Where are the renters?

[tom32]

This is going to be an even more controversial assertion, but if property equates to (note: I did not say accounts for) about 30% of GDP then it has a big effect on inflation itself. Property is intensely important to the Australian economy, I would argue that it is vastly more important than mining.

Sure we could end up with deflation and because building homes seems to track inflation quite steadily I imagine it would also track deflation in the same way. Maybe even be ahead of the curve because building activity is the first to suffer in a recession, indeed it is often building activity falling away that happens to cause a recession.

Its a common way into a recession see the USA house prices fell activity dried up and the country went into a tailspin. However I do believe it is about the best place for stimulous money to get us out. I am not talking houses on the way out btw, bridges, roads, ports, rail and airports.

I didn't say it was easy to make money building homes. It's a high risk game, and it's far from value investing.

This is the point. The government wrings its hands and says we have an affordability problem in this country. It then sets about releasing only enough land to meet population growth, so the market can be speculated upon. On top of this it then taxes developers. You said earlier the market was broken, it is not broken it is responding naturally to the stupid costs of production and building stuff all till prices exceed costs sufficiently. You can look at the building figures against historical terms and know Perth and Brisbane had their surge a few years back.

Melbourne has had its and is still building plenty of homes. Sydney, well no wonder people are leaving teh joint in droves, I am quite certain between the urban consolidation plan and the 100k on greenfield sites they are even at the current ridiculous prices not building enough new homes.

It is at least to me as clear as day what the problem is; there is not enough profit in building homes. Developers do not build a home based on how many people they think there will be in Australia in 2015 and so how many they need to build. They say what can I sell these shacks for and then decide whether it is feasible. It has nothing to do with utility rates etc these are macro factors but the supply curve is as it is because developers make more profit the higher the price so build more homes. This is unless costs are inflated by stupid government policy. This is our problem in Australia, we will come undone only if affordability factors are in play or the government changes its policy. We are not going to see the massive supply response the USA had to high prices because our government considers this a windfall profit and moves in to tax it.

 

[HomeBuyerStrike]

There's another thread about the lack of investment in building new homes. I suppose you have think about whose interests the market is serving and how powerful those people are. If the market is not serving the developers (or only certain developers) then they obviously don't have the power.

It seems like small developers would like to see the system tilt more in their favour just like prospective homebuyers would. While they have differing interests they both feel the current system disadvantages them. I'd say the same thing to small developers as I would to propsective homebuyers, there's no point in crying about it you either have to work with the system or you stay out of it.

I think those who complain while continuing to engage the system are part of the problem rather than the solution. Then again, their choices may be limited.

 

[tom32]

There's another thread about the lack of investment in building new homes. I suppose you have think about whose interests the market is serving and how powerful those people are. If the market is not serving the developers (or only certain developers) then they obviously don't have the power.

It seems like small developers would like to see the system tilt more in their favour just like prospective homebuyers would. While they have differing interests they both feel the current system disadvantages them. I'd say the same thing to small developers as I would to propsective homebuyers, there's no point in crying about it you either have to work with the system or you stay out of it.

I think those who complain while continuing to engage the system are part of the problem rather than the solution. Then again, their choices may be limited.

No I will complain about systems if I think they are stupid, unjust or inefficient. Often in economics their is a short term pay off for long term pain and this seems to be the way both central banks and government not just in Australia but everywhere seem to be heading. Rather than investing in heavy infrastructure to keep the developed nations ahead of the developing we are investing in consumption subsidies and "wealth" building schemes.

China is investing in hard infrastructure. They will continue to catch up to us on output per person while they divert more of their economic surplus to these ventures rather than cash handouts and insulation rebates.

So yes I will continue to whinge.

I don't agree the current system favours the big developers at all. I actually think the stupid prices we have allows for nimble small developers to make a quid on small projects where if there was limitless greenfield up against them they would not.

The big developers of course make a quid but they are cherry picking what they can and going for it. If the margins on greenfield were better they would do far more till the market eroded the larger margin but by this point the market would have a new equilibrium price.

Again I will whinge because in my opinion this is the problem and I will write to anyone who I think will listen and have some impact, indeed tell anyone who will listen and when it is explained to them most agree what would happen to Sydney house prices should the land release be doubled and the taxes halved. It is pretty fundamental demand supply analysis. The harder part is judging exactly what effect this will have in each ring of Sydney.

The cost to government is also not as high as you might think. Say Australia builds 150,000 dwellings in an average year. Lets say the government invested 100k in each of these to remove taxes and build the global infrastructure schools etc maybe on some particularly lucrative development tax them or make the developer chip in for the school.

150,000 x 100,000 = 15bn.

Sounds like a lot?

That 15bn I believe would have a considerable impact on construction activity. It would increase the tax take but the problem it would destroy much wealth in residential RE.

If and only if we had a severe recession in Australia I think this is what governments here would be forced to do to keen the building game chugging along at all.

Lets say the 100k applies in a flat rate. We have around 8 million dwellings in Australia. We have 100k per house. Thats 800bn wiped off the value of our housing stock.

Lets say at present the government milks 15bn out of our housing stock to create 800bn windfall profits for owners who owned before policies changed. In the 70s the gov actually subsidised development. This was building a big Australia. Now they subsidise banks so they can loan us the money and then milk as much back as they can.

It is stupid short sighted policy and in my opinion it is too late to get out of it without pain in the longer term now they have done the milking they are going to end up paying far more propping up banks etc in the future. I don't even know what they should do really in response and when to do it as it will hurt them if they move unilaterally and hurt even more if they wait and move in response to a recession. Either way it is going to hurt.

Anyway I don't see any of this happening Australia wide in the short term while we have both employment growth and credit availability as we do now. Their are patches though where it looks rough but I guess their always is.


Edit: I should declare I work in Civil infrastructure so I do have a vested interest...

 

[HomeBuyerStrike]

So yes I will continue to whinge.

I apologise if it sounds like I'm suggesting you should suffer in silence. I'm just saying that 'lobbying' in the sense of voicing an opinion is futile. Unless you can show someone who wants to see that there is a hard cash benefit to them in listening to you then it's unlikely to achieve anything. This is frustrating I agree and the point about them wanting to hear is as important as having the plan. The status quo is hugely beneficial to powerful vested interests and the government will do their damnedest to protect them.

 

[Jonril]

"The bureaucracy is expanding to meet the needs of the expanding bureaucracy."
- Unknown

"A bureaucrat is a person who cuts red tape sideways."
- J. Mccabe


Here's another good one,

"Those who can, do, those who can't teach; and those who can do neither, administer."
- Calvin Calverley

Maybe it could be changed to - "Those who can, do, those who can't teach; and those who can do neither, troll the internet"

...and to get back on topic

"those who rent pay my interest"

 

[HomeBuyerStrike]

Maybe it could be changed to - "Those who can, do, those who can't teach; and those who can do neither, troll the internet"

There seems to be a strange definition of troll around here. I'd be worried about the groupthink.

"those who rent pay my interest"

Shouldn't that be "half my interest".

 

[Jonril]

There seems to be a strange definition of troll around here. I'd be worried about the groupthink.

I'm more worried about finding something interesting to read.

Shouldn't that be "half my interest".

Well that is for me and my banker to worry about

I can appreciate the occasional naval gazing diatribe as the next forumite, but ultimately it gets boring pretty quickly and hearing about practical experiences is much more informative and interesting.

 

[wylie]

Shouldn't that be "half my interest".

In many cases, it should be "all my interest plus some extra" .

Not everybody bought "yesterday".

 

[HomeBuyerStrike]

In many cases, it should be "all my interest plus some extra" . Not everybody bought "yesterday".

Good for them. I'll be sending my landlord a Christmas card this year. Benevolent old sod saves me a fortune.

 

[tom32]

I can appreciate the occasional naval gazing diatribe as the next forumite, but ultimately it gets boring pretty quickly and hearing about practical experiences is much more informative and interesting.

Unfortunately economic cycles move in time frames longer than a persons working life.

It is precisely this experience bias using your own lifes experience to predict what will happen next that causes economic collapse and poor government response to it. It certainly gives us the boom bust in asset markets. Look what has happened for the last 5 years or wow did you here how much money that bloke made out of BHP, i'm going to get me some. Short term things can look very different to the real long term picture. Unfortunately though it is pretty dry stuff and many people really don't care and I don't blame them.

Experience bias is a well understood human trait and thats life some of us have more of it some less. Some would rather act from an example the same sort of people who muck in when fixing their car others stand back and read the manual then get to work. Either approach has its merits, but I certainly am not going to knock someone for their approach. I will just whinge when a government applies a stupid approach to my life!

I would actually rather someone relate to the experiences over hundreds of years like Niall Ferguson an historian than an economics academic who is brushed up on the latest economic theory that will save the world from an impending recession.

I guess what I am trying to say is don't expect too much in economics to be explained in terms of real world experience of the individual you are talking to. From time to time sure but I think this would leave out vast tracts of economic reality if we were to do this. We would be in a perpetual state of adapting to the latest new paradigm.

Look to the past to assist in predicting the future. We do it with investing but it also applies to macro economics though we all too often decide we are different or now is a different age so the old rules don't apply.

 

[HomeBuyerStrike]

I can appreciate the occasional naval gazing diatribe as the next forumite, but ultimately it gets boring pretty quickly and hearing about practical experiences is much more informative and interesting.

That would be quite a narrow treatment for the topic of 'Property Market Economics'.

 

[HomeBuyerStrike]

I would actually rather someone relate to the experiences over hundreds of years like Niall Ferguson an historian than an economics academic who is brushed up on the latest economic theory that will save the world from an impending recession.

Each to their own, I prefer those who can relate to multiple disciplines.

The Herengracht Study is a good historical study you may have heard of....
http://onlinelibrary.wiley.com/doi/10.1111/1540-6229.00711/pdf

I can't find a free source right now.

 

[Jonril]

I would actually rather someone relate to the experiences over hundreds of years like Niall Ferguson an historian than an economics academic who is brushed up on the latest economic theory that will save the world from an impending recession.

I just finished reading "Empire: How Britain Made the Modern World" by Niall Ferguson, a great read. I also just recently bored my FIL with my general knowledge of the British empire, I garnered from the book.

It's great relating and learning from history, I can agree knowledge is power, but action still gets you to the place you want to be.

Hopefully I don't get steam rolled by "paradigm shifts" in my time, so I have a few cents and words of wisdom left to pass on to the next generation, to give them a heads up.

That's the best I can aim for, there are always going to be "unknown unknown's" that will pop up, no matter how much history I have taken in.

P.S - I'll have to pick up some more of Niall's other books, thanks for the reminder.

 

[wylie]

Good for them. I'll be sending my landlord a Christmas card this year. Benevolent old sod saves me a fortune.

I understand and acknowledge what you are saying, and he is probably just as happy. Win/win really, heh!!!

 

[BayView]

This is why "deemed rental" income tax can be a good idea, to minimise this problem.
Owners are taxed on a rental income on a property whether they receive it or not, to reduce the incentive to leave it empty. Many European countries have this approach (e.g Spain, Switzerland).

And this would be a good thing for a free enterprise economy?

I doubt it.

One of the great things about our Country is the freedom and standard of living we enjoy right now.

What's better than to be able to afford to buy a house somewhere out in the wide open spaces and go sit on yer verandah and sip a coldy whenever you like?

What you are proposing is to change this to suit the renters.

From my experience, everyone in the Country starts off as a renter; always have.

I personally have been a border in someone else's house for several years when I was young, and then progressed to renter, living on a shoe string...

"Back in my day" and all that.

But seriously; it's no tougher now than it was then.

It's up to them whether they progress to homeowner with holiday house/houses or not.

Don't punish the people who get of their derrieire and get ahead, simply to appease those few who won't.

 

[tom32]

I just finished reading "Empire: How Britain Made the Modern World" by Niall Ferguson, a great read. I also just recently bored my FIL with my general knowledge of the British empire, I garnered from the book.

It's great relating and learning from history, I can agree knowledge is power, but action still gets you to the place you want to be.

Hopefully I don't get steam rolled by "paradigm shifts" in my time, so I have a few cents and words of wisdom left to pass on to the next generation, to give them a heads up.

You could look up Niall Ferguson on you tube too. He has a few of his presentations uploaded there. One that appears to be on the money now when 24 months ago many were predicting deflation he said he did not expect governments to be that responsible / restrained these days and in stead we were likely to get a 1970s stagflation rather than a 1930s depression (this is talking in teh USA). Looking at the path the US currency is treading (down) and the lingering unemployment it appears he was on the money. So far anyway...

That's the best I can aim for, there are always going to be "unknown unknown's" that will pop up, no matter how much history I have taken in.

P.S - I'll have to pick up some more of Niall's other books, thanks for the reminder.

Now I am going to go really dry on you.

Yes as an engineer I tend to discount black swan events way too much. The normal distribution curve applies to so much in my work, whether it be concrete strength, labor productivities for certain tasks and in certain geographic locations, rainfall etc it is easy to think that it applies to everything. Just because you can get a standard deviation for a large data set does not mean you understand precisely what will happen and with what frequency in a days time let alone a decade or 3.

Things change I guess is the golden rule and as long as you can adapt quickly to change then you will be ahead of the pack so to speak. Planning for black swans I sometimes think potentially leaves you worse off than just rolling with the punches. Planning for every known risk certainly is expensive for a start let alone planning for unknown ones.

On his other books hit up the ascent of money. Fortunately he does not dwell on the GFC too much in it so it is not "out of date" which I guess history books cannot be but you would not want a whole book on this, this would be way to dry even for me!

The book concentrates on other economic collapses and along the way you get a handle on bonds, securities etc by learning of their history. I tried to watch the series when it aired on ABC but the dancing Argentinian that seemed to appear in every second scene put me off.

 

[BayView]

That would be quite a narrow treatment for the topic of 'Property Market Economics'.

aaah! but there's the rub; I have been able to manufacture my own property economics for the "Economy of Bayview".

None of us really needs to be too worried by the overall outlooks.

You don't need to look down the street and see only green lights before proceeding.

What you need to be able to do is look at that outlook, and work out how to capitalise on it; because there is for sure someone who is.

 

[BayView]

Shouldn't that be "half my interest".

You are assuming that everyone here is about to buy in an inner-city area tomorrow or today and cop the disgraceful rent yields on offer there and with 100% lends.

This is an understandable mindset of an inner-city dwelling, renting, Gen Y'er. Am I close?

There are a few that pop up here occasionally. No worries; but they usually tend to assume the world began yesterday in an economic sense, and because the signals are bad right now, they will continue. Don't worry; they never do for too long.

There are a few of us here who have the renter pay not only the entire interest, but a few extra shekels into the pocket as well.

 

[tom32]

But seriously; it's no tougher now than it was then.

I reckon it is bloody easier to buy now than it was in most times in the past hearing stories from the folks etc. This is the problem though. I am probably one of very few people who has had a family rented for the last 10 odd years lived with the folks while I studied first year moved out after this and rented, and then just cruised along waiting to settle down somewhere and buy a house.

Everyone seems to buy a home the very moment they can afford to and this is pretty early especially when FHB pay no stamp duty plus get a grant to help out. i.e. it is our sudden capacity to buy homes at a young age and pay large sums of money for them that supports house prices where they are and allows the government to extract as much as they do from the industry.

I am in no doubt at all that when a recession occurs it will be far harder to buy a house then it is now for someone like me who is still going to need some finance. This is the reason they will potentially fall in value. I have no illusion that it will get easier to buy a house if it was going to get easier than they would rise in value in response to a recession. Unlikely.

 

[HomeBuyerStrike]

You are assuming that everyone here is about to buy in an inner-city area tomorrow or today and cop the disgraceful rent yields on offer there.

There are a few of us here who have the renter pay not only the entire interest, but a few extra shekels into the pocket as well.

That's true. I don't begrudge them the cash either. As has been said above it's a win-win right now as far as renting from an established landlord goes. I personally would favour these properties over ones purchased recently as I'd see the landlord as more reliable. That's when access to an RP Data account comes in handy!

This is an understandable mindset of an inner-city dwelling, renting, Gen Y'er. Am I close?

Not quite. And one of those points has been disclosed already.