Well put. An excellent piece.

Yes, an excellent piece thanks Valerie. The driving force behind higher prices, of course, is rapid population growth. No surprise then that the housing industry has failed to keep pace in supplying new homes, pushing up prices. High home prices that demand two incomes to pay the mortgage have huge social implications, not least for young children. There are environmental costs as well, as urban expansion covers ever more habitat of other species, or farmland that we need to feed people. At some stage, the growth has to stop. The sooner the better.

As always Valarie, the peerless personification of perspicacious perspicuity!
Rhrosty.

unfortunately, Ms Yule doesn't have a lot to say about public housing.
and it's unfortunate that public housing was such a low priority during the Howard years, when there was one budget surplus after another.
if it weren't for the Housing Trust of South Australia in 1983 and the timely advice of Mr Jack Richards, mayor of Norwood, I would have been not only unemployed but homeless for many years, but a roof over my head helped me find work and eventually a career, and later, marriage.

Years ago a friend who was a Commonweath Bank Loans officer warned
this situation would develop when the government gave in to the
sisterhoods demand that lending aithorities had to take into account
both incomes.
Just as he warned the developers and builders escalated the price of
housing to match the amount of money in the market.
The women had no choice but to go to work.
Now child care becomes a problem
Subsidise it !
First home buyer grants; two more opertunities to increase the prices.

We have not learnt the US lesson.
In 2007 the average working man had a choice;
Buy food
Buy petrol to go to work
or pay the mortgage

So by 2008 so many had defaulted on their mortgages that the banks
collapsed and the GFC arrived and the rest is history.

We are now in that dodgy state ourselves this time and instead of
$20billion in the bank we have $100s of billions of debt.

Big tip, start getting rid of any debt you may have quickly.

"all the staff of one well-known real estate manager have Chinese or Vietnamese names"

I think that makes you a racist Val. Maybe you would prefer it if they all had nice English surnames, blue eyes and blond hair. Hmm, that sounds familiar.

I forgot to mention;
If our banks get into trouble, the Financial Stability Board will
seize enough depositors money to cover the banks debts.
So spread your risk.

Yes good article Valerie.

And well said popnperish.

So one has to wonder why there isn’t a huge outcry from the general community about our very high immigration rate, given the enormous effect that it has on keeping house prices very high, and constantly increasing.

Housing affordability and the size of one’s mortgage… and the enormous amount of extra money that one has to pay on top of the original loan for the privilege of getting a mortgage, and the extent of financial stress that this can place on people, for decades, surely amounts to a huge reason for the ordinary folk to be totally outraged over our absurdly high rate of immigration.

The likes of Sustainable Population Australia and the Stable Population Party should have gained a huge amount of support.

Something just doesn’t add up here.

Ludwig said;
Something just doesn’t add up here.

I also see a refusal to accept easily verifiable facts in most fields
if those facts are likely to disturb the business as usual lifestyle
of any of us.

You see it in your population belief.
I see it in my energy worry. (obsession some might call it)

It is rampant in the public attitude of politicians.
I suspect in many of these matters, they realise the truth but as has
been publicised a "Don't scare the horses" fear governs them.

After all think about the uproar because Tony Abbott looked at his watch.
Imagine it if he said we will reduce immigration to zero for the next 5 years.
Imagine the uproar if he said we are going to plan for petrol rationing.

No the person to blame is you, me and the bloke next door.

I agree that housing affordability is a problem, but most of Valerie’s suggestions will make that problem worse, not better.

The silliest is the proposal that housing be sold for no more than 105% of the purchase price – a sure-fire way to kill almost all new housing supply.

A government-subsidised real estate agency would do nothing to change the market fundamentals, and just waste taxpayer money.

Measures to reduce investor activity in the market will not add to housing supply, and could make it worse. Investors don’t withdraw housing from the market, they merely shift it to another segment (rental) which is no less socially useful.

Compulsory eco-standards have some merit, but need to be balanced against the strong evidence that a key reason for Australia’s poor housing affordability is over-regulation.

Owner-occupiers don’t lose their homes through “swings in prices of real estate”, though they could lose them if they are over-extended on their mortgage repayments, or if their incomes drop. Again, though, government intervention here could have catastrophic unintended consequences. Bank lending for housing would virtually dry up if lenders could not foreclose on debtors who default on loan repayments

The housing price issue could be hiding a more troubling issue, there is little to invest money in that can give a high return.

This seemed to be the case in the US, where people invested in real estate because there was little else that could give a higher return.

It lead to a bubble, and then a collapse, and due to globalisation, it affected most of the world.

So what are the banks in Australia investing most of their money in.

Real estate, with 83% of mortgages being loaned out by the 4 top banks.

It is a giant ponzi scheme, and immigrants are brought in to buy houses and keep the ponzi scheme operating.

But now, the public is being sucked dry, and immigrants are not enough (because they can't earn enough), so foreign investors are being welcomed in to keep the ponzi scheme functioning as long as possible.

What a garbled article apart from the bit about real estate being over priced. Much of that overpricing can be laid at the door of government & council rip off charges, & the rest at unions door. Rhian is right with most of his post, as is Incomuicardo.

All miss the other point. Without the housing /building industry, unemployment would go through the roof. [no pun intended].

Governments have a huge & growing problem. Our union generated crazy wage rates have exported most real jobs out of the country. At least currently we can't import ready built houses. That will probably come, when you consider a US house is built for 45% of the price of the same house in Oz.

Once some smart folk develop an import business bringing complete houses in, we will have virtually no employment left, other than service industries.

We had better hope government, or the reserve bank, fix the exchange to push up imports prices, before the only employment is government, & we go broke with welfare. Once that happens we will be the next Greece, with no control of our own destiny.

Hasbeen,

Building and construction is a big employer, and the numbers directly employed in building and construction seem to be around 1 million.

These are basically worker ants (or unwashed worker scum) for the real estate industry and banking industry moguls.

The whole building and construction industry will eventually collapse, when other worker ants in the country cannot afford the ever increasing house prices.

The only bright spot is the fact that there are trade shortages in building and construction.

http://sourceable.net/australia-gains-43544-construction-jobs-in-twelve-months/

This means that people in over supplied jobs (such as tiling) could be retrained to do jobs in areas where there are trade shortages (such as painting).

Of course immigration has to be dramatically cut back to near zero before it totally destroys our country.

But a cut back in immigration would not bring about job losses in building and construction, if people in over supplied jobs were retrained to do jobs where there are trade shortages

Then, we have to wait for people in building and construction to retire or leave, and then wean our economy off the ponzi economy of building and construction.

Hmm, that sounds familiar.
Wattle,
That's a totally unnecessary crap stir. It has nothing to do with that at all. It is a mere statement of fact. Cheap digs at facts are nothing more than evidence of not much substance where there should be.

So here we go again, get rid of negative gearing says the author.

Well, I have a question for the author, one I have asked of many authors, and one that to this day has not been answered, so perhaps this author can answer,
If we remove NG where are people who can't afford a house, going to live?

Without investors, there will be a huge shortage of affordable housing.

Now to the 30% of net income.

With the average mortage being around $300,000 @ 5%, the repayments are around $400 per week, meaning that the remaining after tax income is approx $920 per week.

Two points, One, that's more than many people earn, and Two, how on earth can't they live on that. Of cause I do mean 'live' and buying an asset like a house does sometimes mean sacrifices.

Besides, if they were renting, they would still be paying around $300 per week and have nothing to show for it in 30 years.

In summary, it's my opinion that we have a spending crisis, rather than a housing crisis and, while many today could afford a house, they just can't afford 'the house' and theres a huge difference.

Finally, the author mentioned the first home owners grant. Just imagine if this had been a first home buyers interest free loan for say ten years instead.

Not only would we be able to use the money again and again, it would discourage people from upgrading to some degree.

.

rehctub,

With zero population growth, there is little need for new houses or new units, and minimal need for negative gearing.

Many new houses are not worth living in.

Just down the road is a house where they subdivided the backyard. There are now 2 houses where once there was one, but now there is no yard for either house.

There are whole new subdivisions where the houses have no backyard at all for children to play in, and children have to play indoors or play on the footpath.

So much of the wealth of the country is now going into real estate, creating exactly the same bubble that occurred in countries such as the US, Ireland, Spain and may very well occur in China.

This isn’t a country but an economy, where people are being farmed to be consumers, workers and now debtors to the banks

Without investors, there will be a huge shortage of affordable housing.
rehchub,
Without NG ordinary people would be much better off as the absence of investors would keep prices down. Investors do not bring affordability as so many wish to believe. They deny affordability to many under the deception of affordability. Flat tax across the board & we'd have a healthier society in no time. Of course it'd be too inconvenient for those who don't know enough from enough but in general it would make us better all round.
Negative gearing was nothing more than a smoke screen for bludging off the workers after the unions got strong but once they got too strong they to became greedy & that's why we have NG. It is unsustainable but they'll use it until something has to dramatically give. it'll be a breakdown of society before these greedy morons come to what little sense they have.
If we had a national service people would wake up to these criminals but as things are now it'll get worse before it gets better. Housing is actully not unaffordable, it's the lack of being contend with a smaller house is what's become unaffordable. What's neede is many young renters should fall behind with their payments to bring the rents down. What needs to be done is to make it unaffordable for landlords to chase up late rent. A higher turnover will make it unviable for landlords to have higher rents but make it less troublesome to have lower but stable rent.

So who mentioned zero population growth Incomuicardo?

If you take away investment incentive, such as NG, investors will stop investing in that sector and people who rent, for what ever reason, will be competing for available homes.

Besides, any change to NG is unlikely to be retrospective and would decimate the building industry overnight, not to mention having a huge negative effect on the supply V demand for affordable housing simply because fewer new homes would be built and those investors with existing negatively geared property would be reluctant to part with the tax deduction, meaning less homes on the market as fewer investors woukd upgrade if they were to loose the tax advantages.

While it's a viscous circle at times, I still firmly believe many people who can't afford to buy, are in such a position because of their spending habits. Willingly paying up to $6 for a late is a prime example. Or $60 for breakfast for two on a Sunday morning, which by the way means four breakfasts a month accounts for 60% of their mortage.

I remember buying my first home in 82,(no home owners grant, but a savings grant instead) and the sacrifices I made then. Little has changed other than how willingly many today part with their cash. Cash that could well see them in their own home.

Often it's just a case of priorities because few can afford a new car, new boat, new furniture/plasmas and an OS holiday at will as well as a home.

Often something has to give, and it's usually the hardest one to manage, the home.

I think I amde a comment earlier on negative gearing.
A long time ago the government deleted negative gearing but after about
a year, perhaps two, they had to hurriedly reintroduce it because rental
accommodation all but disappeared.

because rental
accommodation all but disappeared.
Bazz,
Doesn't that show you who's paying for it all ? Do you still think it's worth having NG ?

Indi, let's just assume they removed NG and houses devalued by say 20%.

Now while this may seam to make houses more affordable, it would also come with a new set of problems.

Firstly, the banks would be come more cautious and less likely to lend to anyone who needs mortgage insurance, effectively illuminating a large percentage of buyers. They would do this as there would be less buyers over all.

So, if a person could not afford say a $320K home, borrowing $300 (very small deposit) (which is the norm today) what makes you think they would be any better off if that house was now $256,000 but they needed $51K deposit, plus legals, stamps etc and in any case, assuming interest rates remained the same, they would only be $99 a week better off. Hardly a game breaker, I would say.

So How would that be more affordable to the masses.

Add to this the laws in place now that make landlords lift their game, and all of a sudden rents would go through the roof.

Now of cause the other effect (hypothetical) is that cashed up investors, ones that now have super, unlike thirty years ago, would buy up these properties just for the rent, gaining comfort in knowing that few new houses would be built given the tax incentives were gone.

Bazz, it was for a period of 2 years and rents in most major cities increased by about 25%. I can find a link if needed.

But, by far the largest risk in removing NG is the devaluation of the property market, along with strengthening of lending criteria, as combined they would make today's affordability look like a minor glitch in ones budgeting.

Be careful what you wish for I say.

Be careful what you wish for I sayrehchtub,
The scenario you pointed out would happen if we only introduced negative gearing by itself. Of course it wouldn't work, there'd need to be quite a few othe adjustments. A set of four wheels doesn't make a car, it needs brakes, fuel oil etc. A new tax system too requires periperals such as a national service, import duties, do away with tax havens etc. None of these would favour the greed mongers but it would favour the populace as a whole. I think necessity will bring about a new tax system because even the greed mongers don't want to live in a society that's morphed from a first to a third world country.
You need to stop thinking present by thinking of the results of the past & the possibilities of the future. Only then can things be sorted out.

Indi, you and I think alike when it comes to tax, as we both are of the opinion that no amount of tinkering around the edges with our current 'often very complex' tax systemS will work in the future. I agree that what's needed is a flat tax.

But, while you say a flat tax of 20%, that still taxes the wage earner and, it hugely favors the rich, as the poor often require in excess of 100% of their income, just to survive. That's why they often loose the battle.

It's long been my view that a very small tax on money, say 2%, would be a much better system because One, the most any one individual would ever pay is two cents out of every dollar earned, from dollar one, then Spent. It would even collect the tax if the money was banked, eg, EFT payment of wages. This would effectively leave the average wage earner with a whopping $15,000 per year extra to save, spend, either way, collecting tax.

Two, this type of cash injection into the economy would do wonders for stimulating same.

Three, nobody or entity could escape such a tax because even when money is shifted to off shore tax havens, it would be taxed. In fact, there is no reason why governments couldn't legislate that any money leaving our shores (apart from share related trades) could be taxed at a higher rate.

The difference with this tax is it taxes money. Say you spend $100 at the butcher, they then pay that $100 to a supplier, the supplier pay it as part of a wage, the wage earner buys goods with it. That same $100 could change hands thousands of times every day, collating tax ever time and not placing burdens of certain sectors of the community as does the current systems.

But, I can assure those against negative gearing, remove it at your peril as you will cripple the housing industry and drive many renters over the edge, not to mention make the dream of home ownership an even less realistic dream.

No one made the point that buying an investment house to rent out is
a business, just like any other business.
A company that borrows money to extend an existing manufacturing plant
can offset the interest charges against the income from the busines.

Why should anyone running a house for rent business be discriminated against ?

rehtcub,

Where I live, there are over 1,000 vacant houses, and it is now quite common to see “For Rent” signs out in front of units and houses, as well as the innumerable “For Sale” signs.

Why is this when there is supposedly a housing shortage?

It is because there are over 40 coal mines nearby, and real estate developers starting building large numbers of houses on spec.

But the construction of new mines ended, and the production phase employs few, and 1000’s of people left (and many actually went back to NZ).

So all the negative gearing amounted to over 1,000 vacant houses.

It shows just how much the economy depends on the mining boom, and if that dips, the full effect of Australia’s overpopulation will become very noticeable.

If something happens to China's economy, expect to see a huge increase of homelessness in Brisbane, Sydney and Melbourne (and there is minimal employment in rural areas for them either)

I personally don’t care if all the new and vacant houses in this town rot into the ground.

Most of these new houses had no yard, they had no eaves, they were hot ovens in summer, and were basically un-livable anyway, and would have given the inhabitants zero quality of life.

Yes Incomuicardo sound a bit like Mackay. The same thing is happening here in Miles, Chincilla and Dalby, hundreds of new homes vacant, some never been lived in, yet they continue to build more.

These homes were mostly sold to interstate invstors, with rental appraisals of $850 to $1200 per week, so on the surface, half a million seemed like a good investment.

Today, if you say to the letting agent, you are vacating, they usually ask if you woukd stay if the rent was reduced. Most rent today for less than $600 per week, some as low as $400.

The thing is these are isolated cases and not a true reflection of the overall market. Besides, these vacancies were largely brought about by greedy landlords, sucked in by the hype of huge rents, so the miners simply moved their workers into camps instead.

While the CSG industry is in a lul at the moment, it's tipped to go full steam ahead in September/October, however I doubt the half million dollar houses will see much increase in value. In fact, similar houses just eight years ago sold for $125,000 and land has gone from $7500 in 04 to $220,000 now. Something had to give, and it did.

I heard the other day that the banks view the area with cation now.

flat tax of 20%, that still taxes the wage earner
rehctub,
Not just the wage earner, everyone-business included, no if's no but's full Stop!

A company that borrows money to extend an existing manufacturing plant
can offset the interest charges against the income from the busines.
Bazz,
That's what's got to stop & stop it has to if we don't want to go down the gurgler. When you say investment you're really referring to speculation because once the profits start ebbing the so-called investment gets discarded quick smart.

None of that suggests there are 'greedy landlords' does it? However it does prove that investment in rental housing can be high risk.

Developers and mums and dads housing investors don't gain from oversupply. It is nonsense to suggest that 'negative gearing' was at fault too. It is much more likely that they were victims of the vicissitudes of the global market for raw materials. Also, I wouldn't wish financial failure on anyone. No-one gains and certainly not tenants.

Hasbeen and others have identified some relevant causes of rising prices. There are others, one being the expectations of home buyers (and tenants!). I have been involved in small scale residential housing developments and many here would be surprised at the skill set and risk tolerance necessary to make anything out of it at all. Losses are easy and the excruciating, complicated, often arbitrary and unpredictable bureaucratic approval processes that confront the owner-builder and developer alike are sometimes implicated. As well, government policy changes and interference in the market never help, always creating uncertainty.

Talking about expectations, the public need to be aware that demands made of government always have costs. I am not opposed to regulation for instance, but it needs to be based on evidence of need and benefit and to never be the first resort of headline-hunting politicians, or the lazy gutless ones who always choose populism. Politicians seem to have a very short term view.

I could talk about the additional costs of previously luxury inclusions now seen as 'necessary' by home buyer and tenant alike, such as the proliferation of bathrooms and airconditioning, but those who would read and think are already aware and the remainder are just not interested.

onthebeach, quite to the contrary in fact.

Take the small town of Miles as an example.

Pre CSG, 2005, a regular house rented for $80 to $120 per week. Last year, that same house, with a new kitchen and new paint and floor coverings, rented for $500 to $800 per week, simply because land lords got greedy. And I guess you can't blame them.

Today, that house is back around the $350 mark and dropping.

I heard of an elderly couple who had rented this house for twenty years and, Pre CSG their rent was $80 per week.

Over a space of about four years, they had to leave, because their rent had reached $700 per week.

No matter which way you look at it, that's greed.

But I agree with your view on people's expectations, as I often say that while many people could afford 'A' house, they want 'THE' house, and there in lies the problem.

As for government regulation on rental properties, I saw this coming and just knew that placing more and more restrictions on landlords would see a spike in rents.

Now while I understand few people want to live in poor quality housing, the fact is, that's all some can afford. And the days of, il supply the materials, you do the work, and il knock a few bucks a week off the rent are gone.

Finally, I don't believe many investors sell property just because the tax break has been used up, as once a property becomes self funded, they generally go again, something that does put pressure on the market, so perhaps there could be a cap on NG, say the amount you can right off.

Perhaps property has to be treated like a charter boat, or a small farm, where a return to profit must be demonstrated to be eligible for the claim.

rehctub

The country is in a very precarious position if everything now depends on coal and gas prices.

The country now runs on debt and selling real estate, and I will have no sympathy for those who bought real estate hoping for capital gains, and then lose their money if countries such as China, Japan or the US hit the wall (and that is not unlikely at all).

But I would suggest what is happening in some rural towns will happen to the capital cities shortly.

Cities are a huge expense for the country, but there isn’t much in the cities except manufacturing and public servants (and I see no cultural value in places such as Brisbane, Sydney or Melbourne),

Manufacturing is reducing labour, and governments are reducing the number of public servants (because they can’t afford their wages or unfunded liability costs).

I have heard of people in Hobart complaining that the state government cannot reduce the number of public servants any more, because public servants are some of the very few people left in Tasmania who can afford to buy anything.

Yes, well, I have been reading the posts here and none of you seem to
understand what is going on.
The GFC was the first very obvious signpost on the path we are now on.
I suggest that you have a look for Richard Heinberg's book "The End of Growth".
It sets out pretty clearly what the situation is now that governments
are struggling with debt and why they have got into such a mess.

I note that Russia now has a GDP of 0.2%.
Russia is scared that the Europeans will find alternatives to Russian oil & gas.
If Russia cannot sell it at current rates they will have a big recession.

Almost all countries have either low and falling GDP or they are like
Greece and othe European countries struggling to understand why neither
money printing or austerity are having any effect.

The lucky country has lived up to its slogan so far but a major reduction
in mining will really be a problem.

Ultimately, we are all in the same boat.
And the tide is going out !

We could make housing pretty unimportant really if we all claim indigenous status, get a 4 bedroom home from government housing for $100.- a week for life. Cheaper all round don't you think ?

Now there is an idea Individual.
Only catch is didn't Andrew Bolt get dragged into court for suggesting
something like that ?

suggesting something like that ?
Bazz,
Well, we could do away with giving the hypocritical opportunists a reason to bleat racism again by simply changing the term to Australian. Everyone on the electoral roll is Australian & therefore entitled to a home rental for life. Imagine how much this could improve the economy ? The Stae already owns our lives so they might as well own our homes, the difference being we pay less per month, leaving us more money to spent & boost the economy. After all, isn't that what they're after anyway ?

Guys I can remember having a butcher work for me back in the early 80's and each Monday, at 7 o'clock, he used to say, oh well, that's me house paid for. The hourly rate was $7 so his weekly payment was $7. BTW, he was buying his house, not renting it.

My house was costing me $1200 per month to buy at the same time and that's after I paid my then min 30% deposit.

So I'm assuming this scam is continuing generation after generation so one has to wonder if this gravy train will ever run dry.

As for us all getting ridiculously cheap housing, keep dreaming because racisim goes both ways you know.

Last time I looked, buying a house was a choice made by individuals, for their own reasons. It is not, and never should be, a right.

If houses become too expensive, then people will stop buying them. When people stop buying them, prices will come down.

There are more than enough furphies on this topic. This is one of the classics, this time from Incomuicardo:

>>So much of the wealth of the country is now going into real estate, creating exactly the same bubble that occurred in countries such as the US, Ireland, Spain and may very well occur in China<<

It is very, very far from being "exactly the same bubble".

In the US, it was the criminal activities of lenders, who would lend to anyone with a signature, who created the massive exposure to bad debts. When they couldn't keep up payments, the houses were returned to the mortgagor, creating a glut of unsellable properties.

In Ireland, it was the massive influx of EU subsidies that encouraged the building of speculative housing - according to one source, there are currently nearly half a million unoccupied dwellings, enough to soak up natural demand for another forty years. Without another house being built. (Not all are in places where people want them to be, of course; but it does give an idea of the scale of oversupply)

In Spain, five million new housing units were added - that is, a 25% increase - during the years 2000 through 2009 alone. Far more than the market could sustain.

China's property market has already been through two cycles of boom 'n' bust within the last ten years, and probably won't settle down into a more benevolent cycle for a couple more decades.

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/05/15/is-chinas-housing-bubble-popping/

Classic supply and demand has driven the property crash in all these cases.

Meanwhile, in Australia we have a shortage, not an over-supply, of housing. A fact that will have a greater impact on prices than any amount of tax-tinkering.

Quite right Pericles, the crazy lending set the US up for the disaster.
China went even further by building not just whole suburbs but whole cities !

The average working man in the US was just sitting there waiting to be
detonated.
Like all recessions when a spike in oil prices occurred about a year
later a recession arrives. This happens because that average bloke is
faced with a choice, buy petrol to go to work, buy food for the kids
or pay the mortgage.
That was the choice in 2007 & 2008.

And the rest is history.

Pericles,

Various countries have had their ponzie schemes with housing and real estate, but Australia’s ponzie scheme involves the mining boom and immigration.

The mining boom provided a quick boost to the income of many people, who were willing or able to pay extra for housing, thereby boosting its price.

Although I don’t know how a real estate agent can lie straight in bed after selling people substandard and almost unliveable houses in suburban jungles, (but they seem to have mastered that art).

Added to the stew is consecutive governments bringing in vast numbers of immigrants who needed housing when they got here. This boosted employment in the building and construction industry, while filling the pockets of real estate agents and those investing in housing.

All seemed well until mining has gone off the boil, and there are now only 146,000 job vacancies in Australia with 720,000 people unemployed.

This is the legacy of our own housing and real estate ponzie scheme.