*the housing bubble is largely responsible for a near tripling of household debt.*

Smithy, the housing bubble isn’t responsible for anything. It is people making
what they think are quite rational decisions about their money and its future,
that is the problem. So we have to question and examine why they act as they
do.

Now take Joe and Mary, both with good jobs, in their early fifties, have paid
off their house and have a spare 100k in the bank from their efforts, or perhaps
a small legacy, or both. What options do they have as to what to do with their
money?

As we’ve established, many don’t trust the stockmarket, property trusts etc,
as they don’t understand them and have heard of this or that collapse in the
press. Whilst they trust bank deposits, they understand that between inflation
and tax, any returns are taken away, so that’s not really an option in the longer
term.

Investing more in real estate is thus the default option for many people, at least
for 20% of the population. 100k won’t buy a house or unit, so they negatively
gear the difference.

Safety matters to a lot of people and they like the fact that they can actually
see their real estate.

My contention is that if they had safe, tax effective options, they might
divert some of those investments into those, rather then keep piling more
into the housing market.

That would benefit Australia’s current account too, so a win-win all round.

Everyday people making so called rational decisions, is how we landed up
with a housing bubble

Yabby wrote: "... without mining, the economy that you depend on for a living, the taxes and jobs generated, would more then likely not be there."

Gee, Yabby, no-one has ever told me that before. It's so stimulating to have my viewpoint challenged in this way by such original arguments coming from you.

Whatever you do, please don't go away.

Yabby wrote, "Now take Joe and Mary, both with good jobs, in their early fifties, have paid off their house and have a spare 100k in the bank from their efforts, or perhaps a small legacy, or both. What options do they have as to what to do with their money?"

"As we've established, many don't trust the stockmarket, property trusts etc, as they don't understand them and have heard of this or that collapse in the press. Whilst they trust bank deposits, they understand that between inflation and tax, any returns are taken away, so that's not really an option in the longer term.

"Investing more in real estate is thus the default option for many people, ..."

Yes, I see now.

How unbelievably selfish it is that any first homebuyer should expect Joe and Mary to put their spare $100,000 in the bank rather than outbid them for the home they hope to buy!

It seems some people just have no capacity for empathy.

Daggett “How unbelievably selfish it is that any first homebuyer should expect Joe and Mary to put their spare $100,000 in the bank rather than outbid them for the home they hope to buy!”

A first home buyer is in competition with other first home buyers as well as possible “investors”.

The earning qualifiers used by lenders will recognize the improved “risk” of someone investing $100,000 of their own money over someone possibly borrowing 97% or more of the property value.

If it were your $100,000 would you tolerate some third party telling you that you are not allowed to participate in a public sale?

if you were the house seller would you tolerate someone not being allowed to bid with their own money on your property?

“It seems some people just have no capacity for empathy.”

It seems to me that you “lack empathy “with your fellow Australians and their individual right to make decisions for themselves and to choose the medium and type of risk for their own savings.

Of course, a first home buyer, provided they are owner-occupiers will not pay capital gains tax on disposal, Joe and Mary will (actually for investors like Joe and Mary, there are some real benefits here if they can structure the investment through their superannuation fund, accepting the limitation that the superfund is not allowed to borrow beyond itself).

*It seems some people just have no capacity for empathy.*

Daggett, its fairly foolish to assume that people will leave money in bank
accounts, losing half its value over 10 years, for reasons
of empathy.

If you are interested, do some reading on basic evolutionary
psychology. Keating was right, in the race of life, self
interest matters.

In their 50s, people think of retirement etc, leaving something
to the kids. They want their genes to go on to the next generation
after all. The kids and grandkids matter to them alot of the time.

I'm sure that you are a caring fellow, full of empathy, but don't
judge the world by yourself. Thats why centralised economies fail,
self interest is not the key driver, when its the key driver for
most people, just look around you.

The thing with market economics is that it gets results, so thats
how I judge it.

This url might interest you. Although not related to housing, rather
to solar power, climate change etc. It shows what market forces
and private enterprise can do, when lots of innovative people and
lots of venture capital come together.

http://www.businessspectator.com.au/bs.nsf/Article/Solar-just-got-cheaper-AE74N?OpenDocument

.

I thought we were discussing land speculation, weren't we?

Not banking, not investment in shares, nor bonds nor the futures market.

Why should the fact that these alternatives may or may not be satisfactory, from the point of view of investors, have any bearing on whether or not not speculators are entitled to the value added to their land by taxpayers funds having been spent on infrastructure or whether it is right that today's homebuyers be made to bear the cost of housing inflation for the benefit of speculators?