Absolutely spot-on. On the other hand, the FHB have the same attitude: 'us' the struggling, cheated and frustrated FHB who cannot afford a thing, vs 'them' the greedy speculators in a Ponzi scheme who rob the poor of their wealth.

Resentment begets more of the same. Unfortunately, the government and all their 'red tape' is probably their true enemy.

Nicely said. Unfortunately I did waste a few years of my life being concerned about what things 'should be' instead of looking at what things 'are'. These days, I prefer to focus on the latter and find a way to deal with them. Just because I think something is 'wrong' doesn't mean it has to change so that I can be comfortable with it. However, each of us has our own moral standards to help navigate us through the way things 'are', rather than simply hoping things will return to what they 'should be'.

Haha, good one. But a spruik in a book, from an author who actually dared to get themselves published (rather than sit around here as a nameless face, spewing endlessly), is far better than 'stuff' from nameless people who are calling them 'predictions'. BTW, I'm not saying such 'predictions' are wrong or impossible. But by George, if you believe in what you say, and there's good sense in it, you could get it published and have your own spruik in a book.

Anyway, read the book, then tell me what you think. No use shooting at me, I wasn't the one that said it!

No, they don't. But when you have a choice to either pay the rents or be homeless on the street, I think we all know which is better. It's about choosing the lesser of two evils really.

And besides, you make a very good point: high unemployment when the property market crashes. Those hoping for a crash or attempting to predict one had better be prepared to lose their jobs. Again, it's down to a choice between the lesser of two evils. Do you want high house prices? Or do you want to lose your job with little hope of getting it back?

Good point. Furthermore, Matt should write a book with all the predictions in the first post and get it published. It'd be a bestseller when these predictions start to play out.

Arguably, government 'red tape' and regulations have caused a virtual land shortage. And the high cost for developers may then contribute to a shortage of new projects. We then have a shortage of affordable housing. If this is indeed the case, then people need to start moving their 'rage' to a different target. Abolishing negative gearing ain't fixing the problem. People should be lobbying the government to provide better public transport and infrastructure, decentralisation of services and amenities away from capital cities into smaller 'satellite' cities, and provide government subsidised housing.

And no, we're not worried about a FHB strike. I think the key issue at hand is that FHB don't know who their true enemy is and property investors are being called greedy punters heading a ponzi scheme.

We all know that if we want answers, we should ask the correct questions and also not bark up the wrong tree.

Good point. Availability of credit is very important. I'm no economist, but basic knowledge tells me that a tightening of credit would cause house prices to take a fall. However at the same time it reduces the amount anybody can borrow to buy a house. Tightening credit would not help a FHB as such.

Opportunity cost: it's great, no doubt…to be putting money into a mortgage. However as we have seen, being able to own our own home is an important issue for many. What exactly is the price we put on owning our own home? A book I read made an interesting point: humans are by nature, a territorial creature. We'd rather take an empty double seat on the bus than share with another. We also have our own private space which when invaded, makes us uncomfortable. This happens whether we're walking on the street or driving on the road.

It is this territorial nature that in part explains the reason why people need their own home, and preferably with a good sized backyard, because everyone wants their own personal space which they may even choose to personalise and decorate based on their own tastes.

As such, without adding more complexity to an already complex issue, home ownership is an interesting thing to consider, with many variables in the picture, tangible or otherwise. As such, whether the opportunity cost is really too hard to bear depends on other factors, including emotional factors, which as we know are sometimes responsible for people's actions.

Most banks will give a choice of a loan term of up to 30 years, and this is what more cash-strapped buyers should be looking at. It would be better to have a 30 year loan term and an associated 100% offset account. This way, if things get tight, it's easier to manage the repayments, but when times are good, more money goes into the offset account, which reduces interest on the balance of the loan and effectively reduces the loan term.

On that note, repayments of $40K per annum on a $500K house on a 30-year loan term equates to an 8% interest rate on a loan of $450K, which is 90% of the value of the home (ie. 90% LVR), or a 7% interest rate (closer to the rate today) on a loan of $500K, which is 100% LVR. Alternatively, most buyers are recommended to have a 20% deposit and borrow 80% (80% LVR) of the value of the home, hence avoiding mortgage insurance.

So even at an interest rate of 8% (currently you can get less than 7% variable interest rates and 5-year fixed rates are still less than 8%) on a loan of $400K, we're looking at less than $36K pa, not the $40K pa we were originally considering, but certainly close enough. Just doing some figures for the benefit of those who might be reading/ looking to learn a little more.

Consider also that if you choose to pay weekly rather than monthly, you will save even more on interest and shave more time off the loan.

Perhaps I am misunderstanding your statement. But let's also consider that the said renter has to put this $20K pa into renting a house. That means the $20K is not available for investing. So in tying in with the above statement, the choice is between renting and having $16K pa left over to invest or otherwise paying $36K pa over 30 years to own the house (at 8% IR on a $400K loan), assuming rents and interest rates don't change, but rents generally do increase in line with inflation, if not more.

Of course this doesn't take into consideration other things such as costs to maintain the house (which an owner or landlord has to foot), and the fact that, if a renter decided to rent rather than put down the 20% deposit to buy his/ her own home at $500K, then he/ she has $100K in the bank from the get-go.

However if the 'owner' of the house is really a landlord, then he/ she in reality is out of pocket for a much smaller amount each year in order to control the property. Assume for this example an interest-only loan on $400K for this house, which works out to $32K interest per year (for simplicity's sake, excluding cost of repairs, maintenance, rates, insurance). Rent is $20K. Landlord is $12K out of pocket. Now, just getting out of my depth for a moment (as I'm not an accountant), a landlord on a marginal tax rate of 30% will hence be able to claim back 31.5% (30% tax plus 1.5% medicare levy) of this $12K in the form of a tax deduction, which is $3,780.

In reality, this landlord is out of pocket $8,220 pa to control this property. Naturally we have neglected to consider capital gains. Assuming he/ she has bought well, there is substantial money to be made (ignoring inflation again for a minute, which affects the returns of any investment regardless) which would subsidise his annual out of pocket costs, and more. And the landlord can choose to sell the property nearing the end of the 30 year loan term to pay out the loan and take profit. Or if he/ she is lucky enough to have two investment properties, to sell one, pay out the loan of the other.

Notice we're talking about negatively geared property here. Some folk buy into positively geared property and it makes money for them from day 1. For the landlord, this can become a substantial form of passive income.

The size of the tax deduction is dependent on the marginal tax rate of the landlord, hence it is NOT a 50% tax deduction across the board, and you can only claim a deduction on the interest portion of your repayments, not the principle portion.

There is an equation that I remember reading in Steve's book, which seems to more accurately quantify the values you'd be dealing with when working with an investment property. I would try to quote here (with some changes to the terminology) and digest, if I may (cash down meaning the deposit plus closing costs):

Net profit percentage = [(cash back + expected annual capital growth) / cash down] * 100

Let's assume again these figures:

House purchase price: $500K
Loan: $400K
Deposit: $100K
Closing costs (allow 6% of purchase price): $30K
Rent: $20K pa
Costs to control property (loan repayments on 8% IR on interest-only loan): $32K (assuming no benefit from tax deduction, or if negative gearing were 'abolished')
Expected annual capital growth (assume conservatively 6%): $30K

Therefore,

Net profit percentage = [($20,000 – $32,000 + $30,000) / ($100,000 + $30,000)] * 100 = 13.84%

That is, every $1 invested in this property yields $1.1384. The figures above are rather conservative however, but it is just an example to show that your returns are closer to 14% pa on this property, assuming rents and interest rates don't change. And higher interest rates usually bring higher rent.

Let's do another example, this time with figures I know we can achieve (because I've seen it done on average property):

House purchase price: $449,000
Loan: $359,200
Deposit: $89,800
Closing costs (allow 6% of purchase price): $26,940
Rent: $18,720 pa
Costs to control property (loan repayments on 7% IR on interest-only loan): $25,143.96
Out of pocket costs (after tax deduction): ($25,143.96 – $18,720) * 0.685 = $4,400
Capital growth this past year (using bank valuation): $51,000

Net profit percentage = [(-$4,400 + $51,000) / ($89,800 + $26,940)] * 100 = 39.92%

Of course we cannot assume this level of capital growth each year (which is only 11%, BTW, not the 20% that some suburbs have achieved in the past year), but just a real life example showing the numbers.

Feel free to correct me on any of the above figures if there's been a mistake.

I do not disagree that house prices are high, and neither do I disagree with the possibility of a correction. However some people are of the simple belief that the prices have to come down simply because they are high. They may be right, but I believe that unless it becomes very uncool to own your own home, or Australia becomes very unlivable (whether through war, natural disaster or economic chaos), or economic chaos elsewhere, house prices in Australia are not simply going to crash to the tune of 40-50%.

House prices in Singapore are stratospheric, and there have been 20+% falls in prices, particularly during the GFC just past, but it is another case in point: prices don't just drop by massive amounts because they are high. Big drops are caused by events that occur at an international level, and even so, not by 40-50%.

This is a good point, and the movement of the baby boomers will causes changes to the property market. However it begs the following question:

How many of these retirees actually have negatively-geared property? This is a figure that is not easy to work out, unless there is a census somewhere that gives us the figure. Bear in mind also that these baby boomers may have bought their investment properties many years ago, and they are now already positively geared. If the income is substantial, they have little reason to sell. IMO, even a retiree needs a good amount of passive income to support their lifestyle. Relying on savings alone, unless you have huge amounts, is risky.

When the baby boomers move, there is a potential for a reduction in prices in some of the inner and middle suburbs, as John Lindeman alluded to in his book. But we also need to consider the underlying demand from people who are waiting to buy into these desirable suburbs. Is it then possible that the demand for such properties will continue to hold prices up?

Also, if the baby boomers move out of their inner and middle-ring suburb homes, they WILL have to move somewhere else. And where would they move? John Lindeman suggests some locations in his book, for example, the Mornington and Bellarine Peninsulas in Victoria.

Essentially, the change of lifestyle for these baby boomers will have an effect on property prices for sure. But in essence, the early signs are already telling us where to buy.

Ultimately, in this world, it's 'Yer pays yer money, and yer takes yer chances.'

Each should do what they think is right. But ultimately, in instances of polarized opinions, someone will be wrong, and the losses will be great, actual or opportunity cost otherwise.

This is why I think the doom and gloomers have it easy: no investment of time or money, yet the chance of a spiteful gain if they are right in their predictions. While people who work to earn their right to their own home unfortunately have a lot to lose if this is the case. Of course things could very well go the other way, and homeowners will be well-rewarded for their efforts, and justly so, and the naysayers will be left with nothing but hindsight for their children and grandchildren. Such is just the reality of things.

It is, but only at our (ie. tax-paying workers) expense of course.

So? Are families that are living in a 'reasonable' home and paying off a mortgage considered not 'decent' and not 'hardworking'?

What a crock.

The 'Get Up' campaign should imply just that: Get up, get off your butts and earn what you desire in life.

Instead it is breeding contempt amongst a group of people who would rather blame everyone else in the world for their own mediocrity than to look into more productive self-improvement. Campaigns like this generate huge interest because it allows people to vent their frustrations for NOT being able to succeed, to give excuses, wasting precious time in the process, when they could be considering how they can work to improve their current state.

Why should we allow mediocrity to proliferate? On the contrary, we should be applauding those who are willing to 'Get Up', work hard, get some substantial income, incorporate basic saving habits and financial discipline, make sacrifices in the name of delayed gratification, in order to buy themselves a home.

But no, we have a group of people who EXPECT prices NEED to come down so that they can buy a lovely mansion that is minutes to trendy cafes, the beach, the CBD and their workplace for like $50,000. Get real folks. There is a law of supply and demand.

Consider this for a moment. Let's say some catastrophic force resets the prices of ALL properties in Australia (regardless of location or size or finesse) to say, $50,000, without actually reducing livability or population. In the end you still have a huge number of people wanting to live in a small number of desirable locations. Huge demand, short supply.

And the way decent people sort out who buys and who walks away is not by having fist fights. It's by waving their chequebooks. That's how prices of housing in desirable locations skyrockets and is eventually branded as being unaffordable.

In short, prices of houses in some areas doesn't go up just because it does so for fun. It does so because demand is greater than supply. Even in the world of collectibles this principle is very clear. A painting, coin, stamp or any other collectible that is particularly rare will likely sell for increasing prices everytime it goes for sale. Whether the new buyer makes the purchase out of greed, for bragging rights or prestige or just for happiness is debatable. But it's an important concept to understand.

Money talks in this world, folks. And money doesn't grow on trees. I don't like it either and I wish somebody would sell me a beachfront mansion that is walking distance to a capital city for $50,000. But while we're still alive and on this Earth, we better get used to the reality of things.

Geez. What a waste of time.

This might sound like a useless answer, but I'd seek advise from an accountant who is experienced in dealing with property investing. The choices are indeed many, but an appropriately-experienced accountant can give you advise on how to grow and protect your investments, the use of trust structures, talking about implications of tax and other major issues.

Little River has potential. At least a few weeks ago, I remember seeing an acre property near the town center selling for less than $500K (on Jolyon Court). I don't know how functional the train station is, but considering the position, proximity to both Melbourne and Geelong (which will no doubt expand further), the airport, affordability (especially for the land size, a real 'lifestyle' there), views to the You Yangs in some parts…Little River is all poised to go.

Yes I wasn't 100% serious when I said landlords should raise rents but I agree with it to a certain extent. Perhaps they should, but it will be at the tenant's expense of course.