Wiz-Nic, frankly if there was land available within 30 minutes of
the city for 120k$, I would not blink twice regarding where to live.
Building a house is not expensive, plus there is simply no comparison
when it comes to raising kids.

As to the US banking scandal, by what I can gather its more a question
of rules having been broken, rather then a lack of rules. Alot of
those subprime loans were packaged up and rated AAA, so some ratings
agencies will have some explaining to do. Some large banks also
gave guarantees on loans, the risks for which did not appear on
their balance sheets. So lots of people have alot of explaining to
do. With Enron, quite a few people landed up in jail eventually.
The same could happen in this case, the way I understand it.
But thats not going to suddenly return stability or credibility to
the US financial markets.

The US$ was the world's reserve currency, its heading for being
a subprime currency, as more people move money into Euros. That
has its consequences, even for us.

Yabby, I did say 30km, not 30 minutes. It's extremely rare you could ever average 60km/h into the city - the other night we drove home from the city at 1am Sunday morning, and it took us 35 minutes to drive about 15km.
And the blocks that are 120K are in places with no public transport, no parks/gardens, no shops, indeed, very little of anything within walking distance, making you utterly dependent on a car. You would also be lucky if you could find a job that was less than an hour's commute away.
Given the good likelihood of oil supply restrictions in the next 5 years, and the virtual guarantee of sky-high petrol prices, it's a good thing very few people do truly want to live in such locations.

Re the US banking system, you may wish to read Paul Krugman's take on the situation: "The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess."

http://www.nytimes.com/2007/12/03/opinion/03krugman.html?_r=1&oref=slogin

But accepted, rules were probably broken too. Time will tell.

Dropping in a little late here..but one thing that needs to be cleared up re. grputland's point about axing preferential tax treatment for non-productive investment (in established homes) is that is not a case of discriminating against one particular class of investment - eg. property as opposed to shares. It is a case of differentiating an economically worthless activity that adds nothing to production.

If that is discrimination then so be it. there is no provision for asset-classes in the Anti-Discrimination Act.

In any case residential property is not discriminated against according to grputland's suggestion as tax breaks would be retained for new construction. Policy should favour the creative not the passive.

Wizofaus is right in pointing out that this about distinguishing between "wealth transfer & "wealth creation". He is also right in saying that wealth transfer in various forms will always exist. There is no justification however for govt. & the tax office to be encouraging it.

No justification beyond the fact that the young & asset-poor have less in the way of political clout than the property lobby and the baby-boomer landlords.

There is a famous case in Tamarama (Sydney) where an investor bought a house for $4m, sold it 3 years later for $9m & paid a much lower rate of tax on that do-nothing enterprise than a small-business person or an employee would normally pay on their income. It sends a bad message to people that actually work for a living.

It also distorts the market. The optimum price of an investment property would normally be determined by the rental return. The ability to off-set rental income losses makes higher prices (& loss-making investments) viable for short-term capital gain. The (1999) CGT discount further assists.

Another key reason for differentiating between residential property and other investments is that it is the one area where the interests of investors clash with those of consumers. Participants in the financial (& commercial property) markets are all investors & they all generally gain from rising asset-prices.

First-home buyers do not.

The real discrimination lies in the fact that first-home buyers are disadvantaged in the market by tax laws that overwhelmingly favour the speculators.

Current house price / income ratios are untenable (& seriously delusional). $50k a year households cannot sustain $500K property values. In the emerging struggle those that regard residential property as homes for living will eventually prevail over those that regard it as another investment commodity.

- Mr Smith

"First-home buyers do not."

First home buyers certainly do gain, they just gain down the track.

Its interesting that yesterday's first home buyers, who might have
bought quite cheaply, today want every last dollar that they can
gain for their houses, as they have become today's investors.

AFAIK the West Australian Govt introduced a scheme, whereby the
Govt becomes co-owner of a property of up to 40%. But when the
place is sold, they will also take 40% of the profits. The initial
scheme was for 1000 houses a year. I have yet to hear if they were
rushed off their feet or not.

If investors are happy to invest in land, which pays no dividends,
they might well be prepared to invest in a % of peoples houses and
settle for a share of capital gain, when selling time comes around.
Its food for thought.

Fact is that whilst you have cities with rising populations and more
people wanting to live near the centre, supply and demand suggest
that the old location, location, location mantra is correct. So of course
properties in those areas will rise in value, faster then those in other areas

Yabby, the vast majority of first home "buyers" don't gain, because they simply aren't able to buy at all in the current market.
My wife works in a market research firm in a group of ~50 mostly 25-35 yo's, most of whom are looking for houses. None can afford one, despite them all earning well-above average salaries.

And yes, I'm redefining "buyers" to mean "those looking to buy", but it doesn't change the point the previous poster was trying to make.