Forum Replies Created
"In the end I had 6 applicants, if that, the vast majority of whom I wouldn't consider renting to for one reason or another (ie. potentially 'high-risk' type tenants)"
what do you consider high-risk tenants?
Didn't you do the research first? I can hear at least one bubble popping.
What would a family, with two toddlers, who have lived in inner city Melbourne most of their lives, built up social networks, jobs and a life (it was affordable to rent until the last five years) do on a $40,000 household income? I did some rough maths on rental properties of $300-$350pw, and there's nothing left each week, even before nappies or clothes have been bought.
What would they do? Leave it all behind due to inflated property prices. Move to a rough neighborhood or the country, where there is not the same industries or employment options available.
Perhaps the end of the single income family is here. I'm all for equality, but there have been unexpected results to the duel income family. Higher household incomes have led to higher property prices. We only pay what we can afford. And its hit its peak (at least for this cycle). I sure can't imagine a single income family surviving in the city and staying above the poverty line anymore. And this is a fairly new reality, everyone has been priced out or rental and purchase in just the last few years – so its no wonder people feel displaced and resentful, all for someone to have a bit of 'equity' on paper and a big debt around their duel income necks.
This article might be of interest: http://www.smh.com.au/business/cashing-in-on-the-boom-20110225-1b8ow.html
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'The boom's effect of driving a high cost of living in Melbourne, including galloping property prices, is nominated by [Brian] McNamee as CSL's biggest challenge as it seeks the world's best and brightest. "The biggest challenge for us is the cost of living in Melbourne – housing," McNamee says.
"I think governments have to do something about housing. Our housing market is troubling to anyone you try to bring into Melbourne."
McNamee is not shy about possible solutions. He challenges one of Australia's great sacred cows: the expectation people can buy and sell their own homes without paying any capital gains tax.
"I think we have a tax system that grossly over-encourages investment in housing," he says. "Capital-gains-tax-free on housing is poor policy because, fundamentally, it over-encourages people to invest in their home disproportionately."'
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I would like to hear your thoughts on such a strategy.
Like KKK or SS memorabilia, throw them in the bin.
Hi Mark, would you care to answer your own question – what are you doing? is anyone you know taking steps yet?
"And the people who aren't as well-endowed then go around saying that property is unaffordable. Of course! How can people with a low income expect to buy into blue-ribbon suburbs?"
I'm not talking about no blue ribbon suburbs. As I said, a lot of Preston is the dogs balls, and that will still set you back about 12 x the average income of an inner city worker (plus interest!). The progress of places like Thornbury, where I have lived, has been so slow, that maybe in 20-30 years it will be a new hub for culture, but the problem is, everyone who can afford to live there now has no money to do anything but pay the mortgage off. The main street is still full of failing businesses. In the last five-ten years, nothing has really changed except the prices. Sure it will one day, but we'll be nearly dead by then.
Do you really think property in under-developed inner suburban as offering value for money, right now? Would you care to explain your point of view, because I just can't see where you are coming from.
"Just out of interest, what is the weekly rent of a place in this slumsville part of Preston?"
$310-350pw. Same as the nice area just a few blocks away.
Anyhow, a while back you asked about some other blogs to check out, I don't rate them all but they each have something informative or funny to add, and I'm sure there is plenty more:
http://realestatenavigator.wordpress.com/
http://www.whocrashedtheeconomy.com/
http://www.housingaffordability.blogspot.com/
http://www.talkfinance.net/f32/
http://www.bubblepedia.net.au/
http://www.debtdeflation.com/blogs/
http://www.simplesustainable.com/forum/15-australian-property/
http://feeds.feedburner.com/Unconventional-EconomistBut as I've said elsewhere, I'm becoming more interested in what can be done re policy initiatives than focusing on the crash. Articles like this are worth a read: http://www.cis.org.au/media-information/opinion-pieces/article/2358
When I inspected it as a potential rental property, I asked the agent what it would be worth to buy – that's what she said. Doing a comparison online, it's probably not accurate. The back yard is pretty huge, so its just the land she is putting at that value, saying the house needs to knocked down to build flats. Which is what the owners intend to do in 2-3 years. It was renovated just to make it viable for the short term. To me, its a really nice house – shame it didn't actually have two real bedrooms or I'd jump at it, and hope that I could stay there for five years at least.
Also, to her credit, it's a nicer part of Preston, because just a few blocks down the road and you're in total slumsville, I checked out some houses there too, and it reminded me of my time living in commission houses – not pretty, freaky neighbours, bikies, neglect, a feeling of oppression that hangs in the sky. Its not the place to bring up a kid – and I'd be paying over 1/3 of our household income for the privilege.
AHP, would you believe(I think you would, and its true) – $800K
Even low earners like me can still afford to buy a place in some areas, its true. And I can get a loan to do it. Say I go for a place worth $200K in regional VIC. Once I move there, I'll have to learn a new trade because the sort of job I work only exists in the city, and I will pay my maximum inner-city rental capacity equivalent for 30 years. By that time, I will have payed nearly $400k including interest, and its not even a flashy house or a nice piece of land. And all of my friends and family are no where to be seen.
As a quick comparison, you can buy three flats in a hip part of Berlin for $250K. You could live in one. The rental income from the other two would be enough to live off. Now, that's a loan worth taking out. Not so sure what the incentive is to buy in Australia right now. To become a wage slave? To pay the bank interest? To buy a block of land so caught up in planning laws that I'll need to seek permission to renovate it?
Don't get me wrong, I really do want to. I just doesn't feel right. But I'll keep saving towards it and I'll hopefully get there. For one reason only, to provide for my family.
Read this, or at least the executive summary, and you will see how housing experts measure affordability, and how over priced most Australian markets are ranked: http://www.demographia.com/dhi.pdf – we can always afford something, but at what cost? We get ripped off, and then we're supposed to sell to the next guy for more. What an honourable system, what a 'fair go' for all.
Sorry it's late. House hunting in the morning.
Apologies, I meant to link to this article on German housing "A housing market whodunit" by Oliver Marc Hartwich – it explains the system much more thoroughly: http://www.cis.org.au/media-information/opinion-pieces/article/2358
It's nice to see you guys duke it out..
Just as an aside, what would you think this property would be worth, to buy, knowing that it needs re-stumping and that the second 'bedroom' is in fact the dining room that joins the lounge, separated by glass doors?: http://www.realestate.com.au/property-house-vic-preston-405044973
Hi Steve,
With regards to your comment "Value is perceived, not intrinsic" you may enjoy reading 'The Value of Nothing: How to Reshape Market Society & Refine Democracy' by Raj Patel.
I personally believe prices are over inflated and would like to see a correction, without a crash. In believing this, I have begun to focus less on the potential market crash, and direct my attention towards ways the government can provide affordable housing solutions in Australia, in both the short and long term.
I believe it would be wise to put an end to the succession of strong market swings our current system may be encouraging, and provide all residents with the opportunity of living with relatively stable house prices (to rent or purchase), that move in line with inflation. Ideally, prices would again come to reflect real value for money, in the most democratically agreeable terms.
I have the hope that the government can work with developers, planners, and investors like yourself and the users of this forum, to create policies that will enable investors to generate wealth, mainly through cash-flow and tax breaks, which will permanently stabilize Australian house prices and eventually bring them back in-line with the measures outlined for "affordability" in the 7th Annual Demographia International Housing Affordability Survey (2011).
http://www.demographia.com/dhi.pdfThese two articles make interesting comparisons between Australia, the UK and Germany, and it seems there is a lot we could learn from Germany:
http://tiny.cc/6m7g8
http://tiny.cc/sh62j
(and the comments are nearly as informative as the articles)I'd be very interested to hear your thoughts on investing in 'affordable housing' in Australia. If it's not something you already do, or recommend to other investors, what further incentives would be required to get you interested in investing in affordable housing? Any thoughts on the NRAS, or how it could be improved?
To take a quote from Oliver Marc Hartwich, http://www.businessspectator.com.au
"Summing it up, the UK and Germany share all the factors that explain housing demand … But the history of British and German house prices also shows something different. Despite the long run house price increases, there were enough ceteris paribus moments in the meantime. They caused strong swings in British house prices because the rigidity of supply sent the market on a roller coaster ride. Booms and busts were programmed into the British market precisely because of its supply constraints.
On the other hand, the flexibility of German housing supply ensured that no such swings could occur. Perhaps it also reduced demand for housing because potential buyers did not expect any future house price increases and thus felt no hurry to rush into the market and buy at all cost. This also explains Germany’s lower home ownership rate. The higher rate of tenants in Germany is a result of market stability, not the cause of it. There are no capital gains to be made in Germany’s boring housing market, so potential owners rather invest their savings elsewhere – and rent.
The British-German housing comparison is instructive in the discussion of Australia’s housing market. It should challenge the religious beliefs in both camps as it shows that rigid supply and strong demand are no guarantee for constant price increases. Though they increase prices over long periods of time, they equally result in strong market swings in either direction"
As far as an Australian advising on Australian matters of affordability, I believe that Julian Disney, Director of the Social Justice Project, University of NSW, has gone some way to provide the government with a plan for the future (http://tiny.cc/by19a). With these two points in mind, Disney's recommendations, and the lessons to be learned from the German market, I would be most interested in your thoughts for re-shaping Australian policy, to make investing in affordable Australian housing a viable way to avoid a market crash now, or in the future.
"But I don’t see the point in trying anymore"
What did you try, when you were trying? I am trying to rally support, and once there is enough awareness of the crisis, and a clear policy direction that benefits all, encourage people to petition the government, and ideally, hold large scale protests in major cities. There are a lot of struggling people who would support a movement – IF – if they can be shaken out of the apathy you express (I understand the apathy, because that's what we are left thinking, 'nothing I can do about it'). But there are enough people trying, and enough people wishing 'for the bubble to burst' that I hold out hope for some direct action to replace the apathy.
The focus needs to change from the 'property bubble' to the 'affordable housing crisis' in Australia. 'Crisis' may be a loaded word but I use it freely now, as it is being widely adopted by the Australian media, political parties, housing institutions and academics.
By discussing the alleged property bubble, we rely too much on speculation, from both sides. Of course home owners, investors, banks and governments do not want to see it happen – the only people who want 'the bubble to pop' are those who are, or feel, priced out of the market and resent it (and some well respected economists, but they too are speculating until it happens, if it ever does).
But the reality is this. Aside from the dire consequences a market crash could have on our greater economy and society – if prices crash, investors and first home owners will buy low, and eventually sell high, and the cycle will continue. Unless there is a dramatic change in policy and the way the housing market works in Australia.
What we need to address now is the issue of affordable housing – urgently for current generations, and of course, for future generations. We particularly need to consider low-to-middle income earners who are being affected right now (this includes key workers: nurses, police, firefighters, teachers), who are being forced out of the buyers market and into long-term, unaffordable rental conditions. These same people are being forced further afield from the localities they work in, and the divide between the 'haves and have-nots' is growing rapidly. There is a wealth of evidence (I can supply links to interested parties) that support the need for dramatic change. The discussion should no longer be about making or losing big dollars, but about social justice and protecting everyone's right to a safe place to call home.
if it seem this is the wrong place to talk about affordable housing, that reflects the shift needed in our investors approach to housing. And it reflects the shift required in our government policy to benefit those investors. My focus is now on moving towards what can be done about creating a better solution for both sides. I recommend reading this address given by Julian Disney at the Australian Housing and Urban Research Institute. It will make for a much more interesting discussion – one with, hopefully, the same goal for everyone involved. Investors want to make some decent money (nothing wrong with that) and low income earners want access to safe, affordable housing (nothing wrong with that), whether that be rental property or a home they can own, should be up to them – and within their reach. Seriously, I implore you to read this before continuing this discussion:
Affordable Housing in Australia
Some Key Problems and Priorities for Action
by Julian Disney (Director, Social Justice Project, University of NSW),
http://www.ahuri.edu.au/downloads/2007_Events/AHURI_Conf/Julian_Disney.pdfNational Forum on Affordable Housing,
Australian Housing and Urban Research Institute,
Melbourne, 19 April 2007NB: While this report is from 2007, it is equally relevant today. And given the increases in housing prices over the last four years, it is even more relevant now. Some of the initiatives discussed within this address were implemented by the Rudd government – so this is not lightweight fluff – I believe Julian Disney is on the right track, and I would welcome an open, level headed discussion, with any investors on this site – about the ideas he provides, and if you disagree with them, ways to improve the proposals. Let's hope we get past the 'bubble argument', which is becoming a bit like the 'culture wars', and lets hope we do something much more productive with our time.
And just to add one more article for now, I think this is a more thorough piece than the supply and demand article above (although I did like the cornflakes comparison), the reader comments are worth reading too: http://seekingalpha.com/article/227083-the-great-australian-housing-bubble
"The data, therefore, strongly suggests that the Australian housing market is being underpinned by Ponzi finance, whereby investors and owner occupiers are leveraging up to buy property in the hope of achieving continued rapid capital growth (in the case of investors) or ‘getting in’ before prices increase further (in the case of owner occupiers) … the only way that house prices can continue to increase faster than incomes is if buyers believe that prices will continue rising and that large capital gains can be made by selling the same asset to other buyers (the ‘greater fool’ theory). Such a scenario also requires ever-increasing debt levels, which is clearly unsustainable … While there are many factors that have increased the demand for housing … the extra demand for housing could only have fed into higher prices if credit was readily available, enabling buyers to borrow large sums and pay high prices. Put simply, the supply of credit is the crucial ingredient to Australia's booming housing market."
Which gives us the unsustainable debt, especially considering "77% of these investors [are] earning less than $75,000 per year". So its the banks, the greater fool theory, and the promise of security or financial freedom that suckers us in – like a lotto ticket. Mystery solved (in part, I'm sure there will be much more debate on all this, and perhaps rightly so). Now, if that is all true, how to lobby for a solution?
I agree about a lack of manufacturing will come back to haunt us. As will selling off our assets and companies, our fossil fuels, 50% of our new properties, as will farming out our basic services. But on the issue of houses, I suggest you read the ‘Demographia International Housing Affordability Survey: 2011’ (http://www.demographia.com/dhi.pdf) Or at least read the executive summary. I think it confirms my concerns re housing affordability.
Yes, there are some decent standards around but its not always the case – I saw some shockers when I first moved to Melbourne and the prices were sky high for some of them, even then, ten years ago. I remember reading this article in 2009, and I doubt much has changed for the better since then, for some people: http://www.theage.com.au/national/slumlord-millionaires-cash-in-on-hard-times-20090613-c6su.html – "In some cases, The Sunday Age has been told, tenants have been threatened with violence for complaining about the poor standard of accommodation, which typically costs $175 a week for a single room, $250 for a room with a double bed, and $30 a week extra per child." And even so, the then State Housing Minister Richard Wynne told The Sunday Age that the Government was still only "considering setting minimum standards for shared accommodation." There's still a lot of these rooming houses about, even if they look ok here: http://www.realestate.com.au/property-house-vic-richmond-405026630 – I'd guarantee there are slums charging the same rates. Some people just get knocked back from every other option, and have to take it, or go on the streets. $250pw per room! Thats considered normal now. I can afford a little bit more than that, not much more, and I'm hoping to house a family.
Here's another side to the supply and demand angle: http://www.debtdeflation.com/blogs/2010/05/11/is-it-all-%E2%80%9Csupply-demand%E2%80%9D/ – I'm still not sure if there is a housing shortage 'myth', but when you consider the government is being pushed to open up at least 55,000 empty houses in WA for "cheap housing for the poor and for key workers such as police, teachers and nurses" – I guess there could be (http://au.news.yahoo.com/thewest/a/-/breaking/8742290/greens-empty-house-plan-backed/). In fact there are three empty houses on my block within inner Melbourne (which have been empty for over five years). I have even done title searches and offered the owners to renovate the houses in exchange for discounted rent while repairs are carried out, in order to establish a long term residence, but they are held up by planning permits – so this is all very odd, and not getting us anywhere.
And this, from the Demographia survey: "Pervasive House Price Increases: Further, the house price escalation has occurred in large markets or small and where demand is strong or weak. Markets like … Adelaide have severely unaffordable housing, despite their relatively modest growth rates or even loss rates. A small market like Wallan (VIC), Australia, with a population of only 5,000, also has severely unaffordable housing". Something is wrong. I'm sure its not investors, but something is very very wrong.
