up to the point where they are unaffordable to the masses of new potential buyers, thereby forcing them to rent. Those thousands of people who would have bought a home from 03-07 had prices not spiralled out of control are now forced to rent. The population increases, and as most of them cannot afford to buy, the pool of renters competing for a rental property increases.

Further, what a lot of people believe is that people "stopped investing in property" after the boom, and this is causing the low vacancies. Therefore, the argument goes, we should do more to encourage investors into the market. But this is an example of counter logic. More investors would increase the demand on a finite supply, thereby pushing prices further up, forcing a higher and higher proportion into renting, and the cycle of low vacancy continues. What we need is more investment in "new" property, which slowed dramatically at the end of the boom.

So what is the solution.

Heres one possible solution. Axe all CGT concessions and tax benefits for established properties purchased as investments from today onwards. Make it an even playing field. Make it non retrospective, meaning that owners who currently own established properties are not affected, and will continue to receive tax benefits and CGT concessions when and if they do sell.

Provide CGT exemptions and tax benefits for NEW properties only. Properties that add to the pool of property in a city.

So what might happen in this scenario.

The money would move to new apartments, buildings and homes, and move away from established dwellings. Consequently, you significantly increase the pool of available property over time(i.e supply). Admittedly, this would stall the growth in prices for some time assuming the supply of new property increases at a greater rate than demand. You would move more towards a yield based market rather than growth based, as we have created the economic conditions of supply/demand parity. As this disparity decreases, more people move into home ownership, decreasing the pool of renters at the same time as investors are moving away from investment in established property. Again, the big question here is whether the number of people purchasing(moving out of the rental equation) would increase at the same or similar rate as the decrease in supply of investors in the established property.

Of course, like anything, there are a number of foreseeable issues with this idea.

There may be issues with the stock of affordable rental accommodation. As the majority of investment is moving towards new housing, the stock of affordable established housing is decreasing. (as a side note, it would not decrease dramatically, as the change would not be retrospective). Since not everyone want to purchase a home, I would envisage an increase in demand for rent at the low end of the market. (these people are not interested in the relatively more expensive "new" properties). However, what we are seeing with the "current" situation is what looks to be a significant increase in rents anyway. Further, under our "current" system, once the yield becomes manageable again, investors will move back into the market, thereby increasing prices further. My solution keeps prices under control.

The other consideration is that owner-occupiers have a certain understanding that property prices move on average 10% per year over the longer term. Would owning a PPOR look less attractive if my $200,000 house was only worth $240,000 rather than $500,000 in 10 years considering I paid $100,000 in interest in that time. Would I be better off renting? Again, this is a great unknown. However, as we all know, owning your own home is more than a financial decision.

Investment in established properties does not improve the productive capacity of economies, and only serves as a government sanctioned redistribution of wealth to the current generation at the expense of the next. Investment in new housing, however, is advantageous to all(except green groups…which is another story entirely..suffice to say that I think most people would prefer their children had affordable housing rather than saving the spotted tree frog..but I digress).

I think we are only really beginning to understand the implications of high property prices on the next generation. And unless something dramatic is done to curb speculative investing at the expense of people wanting to "put a roof over their head", there will be major social and political implications in the future.

Finally, I want to state that I don't have any issue with property investors. It makes fiscal sense to do everything in your legal power to improve your situation. I am merely trying to point out the societal implications of our decisions, and what can be done to improve the system for all.

 

[tubs]

I dont think that the previous boom was investor driven. IMHO, the factors were:
- Low interest rates
- Really easy access to money (banks easing their lending criteria, new lenders out in the market etc)
- Better debt management'schemes' such as debt consolidation, redraws, offsets etc which led to more willingness to borrow, all adding up to the big one,
- Pack mentality.

I think the investors were riding the wave, but not really causing it.

 

[LynnH]

What happened was the halving of CGT in '99. This led to property becoming an artificially attractive investment relative to other asset classes. The demand equation dramatically changed in a short period of time.

Hi JMartin

When CGT was halved in 1999, it was halved for all assets held for longer than 12 months, as far as I am aware.

So could you please explain why you think that property became more attractive as an investment relative to other assets?

Cheers
LynnH

 

[WinstonWolfe]

The argument put forward that speculative demand by investors was not the primary cause of the last property boom is ludicrous. Property prices are dictated by supply and demand. Did the population suddenly increase? Did first home buyers flood the market? D

JM, I agree with most of what you say......

Though I vary on the role of CGT concessions driving the last property boom. Rather, I agree with the productivity commission's view.
http://www.rba.gov.au/PublicationsA...ommision_inquiry_on_first_home_ownership.html
The full document is here:
http://www.rba.gov.au/PublicationsA...ductivity_commission_first_home_ownership.pdf

As I have related above, they reason that prices were driven by a loosening of credit (pp 35 section 2.4) and an increase in the popularity of investing in property, for which property seminars played a significant role (pp45)

The full document is highly erudite and illuminating, and I wish other investors would take the time to read it.

Like you, I am not against property investing, as long as it is not creating adverse outcomes...

I have come to a similar conclusion to you and Saul Eslake that investors are better to increase the property pool, rather then compete with other investors and FHBs for an existing finite pool. And I believe govt policy will steer towards this...

http://www.theage.com.au/news/business/the-great-australian-struggle/2007/03/08/1173166895673.html

"ANZ chief economist Saul Eslake, who spoke at a housing conference in Melbourne yesterday, said the way to deal with affordability was to increase stock rather than put more money into buyers' hands.

He said government actions such as increasing first-home buyers' grants, stamp duty concessions or rent assistance would inevitably result in dearer houses. "Policies which work only on the demand side of the housing market are doomed to fail," he said.

"Instead, policy needs to focus on increasing the supply of housing — particularly low-cost housing — and reducing the time taken to bring land and housing to market."

Mr Eslake said that despite the housing boom ending in most cities about three years ago, property prices had shown "remarkable resilience".

The lower interest rate environment, greater competition in mortgage markets and rising real incomes had fuelled borrowing and contributed to the price increases.

Although the borrowing capacity of buyers had more than trebled in the past 15 years, and immigration risen, there had been no corresponding increase in the supply of housing."

 

[want2bewealthy]

These types of "people" are too busy spending time at the mall and cant for a moment fathom actually putting a few bucks aside each week, its called two things, stupidity and jealousy.

I dont care, nor do you or you wouldnt spend your time here, youd probarbly be down the mall too
Matter of fact, it makes me feel goood.

 

[Les]

G'day JMartin,

Here's the one problem with property investing in "established" property. It's a zero sum game. You are LITERALLY taking a property out of the finite pool of established properties. That's one less property that could be bought by an owner occupier, increasing demand on what is essentially a finite resource.

Say wha? And isn't that EXACTLY what OO's do? Why is it OK (in your eyes) that Owner Occupiers CAN buy a house (and take it out of a finite pool, leaving less options for renters) but investors CAN'T or shouldn't? Don't investors, when buying, then allow someone, who can't yet afford to buy, to rent a home (this ADDING to the available pool of rental properties)? Or doesn't that count with you? As a youngster, I also had to rent for a number of years. Where would I have been if investors hadn't invested back in the 60's? I shudder to think.

And what ARE the ratios of OO to Investors? Isn't it something like 7:1? (70% of people are OO - while only 10% (at best) are investors. And OO's will usually pay MORE to get a place (thus pushing up prices for ALL!). Thinking further, that means 30% are renters (and growing, I'm hearing) - so we investors had better ensure we each own at least 3 so that the 30% CAN rent a property until they are ready to buy.

Sorry, mate, but your argument doesn't hold water with this little black duck. It seems you are very selective in just what statistics you push in an attempt to score a point. In fact, this is the kind of stuff I (don't often) read in daily newspapers - are you a reporter perhaps?

 

[Les]

G'day WW,

And thank you for the links you posted. There is some seriously good information in there.

He said government actions such as increasing first-home buyers' grants, stamp duty concessions or rent assistance would inevitably result in dearer houses. "Policies which work only on the demand side of the housing market are doomed to fail," he said.

"Instead, policy needs to focus on increasing the supply of housing — particularly low-cost housing — and reducing the time taken to bring land and housing to market."

Re the bolded bit, Yep - and THAT is what has contributed markedly to this last boom (not investors who buy property at LOWER prices than OO's). The ease of money supply, the failure of Govt's to release land as/when required, and the FHOG increases all served to boost purchase prices. And I think the Sydney Olympics helped somewhat too....

Anyway, as I said, a top post - so thanks,

Regards,

 

[sailor]

Hypothetical questions:

If private investors were barred from the RE market, where would all the people live, who can't afford, or choose not to, live in their own home?

And further, if these renters had to pay full price for their rent, how could they afford it, given that much of the IP's in this country are negatively geared (ie subsidised by the investor themselves)?

 

[alexlee]

Hypothetical questions:

If private investors were barred from the RE market, where would all the people live, who can't afford, or choose not to, live in their own home?

And further, if these renters had to pay full price for their rent, how could they afford it, given that much of the IP's in this country are negatively geared (ie subsidised by the investor themselves)?

Rent would rise to the point where institutions decide it's worth it to buy resi IPs. As per your second point, prices would likely fall before that.
Alex

 

[Les]

An olive branch perhaps....

G'day J Martin,

On a re-read, I noted that A LOT of what you have to say is worthy of note. Unfortunately, I picked up on your introductory line (which, by the way, I STILL disagree with). If it were not for THAT line, I would have probably been less polarised about my reply. It seemed to be a "shocker" - was that what you were aiming for (if so, you succeeded)? Or do you still believe this? If you do, we may need to chat a bit...


But then, you finished with this:-

Finally, I want to state that I don't have any issue with property investors. It makes fiscal sense to do everything in your legal power to improve your situation. I am merely trying to point out the societal implications of our decisions, and what can be done to improve the system for all.

And that bolded bit is worthy of some thought, even though I can testify that this "way of doing things" has been on-going for the last 40 years at least (I can't testify prior to that).

And, yes, you also made good points re "wealth transference between generations" (also been manifest over the last 40 years at least).

So, leaving aside your opening comment, I tend to have found some "common ground" with you (I think). I don't necessarily agree that your proposed solution is THE answer, but I do see that your thoughts are worth far more than the "knee-jerk reaction" that I posted to your opening line.


On to the good stuff then - J Martin, how do you see that such ingrained beliefs might be changed?

1. Should today's "youngsters" be denied the learning process that most "oldies" face in growing in this world of ours? (It took ME a while, let's face it). What if you turned MY world upside down in the twinkling of an eye today? Is that worthwhile to others? It certainly wouldn't be to me.

2. What would be the effect of changing things markedly to achieve what you seem to be proposing? Have you thought this through? To me, it sounds like a project FAR more difficult than introducing "decimal currency" was - and that took some years. Certainly, it should not an "overnight" change.

3. With the "well-known" problems facing Govts in providing pensions to tomorrow's aged, is this a good time to be promoting such change? (I, for one, am intending to not need a pension - but your ideas, if instigated, could ensure I DO need one - is that goodness?)

4. Even 45 years ago, my wife and I STRUGGLED to buy our first home (we had been renting prior to that). Should today be any different? I think we learn so much in those hard times. Should we deny that learning to our youngsters?

5. Each generation is different (wasn't it always so?). If today's world is "so hard to succeed in", what would stop todays youth from setting up house in Bathurst, or Dubbo, or Mount Isa? Property is cheap, but the Internet is everywhere !!! Why could they NOT do this? Do they miss the traffic?

Yes, I know, I'm an old B--ger - my struggles haven't overly hurt me (quite the opposite). Back then, it would have taken 7 years pay to buy our first house. (Mind you, after I took that second job back then, things did get a bit easier....) How is today different?

Regards,

 

[convert2online]

I think this kinda of thing happens in any industry really, those that find something challenging try to put down those that are successful and as someone mentioned before with this kind of attitude you are never going to succeed

 

[nonrecourse]

Land of opportunity

As a teenager I was an avowed communist until I went to the workers paradise (East Germany in 1973) and woke up to reality. The social engineers of the world fail to understand human nature. The old adage if your not a socialist in your teens and twenties, you have no heart but if your a socialist after the age of 30 you have no brains is

I tend to be very cautious when speaking with friends or associates about my property investing because of the attitudes expressed by some even here in a property investors forum.

Having spent 5 years backpacking around the world in the 1970's, when I came to Australia I thought I had died and gone to heaven and that is why I made it my home.The opportunities in this country are only limited to your imagination.
We have friends who constantly tell their children they will never be able to afford to buy a home. Because of that constant negative feedback in their case unfortunately it will probably be the case.

 

[emptyvessel]

Just had to bump this thread 4 years later

Reading this thread from 2007 is just like reading something from 2011.

- The masses are still claiming "it's unaffordable" (Even though these are my friends and I haven't heard one of them say that. The media still says they are.)
- Investors are still being blamed.

This gives me great comfort that things are gonna be just fine and my boring strategy will work out. Fantastic.

 

[Telejazzer]

I don't talk to people much about investments, heck I don't really talk to people much unless they're investors themselves. There was a time where I wanted to share because I want to help in some way but I'm simply too tired sometimes.

Anyway, just to add to the conversation, what about the marketers that sell overpriced properties to unsuspecting mums and dads marketing them as 'investment properties'? Could they be part of the cause for property prices going up? I have no real opinion about this as I don't know the numbers, it's just a thought.

The thing is how can people (investors) looking for undervalued assets like property cause something to go up? I think somebody here mentioned 'investors ride the wave, not cause it' or something like that.