Yabby wrote: "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."

Interesting that Yabby also argues elsewhere in favour of the precise factor which he, in this forum (correctly) identifies as the principle factor which drives up housing prices.

On 21 May 2004 I was astonished to listen on an "Australia Talks Back" program with perverse topic of the 'problem' of the then slump in the real estate market, an economist who worked for the Real Estate Institute of Australia (REIA), who openly welcomed and anticipated and increase in immigration to fix the 'problem'.

This is what I wrote in response:

(The REIA economist) expressed his hope that further immigration will
help the property market to 'recover', that is, presumably, that the
crowding of further new arrivals into Sydney and Melbourne, will drive
the already hyper-inflated housing prices even higher.

This confirmed my suspicion that the motivations of many advocates of
immigration were not as altruistic as they had once led me to believe.

Those on the lower rungs of our society were not informed or consulted
about the consequences of such an increase in our population, and so
now they can no longer afford what was affordable to them a generation
ago.

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Since then they have got their wish with the (thankfully, former) Prime Minister Howard sneakily raising real annual immigration rates to possibly as high as 300,000 whilst pretending to be a strong defender of Australia's borders.

Population growth is not a given. It is a conscious political choice by the Government of the day. Those who stand to gain at the expense of everyone else, including, it would seem, Yabby (see "Skills shortage imported workers vs local" at http://forum.onlineopinion.com.au/thread.asp?discussion=1040#18555), try to convince the rest of us that it is inevitable and that there is nothing we can do to stop it.

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However, the rest of us should not sit quietly and allow the growth lobby change this country to become like Bangladesh further desertified through overuse, mismanagement, neglect and global warming in order to profit at the expense of the rest of us and of future generations.

If anyone is interested in reading more on the link between population growth and escalating housing prices, the discussion forum in relation to Andrew Bartlett's "A crisis in Housing affordability" at http://forum.onlineopinion.com.au/thread.asp?article=4834#53462&page=0

(However, I warn anyone who may be interested that this particular discussion was somewhat marred and bloated because of a troll. Since then, thankfully, that particular troll has not bothered me as much.)

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Thank you wizofaus for making the distinction between 'profit' and 'wealth transfer'. The latter term is a more honest and descriptive term for things to which the former label is often applied.

Home buyers have more preferential tax treatment than investors, in that they dont pay ANY tax on a rise in real estate prices (notice I am avoiding the word profit). The $30,000 I made on my first house, enabled me into my second house in a better location. The $50,000 I made on my second house enabled me into a bigger house in the same location. I have put hard work into the properties, and upgraded them to make them more appealing. I have also been prepared to live in dumps (initially) in order to get ahead and eventually get into a house that I want to stay in. Problem is now that first home buyers arent prepared to drop their standards, and want the sort of house that their parents were able to afford only in their 50's. Which suits me perfectly well, as it means I will also have a market for my much improved homes.

"Problem is now that first home buyers arent prepared to drop their standards"

Country Gal, you, and others of your generation, are fond of making this claim.

I've already given an example of our first home, bought 6 years ago, a small 2-BR weatherboard on a main road, 15km from the city, is now on the market for $550K. Virtually no first home buyer can afford that.

How far exactly do you expect first home buyers to drop their standards?

Now, it's true that there are first home buyers these days buying high-spec* luxury-appointed houses - but that's because, being in out-of-the-way locations, these are often less expensive. Indeed, you can buy such a house for under $400,000, if you're prepared to live on the very fringe of the city, with no public transport, minimal infrastructure, and a good hour's drive from family, friends and most job opportunities.

(*That's being generous. They are often very cheaply made, but are very cleverly dolled up to look "high-spec").

Wiz, I have to agree with Country Gal. Your particular circumstances
sound particularly fortunate. I certainly know nobody of my generation,
who got it as easy as you. People put up with dumps in
outer suburbs, or they lived frugally for a few years, banked one
wage and lived off the other. After 5 years they had a sizeable
deposit together and could think of houses, babies etc. Now they
want the regular overseas trips, the latest fashions, mod cons
etc, then are amazed when they can't afford a house. I have yet
to see this generation, do without too much.

As to buying first homes, I haven't checked the statitics, but has
there been a massive drop in people claiming their first home owners
grants? That would tell you as to how many are buying first homes.

Daggett, population is a global issue. When Indonesia's population
hits 500 million in some years and they scream for asylum, will the
Greens let them in or let them die?

I remind you that West Australia takes up one third of Australia,
has 10% of the population and produces 40%-50% of our exports.
There are few places less populated then WA. So the problem of
migrants is not them, but that many go to Sydney or Melbourne.

You can't develop those resource projects without people and we
need them to pay our current account, as the ES are not achieving
the exports we need. If Eastern Australians don't want the jobs
here, why should we not use overseas labour?

I have purposely ignored this thread until now on the basis that it comes up every few months, the “left” demanding cheap (=uneconomic) rents and cheap (= uneconomic) house purchase prices for all, conveniently ignore what happen in the real world.

Somewhere along the path of debate the hoary old furphy about negative gearing, generally gets promoted by someone who is profoundly ignorant of what the terms means or what the tax implications and investment consequences would be if something were done to change the deductibility of investment property costs.

However the emotive and contentious pot-stirrer word (designed to strike down wicked capitalists in a single blow), “speculator” is used.

So who are these “speculators”, who deprive poor hard working Australians from buying the homes they presently choose to rent?

Significantly, many are other “Working Australians”, who have elected to defer consumption (save) and seek a good “return” for “saving”.

Some have chosen to save in property, rather than buy shares (riskier) or leave as a cash deposit (safe but very low return) or invest in property trusts (not Westpoint WA,).

We can also go around in circles about whether houses are “affordable” or not.

The reality is

Mortgage lenders have always lent up to a point where repayments are covered by disposable income (typically 30% of gross), to borrowers against residential real estate security.

This financing ability, multiplied by the annual income, roughly defines the price of houses.

Should interest rates increase by 1 % from say 8% to 9%, the values of houses will drop by around 12% because the capital borrowings supported by the financing amount will have become 12% more expensive. (9/8= 112%)

This was observed in the mid 1990s when, Keating ran a deficit federal budget and the interest rates spiraled up. House prices dropped in value between 1993 and 1996. in 1996, Howard came to power and the liberals put a tourniquet on the hemorrhaging of government debt interest rates fell and property prices rose.

So get over it. There is no “magic bullet” and governments messing with it will only make things worse.