Solving the housing affordability crisis

Here's an article in the SMH, that effectively questions the notion of property as an investment.

http://www.smh.com.au/opinion/editorial/housing-market-needs-a-slow-leak-20110603-1fkts.html

"And policies encouraging home ownership have been popular precisely because they assume ownership is a first big step on the ladder to amassing lifetime wealth. But the fees associated with buying a home, the cost of upkeep and other risks of home ownership in fact make it a poor investment -

Read more: http://www.smh.com.au/opinion/editorial/housing-market-needs-a-slow-leak-20110603-1fkts.html#ixzz1ONiMCdp3"

Its a slightly confusing and schizophrenic piece, but appears to want to say a few home truths, but hardly dares to

People will have their own judgements about property as an investment, but I have always believed there are two distinct views that have been less than enthusiastic about property as an investment in this country.

Firstly, the sharemarket/fund management professional. Those who belief that making money and investing money in the sharemarket has a higher intrinsic and economic value than property does. Re-inforced by the inevitable educational and professional requirements that these industries are required to follow. And the view that because the sharemarket is a more sophisticated investment vehicle, and the view that 'any schmo' could have made money in property means, then PI is 'below' them.

And those who are bringing back the late 19th & early 20th century Eurocentric view that thought of property should be for shelter only and not for exploitation to be used by 'wealthy' individuals. It is not considered socially acceptable that property is an investment tool. Many social groups have this fundamental premise underpinning their views on property, property prices and taxation of property eg Get Up
 
If the median house price has increased at a more rapid rate than the median household income then obviously median income households have two options:
1) Live in lower end housing
2) Take on more debt

But if the median income earners are living in the low cost housing then where are the low income earners living? And if home buyers are taking on more debt and we have become much more leveraged in property what is the impact on our economy during periods of rising unemployment and interest rates?

Am I missing something?

According to this forum young people think that their 4 bedroom, 2 bathroom house in the mortgage belt is an investment and doesn't concern themselves with questions such as "What happens if I lose my job?" or "What happens if interest rates rise?" Instead they buy iPods, iPads, Plasma TVs, brand new cars and yearly trips to Europe on high interest credit.

If these are the people who are buying houses why aren't you as worried as I am that something is going to go wrong?

The people who are worried about housing affordability like myself..are probably the sensible ones. We do the math and think should I take out a 30 year loan, which consumes 50% of my income and is worth 6x my annual income (assuming a $300,000 loan and a $50,000 yearly salary). Ummm..probably not!

I'm not planning on sitting around and complaining and I have a bunch of strategies to overcome my affordability issues like;
-Live at home/in a share house and buy an investment property
-Purchase a 2 or 3 br house and rent out the spare rooms
-Wait until my income increases
-Save up a massive deposit
-Buy a property with 1 or 2 friends
-Move overseas

But I just can't ignore this issue!

I'd be looking to social change as one of the indicators, specifically that 30 years ago most homes were bought with one income, now they're bought with two.

Of course housing is expensive right now, we all know that. What I find interesting is that people seem to be operating under the assumption that housing will always be this expensive. Maybe it will, maybe it won't. I think it will get cheaper in the short term, more epxensive in the long term.

Frankly, I think we need to accept that sometimes things get more expensive, and we need to adapt. Australia has the second highest standard of living in the world. If need be, people can tighten their belts a bit. Also, people are still buying houses at current prices (which admittedly are softening), so it's illogical to suggest that noone's buying.

Also, I disagree with your maths. Sure, you can take that 30 year mortgage, but the percentage of your income used to service this mortgage will drop over time. During year 10 you shouldn't be paying anything like the proportion of income that you paid in year 1, and year 20 will be that much less again. A home loan, used properly, is often a sacrifice at the start that improves over time.

And FWIW, I don't have any 4 BR 2 bath homes in the mortgage belt that I consider to be investments. I do have one that I live in, though. When I bought it, the mortgage took a big chunk of my income to support. 10 years later, I'm less than 12 months from owning it outright. And it's value has nothing to do with it.
 
And those who are bringing back the late 19th & early 20th century Eurocentric view that thought of property should be for shelter only and not for exploitation to be used by 'wealthy' individuals. It is not considered socially acceptable that property is an investment tool. Many social groups have this fundamental premise underpinning their views on property, property prices and taxation of property eg Get Up

I think the European approach has less to do with social issues, and more to do with the fact that property is regarded more as a consumer durable, that can decrease in value with wear and tear.

Capital gains have become the norm in Australia over the last couple of decades, whereas in Europe, capital gains are normally achieved by adding value, (developing), or discovering new areas of demand, (rare in the more developed countries, but possible in new 'holiday' areas).

Otherwise, property is expected to return sensible real yields, typically a few pips above base, to cover costs. The government intervention in the Australian market, designed to encourage investment, has to some extent led to a market that is often driven by capital gains, leading to a difficult market for many investors, who although encouraged in, do not see good returns with regard to cost.

In my experience, this can also lead to investors not having good enough returns to carry out necessary maintenance, not a good situation for all.

It will be interesting to see where this all leads, there definitely seems to be so serious questioning going on with regard to the current policies, lets hope things can sorted without too much ruckus for all involved.
 
But affordable housing is an issue for all people whether they are single without children, single with children, a couple without children or a couple with children. To say that housing is affordable because a couple with dual incomes can afford it when a single person or a single parent can't doesn't make a lot of sense to me.

Part of the social change over the past few years is that we have more single parents and more people living alone (widows/widowers due to the ageing population and young singles), isn't housing affordability for them an important issue?

I'd be looking to social change as one of the indicators, specifically that 30 years ago most homes were bought with one income, now they're bought with two.
 
But affordable housing is an issue for all people whether they are single without children, single with children, a couple without children or a couple with children. To say that housing is affordable because a couple with dual incomes can afford it when a single person or a single parent can't doesn't make a lot of sense to me.

Part of the social change over the past few years is that we have more single parents and more people living alone (widows/widowers due to the ageing population and young singles), isn't housing affordability for them an important issue?

Don't get me wrong: I am not saying that housing is as affordable as at other points in history. I am saying that:
a) although many people assert that housing is unaffordable, we still have people buying property, and still have about the same proportion of people living in owned versus rented accommodation as 10 years ago; and
b) Australia has a higher standard of living than almost anyway else in the world, meaning that housing may be harder to get into, but is not genuinely unaffordable provided people are willing to sacrifice other luxuries.

There are people who genuinely can't afford to buy a property, just as there have always been. There are also people who can't afford the property they would like, just as there have always been.

Don't forget, many of those desirable but 'unaffordable' properties were yesterday's bad neighbourhoods. I don't think this is as much of a societal problem as we think - it's a symptom of a market that moves up and down with supply and demand.

Want to solve the housing affordability problem? Start campaigning for more and easier development. Lobby governments to release more land, and building more transport infrastructure. Hassle councils to reduce development fees and taxes.

Property in highly desirable locations will, in the longer term, become even more expensive. This is a symptom of more money chasing fewer properties, thus driving up the price. Average and below income earners should not be expecting to be able to purchase these properties without significant planning and sacrifice, as they will be competing with people with much fatter wallets.

FWIW, I don't believe that owning property is a right, any more than owning a car is a right. Also, I find it surprising that there are people older than me (currently 35) complaining they can't afford to buy. What the heck have these people been doing for the last 15 years?
 
Don't forget, many of those desirable but 'unaffordable' properties were yesterday's bad neighbourhoods. I don't think this is as much of a societal problem as we think - it's a symptom of a market that moves up and down with supply and demand.

Want to solve the housing affordability problem? Start campaigning for more and easier development. Lobby governments to release more land, and building more transport infrastructure. Hassle councils to reduce development fees and taxes.

Property in highly desirable locations will, in the longer term, become even more expensive. This is a symptom of more money chasing fewer properties, thus driving up the price. Average and below income earners should not be expecting to be able to purchase these properties without significant planning and sacrifice, as they will be competing with people with much fatter wallets.

This is 100% spot on. Read each paragraph seperately, because there are words of wisdom in each.

First paragraph: property moves up and down according to the market cycle. If the cycle is high, then have patience, but make sure you are SAVING, ready to participate when the market becomes more affordable.

Second paragraph: spot on, so long as NEW supply of housing is expensive to bring on line, then the secondary market will also be relatively expensive (substitution effect)

Third paragraph: we all want to live in the A-grade suburb. Demand and supply will always ensure that these suburbs will remain out of reach for all but a small % of the population.
 
To say that housing is affordable because a couple with dual incomes can afford it when a single person or a single parent can't doesn't make a lot of sense to me.

Cupcakes,

Despite quite literally hundreds of replies by extremely-well informed and extraordinarily-experienced property investors here, it appears that nothing you have heard makes a lot of sense to you.

I don't think I'm alone in suspecting that there's one reason for this: You believe that the presence of investors in the property market is the underlying cause of the unaffordability problem.

Despite all your dozens of questions and comments, you have yet however to find a single property investor here who will wholeheartedly agree with you in this, so frustrated, and with genuine altruistic concern for our wretched souls, you persist in your effort to tease out a proper public confession from at least one of us.

So, let me ask you this straight up: Do you believe that the presence of investors in the property market is the underlying cause of the unaffordability problem?

An open and honest answer would be appreciated, as would an explanation of your reasoning if so.
 
Cupcakes,

Despite quite literally hundreds of replies by extremely-well informed and extraordinarily-experienced property investors here, it appears that nothing you have heard makes a lot of sense to you.

I don't think I'm alone in suspecting that there's one reason for this: You believe that the presence of investors in the property market is the underlying cause of the unaffordability problem.

Despite all your dozens of questions and comments, you have yet however to find a single property investor here who will wholeheartedly agree with you in this, so frustrated, and with genuine altruistic concern for our wretched souls, you persist in your effort to tease out a proper public confession from at least one of us.

So, let me ask you this straight up: Do you believe that the presence of investors in the property market is the underlying cause of the unaffordability problem?

An open and honest answer would be appreciated, as would an explanation of your reasoning if so.

sorry belbo but it makes a lot of sense to me, but i guess thats what makes a 'market'.
 
If I had to list some reasons I think property prices are so high property investment wouldn't be amongst them. I think the reasons property prices are high are;
-Not enough land is released
-Development is a slow process because of councils
-People complain about urban sprawl
-People complain about urban density
-The banks are lending people too much money that they can't afford to repay and people are living off credit cards
-Negative gearing is too generous and needs to be capped. It encourages speculation, high leverage and it has made our economy riskier.
-Other taxes such as stamp duty are too high
-We have a skills shortage

I've never thought of myself as someone against property investment, and I came across this forum because I have an interest in property investment. But I suppose by you asking me this question I've realised something. The people on this forum feel that if affordability is addressed their investments might not perform so well and that is why they refuse to acknowledge the problem.

It seems like our tax system has been able to encourage people to invest for capital growth so why can't it be altered to encourage things like increased supply and development? It wouldn't be any more or less profitable for investors, it would just alter the incentives.

Cupcakes,

Despite quite literally hundreds of replies by extremely-well informed and extraordinarily-experienced property investors here, it appears that nothing you have heard makes a lot of sense to you.

I don't think I'm alone in suspecting that there's one reason for this: You believe that the presence of investors in the property market is the underlying cause of the unaffordability problem.

Despite all your dozens of questions and comments, you have yet however to find a single property investor here who will wholeheartedly agree with you in this, so frustrated, and with genuine altruistic concern for our wretched souls, you persist in your effort to tease out a proper public confession from at least one of us.

So, let me ask you this straight up: Do you believe that the presence of investors in the property market is the underlying cause of the unaffordability problem?

An open and honest answer would be appreciated, as would an explanation of your reasoning if so.
 
. The people on this forum feel that if affordability is addressed their investments might not perform so well and that is why they refuse to acknowledge the problem.

.

I disagree with this.
I think that the majority of long term members on this sight are extremely good with their money management skills. Once one has been on this forum long enough, one sees that a good proportion of those that acquired property did so, not because of their incomes, but because they were prepared at any cost to save from their incomes and then invest that money in property.

But therein lies the catch, those same people believe that because they did it, that the 'average' person should be able to replicate them.

Unfortunately in my opinion, market pricing over time, tend to move with the 'averages'.
 
As you've evaded the question, I then repeat -

Cupcakes,

So, let me ask you this straight up: Do you believe that the presence of investors in the property market is the underlying cause of the unaffordability problem?

An open and honest answer would be appreciated, as would an explanation of your reasoning if so.
 
............. Do you believe that the presence of investors in the property market is the underlying cause of the unaffordability problem?

An open and honest answer would be appreciated, as would an explanation of your reasoning if so.

Yes I agree it is because of those investors who speculates and hogging the affordable property for their own gain makes this housing price bubbled up.
 
I don't think he was asking you, but interesting to hear your thoughts anyway :rolleyes:.

Isn't it you on another thread seemingly asking how to be a bit sneaky with self-managing?

Will that be helping house prices?

Will you accept some blame in making house prices "bubble"?
 
Yes I agree it is because of those investors who speculates and hogging the affordable property for their own gain makes this housing price bubbled up.

Property investors pay less for property than owner occupiers, because most investors don't buy a property unless it is well priced. This being the case, why don't FHBers simply outbid the investors? I've walked away from far more deals than I've gone through with, and have only bought where I thought the price was a bargain.
 
Property investors pay less for property than owner occupiers, because most investors don't buy a property unless it is well priced. This being the case, why don't FHBers simply outbid the investors? I've walked away from far more deals than I've gone through with, and have only bought where I thought the price was a bargain.
It sounds like you are speaking for yourself but projecting that onto the greater majority of investors. Around 1 in 7 tax payers are "property investors", what percentage of those would you think are sophisticated/experienced enough to buy well?

I don't think investors are the main cause of reduced affordability... they are simply one of the groups that bid up prices with increased availability of credit.
 
As you've evaded the question, I then repeat -

The supply of rental accommodation is extremely important especially to people from the most vulnerable and financially disadvantaged backgrounds.

Most countries have some form of residential property investment yet they don't have the affordability problems that we're having. So no, I don't blame property investors!
 
Anyone see last week's special report on Australia in the Economist?

Some interesting figures:

Australia is 4th on the list of countries with the highest urban population percentages, with 89.1% of our population living in cities. We're only behind Belgium, Iceland and Israel.

Only 12 economies are bigger than us and only 6 countries are richer than us (Luxembourg, Norway, Qatar, Switzerland, UAE, Denmark) and all of those countries have much smaller populations.

So what do you get when you have a rich country, with 22.6 million people, 89.1% of whom want to live in the city, preferably a 'nice' area? You get really freaking expensive 'nice' areas.

Personally, I don't think there's a housing affordability 'crisis', but if you want prices to come down in the capital cities, I guess the best thing you can do is start trying to convince all your friends to move to the country.
 
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