Many here will know of Noel Whittaker - highly respected and knowledgeable commentator and participant in the world of investment.
I received his latest email newsletter today:
"HOUSING AFFORDABILITY
For months there have been headlines galore about the rental crisis, but you have to experience it firsthand to get an inkling of how tough it is now for prospective tenants. Actually, in my own case, it’s second hand, because it is my daughter who has been going through the trauma of looking for a place of her own, and who finds herself being asked to join a “caravan” of 20 or so prospective tenants who are required by the real estate agent to turn up at an appointed time to take a whirlwind tour of one of the few properties that are available. Those who like the property are then invited to make applications and submit bids.
The situation can only get worse with rents tipped to rise by as much as 50 percent in the next four years.
The problems began around 2000, when world share markets plunged and investors everywhere fled from shares to the perceived safety of property. As a result, house prices started to rise and a worldwide property boom got underway.
This flight to property was exacerbated in Australia because the Howard Government introduced the First Home Owners Grant to compensate for the GST, but made the mistake of including it for the purchase of established homes, even though they are not subject to GST.
It’s hard to believe today but in 1977 in Brisbane, average earnings were $14,410 a year and a house cost around $31,000 – just 2.15 times earnings. Prices crept up slowly, but by the year 2000 the average house still cost $143,000 or 3.44 times the then average wage. Thanks to the boom house prices skyrocketed in the period between 2000 and 2007, and the average price of a home now is $410,000, or more than seven times earnings.
Think about it in practical terms. A first home buyer who wants to buy a $410,000 house, the average price, will have to save at least a $50,000 deposit and then have the ability to make mortgage repayments of $2900 a month or $667 a week. It’s obvious why there is a rent crisis.
The Rudd government has announced a significantly expanded national rental affordability scheme to encourage investors to build up to 100,000 new affordable rental properties. Under the scheme, the Commonwealth will provide private investors with tax credits for 10 years for new properties that are rented at 20 percent below the prevailing market value. To further assist prospective landlords, State and Territory governments have agreed to provide $2000 a home by way of cash payments or concessions on stamp duty.
That all looks good on paper, but it’s a lousy deal for mum and dad investors. On the government’s own figures, the rent on a three bedroom home would fall from $350 to $280 a week, which is a reduction in rent to the landlord of $3640 a year. After allowing for the $6000 tax credit, they are only $2360 a year better off than if they went their own way and found their own tenants. To make it worse, they are now locked in to a rent controlled environment, and all the problems that go with that.
There are also huge potential problems if they wish to resell. Does the buyer raise the rent and forego the tax benefits, or do they look for a less restricted investment in which to place their hard earned dollars? Recently I took part in a debate on this on ABC Radio National on their Australia Talks programme. One of the other panellists was Professor Terry Burke, Professor of Housing Studies, Swinburne University Institute for Social Research. He claimed the scheme had worked well in Germany and was aimed mainly at institutional investors. Frankly, if I was CEO of a large institution, that’s the last place I’d want to put any part of the company’s assets."
Good luck with that, Lapdance Kev.
I received his latest email newsletter today:
"HOUSING AFFORDABILITY
For months there have been headlines galore about the rental crisis, but you have to experience it firsthand to get an inkling of how tough it is now for prospective tenants. Actually, in my own case, it’s second hand, because it is my daughter who has been going through the trauma of looking for a place of her own, and who finds herself being asked to join a “caravan” of 20 or so prospective tenants who are required by the real estate agent to turn up at an appointed time to take a whirlwind tour of one of the few properties that are available. Those who like the property are then invited to make applications and submit bids.
The situation can only get worse with rents tipped to rise by as much as 50 percent in the next four years.
The problems began around 2000, when world share markets plunged and investors everywhere fled from shares to the perceived safety of property. As a result, house prices started to rise and a worldwide property boom got underway.
This flight to property was exacerbated in Australia because the Howard Government introduced the First Home Owners Grant to compensate for the GST, but made the mistake of including it for the purchase of established homes, even though they are not subject to GST.
It’s hard to believe today but in 1977 in Brisbane, average earnings were $14,410 a year and a house cost around $31,000 – just 2.15 times earnings. Prices crept up slowly, but by the year 2000 the average house still cost $143,000 or 3.44 times the then average wage. Thanks to the boom house prices skyrocketed in the period between 2000 and 2007, and the average price of a home now is $410,000, or more than seven times earnings.
Think about it in practical terms. A first home buyer who wants to buy a $410,000 house, the average price, will have to save at least a $50,000 deposit and then have the ability to make mortgage repayments of $2900 a month or $667 a week. It’s obvious why there is a rent crisis.
The Rudd government has announced a significantly expanded national rental affordability scheme to encourage investors to build up to 100,000 new affordable rental properties. Under the scheme, the Commonwealth will provide private investors with tax credits for 10 years for new properties that are rented at 20 percent below the prevailing market value. To further assist prospective landlords, State and Territory governments have agreed to provide $2000 a home by way of cash payments or concessions on stamp duty.
That all looks good on paper, but it’s a lousy deal for mum and dad investors. On the government’s own figures, the rent on a three bedroom home would fall from $350 to $280 a week, which is a reduction in rent to the landlord of $3640 a year. After allowing for the $6000 tax credit, they are only $2360 a year better off than if they went their own way and found their own tenants. To make it worse, they are now locked in to a rent controlled environment, and all the problems that go with that.
There are also huge potential problems if they wish to resell. Does the buyer raise the rent and forego the tax benefits, or do they look for a less restricted investment in which to place their hard earned dollars? Recently I took part in a debate on this on ABC Radio National on their Australia Talks programme. One of the other panellists was Professor Terry Burke, Professor of Housing Studies, Swinburne University Institute for Social Research. He claimed the scheme had worked well in Germany and was aimed mainly at institutional investors. Frankly, if I was CEO of a large institution, that’s the last place I’d want to put any part of the company’s assets."
Good luck with that, Lapdance Kev.
