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The Forum > Article Comments > Forget trying to curb demand, build more houses > Comments

Forget trying to curb demand, build more houses : Comments

By Stephen Kirchner, published 24/1/2014

Housing is not the only asset class for which interest on borrowing to invest is deductible against other income.

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To those who oppose negative gearing, and would like to see it phased out, I say to you all, be careful what you wish for, especially if you are renting as apart from tax offsets, there are very few carrots to lure investors these days, especially given the hands tied approach landlords are often faced with.

One problem with housing affordability is that when a scheme is introduced, take first home buyers grant for an example, up goes the price of housing.

I am afraid the only answer to housing affordabillity for this just outside the market, is to go without other things, something most won't do.
Posted by rehctub, Saturday, 25 January 2014 12:58:12 PM
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Rhian,

In a number of European countries with much lower population growth than ours, house prices have grown much more slowly since 1985 than ours have, or not at all. The Soos articles were to show just how much house prices have gone up here. Of course there are other factors involved, and you can always just point to them if you don't want to be accused of racism or hating people, but if you try to claim that demand is irrelevant to prices, I don't think that many people will believe you.

The article by the economist Ralph Musgrave did say that the migrants pay for their own houses. True enough, but they don't pay up front for all the infrastructure that goes with them. Although here are arguments about the infrastructure cost per additional person, Jane O'Sullivan has estimated $200,000, of which she has said $100,000 to $120,000 is government spending on infrastructure. (Nevertheless, if your electricity, say, is supplied by the private sector, the company will still need to raise charges to pay for more power plants and expansion of the network.) Ralph Musgrave estimated 30,000 pounds per person as of 2008 for non-housing infrastructure in the UK. If the migrants and other new residents in a community aren't paying up front, who is? As Musgrave writes, "Immigrants do eventually pay this back – after about a generation. But by that time interest on the debt (which is not paid back) resembles the debt itself."

In the past, when Australia was at or below its optimum population, cities were much smaller. They had a lot of cheap land around them within easy commuting distance. As cities have grown, we are running into diseconomies of scale, so that further growth is really cutting into people's quality of life in a way that it didn't in the past. Likewise, it is good that your bones were growing when you were 8 years old, but if they are still growing in the same way when you are 40, then you have a very serious problem.
Posted by Divergence, Saturday, 25 January 2014 6:31:07 PM
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(Cont'd)

From Musgrave paper (pp. 12-13):

"Having said that immigrants essentially fund their own houses, this is not to say that the extra housing is totally cost free for the host community. Immigrants have certainly helped raise house prices in the UK to the point where thousands [of] first time buyers cannot afford to buy. The additional demand for mortgages also raises interest rates, which is not cost free (repossessions, etc.). Moreover, people often go to extreme lengths to prevent houses being built on countryside they overlook or on playing fields their children use. These people clearly regard additional housing and other development associated with an expanding population as a severe cost."
Posted by Divergence, Saturday, 25 January 2014 6:54:06 PM
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Not just residential, Farquar. I have a friend in Goulbourn NSW who is a real estate agent. She told me that "busloads" of Chinese are turning up in her town and buying up every farm they can, apparently with no intention of farming the land. The places are either left empty or they are rented out for low rent with the tenants expected to keep the farm in god condition.
Posted by LEGO, Sunday, 26 January 2014 6:58:16 AM
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Lego,

I spent some time in China and I even worked at a immigration firm for a while helping applicants with their English and I saw first hand the enormous amount of interest for immigration places. I also saw how corrupt the industry was and I know the Chinese are very industrious and good at setting up businesses designed to get around existing laws.

When Bob Hawke made that knee-jerk reaction to allow Chinese students studying in Australia to stay after the crack down in Tiananmen in 1989 some of those students went on to set up shame marriage businesses, in effect they were utilizing their PR status to make money.

A similar kind of thing is happening now with land acquisition in Australia. Chinese who have obtained PR status or citizenship are exploiting that status to make money by allowing Chinese foreign nationals to purchase land indirectly, and since China has such a large population they quickly overwhelm the market.

Dr Kirchner is so far behind the eight ball on this issue, he has no idea how Chinese operate. He still thinks the Australian property market is a regulated industry but it is clear to me that the Chinese have been able to get around any regulations such that now the industry is effectively operating in an unregulated fashion.

I would be looking closely at how Canada & the US regulate Chinese investment because they would be experiencing similar issues. This is an issue that should have attracted more attention during the election.
Posted by Farquhar, Sunday, 26 January 2014 9:11:53 AM
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especially if you are renting as apart from tax offsets
rehctub,
Wouldn't tax offsets go out the window with negative gearing ?
Posted by individual, Sunday, 26 January 2014 12:14:30 PM
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