Yabby. "The little old lady who bought a house 40 years ago for a song, can sell it for 2 million$ and pay no tax."

Do you have any examples? Because such cases are rare and are reported in the media to boost sales for white shoe brigade advertisers and to spruik fraudulent 'how to' seminars by the quick witted.

She wouldn't have bought it for a song it would have been market rate.
Since then the value has merely tracked inflation as all real estate does - it lags for many years, finally to jump up to and sometimes correct above inflation. In the latter case, buyers lose and take years to 'recover' their position.

There is no magic multiplier unless she was lucky enough for there to be a re-zoning of her block to a higher and more valuable level, eg high rise. That is impossible for a Res A block.

The woman and her family have lost substantially from any 'increase' in the value of her block over the years through ramped up Council rates and charges over the years that are fixed against the assessed improved 'value' of that block. Councils never take CPI increases, when they have the goose that lay the golden egg, which is the increased value of the land.

However in the case of an old lady who sells her property that has all of its sentimental memories, where can she buy another residence with similar amenity, or are we assuming she should be relegated to a mobile home in a caravan park (if one can be found)?

Yabby, "The home owner-owner renovator, can buy an old shack, doll it up with his labour, which adds value, then on sell that home, all tax free money."

I have met many would-be developers, it is high risk. The rare renovator who makes money has no recreation, lives in sawdust and forgets his labor and lost opportunity costs while adding icing to a 'cake' that is limited by its land value. ATO is zealous in identifying possible abuses of tax.

Yabby, "All those who bought houses more then 10 years ago, would not be owning much in real terms, due to the benefits of inflation."

If you meant 'owning' you are most likely right and please disregard the remainder of my comments. However I think you meant 'owing' and I have addressed that probability below.

No that isn't the case at all, except for the fortunate few who bought astutely and were lucky enough to time entry to the market (with no house to sell) when the market was at a low point and before a sudden rise (which might not be sustained). It is because the market is so difficult to time that the risk management is to buy and sell on the one market. Anyway, owners have to live somewhere.

It is one thing for real estate spruikers to claim that 'value' doubles every ten or so years but practical experience, for example of people buying into new sub-divisions and new unit blocks, demonstrates that more often than not they can lose money over ten years and more, especially after a peak in the market. There are many young couples who were not over-extended ten years ago but are now and could lose all they invested.

Real estate is moderate risk and investment real estate, especially where buy and rent is concerned, is high risk. Returns were even lower after the Howard government's changes that affected investment property.

Cornflower, my figures are based on Perth, as its a market that
I know about. The Sunday Times here produced some tables of
real estate values over time and suburb, so I will use their
quoted figures.

In 1960 the average house price was 7000$. There are plenty of
couples who bought houses then, in their 20s, who are now in their
70s. If they bought them in what have become upper class suburbs
over time, due to Perth's growth, then 1-2 million is what they
can achieve in the market today. Many are indeed selling and moving
into retirement villages.

In 1990 the average house price was $100'600. So people who bought
a house in their 20s then, are in their 40s now. They have had
twenty years to pay off their mortgage, they would hardly owe much.

In 2000 the average house price was $195'700. Now we have averaged
inflation of around 3%, which when compounded adds up to around 40%
over 10 years, IIRC. So to pay off that remaining debt, in real
terms its costing people 40% less then it did 10 years ago.

*The rare renovator who makes money has no recreation, lives in sawdust*

For some it is recreation, as they enjoy it. At the same time making
good profits. But I grant you its not for everyone. That does not
change the fact that it can be very profitable and all tax free.

*No that isn't the case at all, except for the fortunate few who bought astutely*

There are many who were astute enough to be fortunate and not gullible
enough to buy from real estate spruikers, or believe their spin.

Cornflower
"Since then the value has merely tracked inflation as all real estate does - it lags for many years, finally to jump up to and sometimes correct above inflation. "

I think the rate at which housing rises in value has outperformed inflation. I once read a book by Jan Somers I think her name was, and she researched the rise in house prices since the Torrens title register was established in the 1840s. She found that there is a long-run rise of doubling in value about every 8 years, or 12.5 percent.

I think reasons that housing is so attractive to investors include that
a) it's politically difficult to tax
b) it serves a double function of providing a dwelling at the same time as increasing in value
c) it is relatively easy: pretty much any bog-normal dwelling is going to go up at the average rate; much easier than investing in the stock exchange where you can wake up and find your company doesn't exist any more, and
d) every other kind of productive activity is licensed and regulated so much, it basically doubles the amount of trouble and stress trying to make money by investing in business.

Yabby

You referred to a newspaper article that 'proved' there are windfalls from investing in one's own shelter, however there are as many articles 'proving' there is less risk and far better returns from renting for life and investing in shares instead.

Generally these articles miss risks and large on-going costs which in the case of residential housing can include rates, insurance, maintenance and improvements.

While it is true that some houses will do better over time, country areas can provide plenty examples of loss of real value over time and so can city suburbs that were not subject to favourable planning decisions - a railway can benefit locals while the smell of stock being transported will not. The necessary resumptions for a freeway rarely represent windfall profits for affected owners or for those who must stay behind. Again, city growth is rarely uniform throughout and many suburbs linger in value through being unpopular.

Perhaps the truth is that anyone who is willing to commit to an investment long term and is disciplined enough for forgo luxuries over many years should eventually reap some reward. Thrift over forty or fifty years should amount to something. How often does one hear stories of people of apparently humble means who leave fortunes behind when they die?. For some, the 'fortune' is limited to the house they have maintained and paid all outgoings for over a lifetime.

Many people realise the benefits of compulsory saving through buying their own home and a large part of that saving is through disciplined budgeting and controlling their discretionary spending.

To an older person her house is priceless for its familiarity and memories, even if the outgoings are a millstone around her neck. The house is usually worth nothing either, because she must live somewhere and would not sell unless forced by circumstances beyond their control. I wonder what value it is to the taxpayer to have the home-owner support herself and be independent all of those years.

Renovating and selling PPORs is a business and is subject to tax.

Peter Hume

Jan's example is not as simple as first supposed, but should be discussed along with the general economic and purchasing factors hat affect real estate. To give an example of purchasing factors, maybe as a newbie at the time she 'lucked' the right street or locale for the future, but not everyone is so fortunate, it takes skill, research, discipline, deep pockets and decades.

Is it fair though to compare growth in the value of residential property against the CPI, which is after all discounted according to the preferences of the government of the day? The politicians don't think their superannuation should be set against CPI, they chose average weekly earnings.

Jan and her husband Ian have done well out of investment housing because as they freely admit and these are some of the lessons of their books, they arrived at a formula for investment, always performed their due diligence religiously, were enormously patient and managed their properties professionally. For their efforts there should be rewards.

Read more books and there are plenty of disasters. Rarely does luck or belief in the rosy future of the real estate market (which market for a start) guarantee results. It is big money and big risks, never a sure bet.

There are many books on real estate that are more motivational than anything else.