Housing affordability

I believe housing affordability is the single biggest issue facing this country right now. Successive governments have failed to curtail the ever growing HA issue and here we are where HA is now the worst it's been for 130 years.

More on this at https://renegadeinc.com/australian-housing-affordability-worst-130-years/

We're at or reaching unsustainable levels and one must look at the flow on effect this is causing to our economy, it causes a higher cost of living which requires strong wage growth to keep up with. However in a globalised economy this all so makes us uncompetitive, in theory cheaper house prices allow cheaper wages which lowers our overheads and at the same time can prevent some jobs being automated.

Negative gearing on face value is a good policy, it's there to lend a hand to real estate investors to offset some of the early pain of setting up an investment property where costs are at their highest. The idea being that they write off those early costs against their taxable income until they begin to pay the principle of the loan down, lowering the interest owed and become cash flow positive. The issue is that this has just encouraged speculation where some investors have no desire to pay their debt down and become cash flow positive. They use interest only loans working on the speculation that house prices will continue to rise and increase their capital gain, they then use this increase in equity to again borrow more at anything up to a 90/10 LTV ratio. This investment strategy can allow investors to build up a housing portfolio extremely quickly and 6-10 houses in a 10 year period is quite achievable.

Tax payers should not be subsidising this type of speculation that is now resulting in the housing dream being beyond the reach of many and creating generations of renters. NG combined with the CGT discount and to a lesser extent property deprecation require some policy changes. We need changes that won't spark a crash but just provide us with a must needed soft landing. Personally I wouldn't want to see the CGT discount and negative gearing changed in the same election cycle but this issue must be tackled by who ever is in government. Tax incentives aren't the only issue, overseas investors is another issue all together.

Investors should be replaced by owner occupiers. Negative gearing slowly phased out, CGT discount phased out later to encourage investors to sell rather than increasing rents.

If we get rid of negative gearing it should be all speculative negative gearing, including margin lending on shares that is also tax deductible.
Do you also get rid of tax deductibility of businesses buying existing assets to expand? For example a farmer buying more land to increase crop output?

IMHO higher interest rates will very quickly sort out housing affordability issues, plus plunge us into a recession we have not had in decades. We cannot expect a 20 year boom in RE prices without some type of blow back.

brty said:

Do you also get rid of tax deductibility of businesses buying existing assets to expand? For example a farmer buying more land to increase crop output?

Click to expand...

The residential market should be separated from the business market.

Houses are for people to live in and avoid paying rent for the rest of their lives, not for speculators to make money out of.

If we took all investors out of the housing market do you think that would fix the problem???? My opinion is I doubt it.

Governments need the taxes they get from these transactions so it will just shift the problem I think.

This would most probably cause a slowdown in the building industry as well, so then there would be a problem with jobs being lost in that industry and businesses that supply to that industry as well.

What about land...we do not release enough so this also causes prices to rise...

Triathlete said:

What about land...we do not release enough so this also causes prices to rise...

Click to expand...

This. You can tinker with the tax system until the cows come home, but better public transport and governments releasing land is the only real solution.

Triathlete said:

If we took all investors out of the housing market do you think that would fix the problem???? My opinion is I doubt it.

Governments need the taxes they get from these transactions so it will just shift the problem I think.

This would most probably cause a slowdown in the building industry as well, so then there would be a problem with jobs being lost in that industry and businesses that supply to that industry as well.

What about land...we do not release enough so this also causes prices to rise...

Click to expand...

No one wants to take all investors out of the market, no economist would ever tell you that's a good idea. But I think a start would be to attempt to stop those that build a large portfolio with interest only loans that are subsidised by the taxpayer, all this at the expense of others being unable to enter the market. Right now it makes no sense at all to have all these tax incentives offered when it's the most expensive time ever to enter the real estate market, home ownership at it's lowest levels.

There is absolutely enough land released, developments going on everywhere. Perhaps allow tax incentives for new investment homes only to keep housing supply on the increase as well as support the building industry. But increasing the urban sprawl and developing further out from the employment opportunities is not the answer.

Triathlete said:

What about land...we do not release enough so this also causes prices to rise...

Click to expand...

The major cause of price increases is cashed up investors including foreign investors out bidding owner occupiers. That needs to be fixed first, plus the fact that NG and CGT discount is costing the budget billions.

Interestingly I couldn't afford a house until my income was able to build a deposit and service a loan. Tip is not to buy in a hot market. Watch Brisbane heat up as the migration from south unfolds.

Triathlete said:

I remember in the 80s in Sydney when interest rates where 18% and people could not afford to buy houses then the solution was to open up new estates further west that where for first home buyers only and had cheap housing .

This is how some of the people I know started in the market ,while it may not be in a desirable area it is a start and can then build towards a better area.

Click to expand...

Exactly. Affordability is an issue when one wants something one can't afford.

SirRumpole said:

The major cause of price increases is cashed up investors including foreign investors out bidding owner occupiers. That needs to be fixed first, plus the fact that NG and CGT discount is costing the budget billions.

Click to expand...

Why was NG and CGT incentives brought in the first place.

Was it not so the governments did not have to supply accommodation and left it up to investors to do this instead of governments.???

Will this not cause another problem if these incentives are taken away???

While what you are saying is causing a problem it must still be cheaper through investors rather than governments doing it. Otherwise why not change it back.

It sound like also people have specific areas they wish to live in and are not willing to move to another location either.

I remember in the 80s in Sydney when interest rates where 18% and people could not afford to buy houses then the solution was to open up new estates further west that where for first home buyers only and had cheap housing .

This is how some of the people I know started in the market ,while it may not be in a desirable area it is a start and can then build towards a better area.

Triathlete said:

Was it not so the governments did not have to supply accommodation and left it up to investors to do this instead of governments.???

Click to expand...

You are not saying that investors are supplying public housing are you ?

Why is it that 50 years ago people could afford to buy a house on a single income and now a house is out of the reach of most even with two incomes ?

Negative gearing was to encourage the building of NEW dwellings, having it available on existing dwellings does nothing for housing supply.

overhang said:

We're at or reaching unsustainable levels and one must look at the flow on effect this is causing to our economy, it causes a higher cost of living which requires strong wage growth to keep up with. However in a globalised economy this all so makes us uncompetitive

Click to expand...

House prices are one obviously expensive thing affecting ordinary consumers. Utilities are becoming a problem in several states too. They're the most obvious areas of high prices which have reached the "pain" point for consumers but no doubt there's others too. Health insurance comes to mind as another thing that's getting overly expensive.

Before too much longer this just isn't going to work. Logic tells me that some combination of a drastically lower AUD, a reversal of price rises by whatever cause and means, rising union effectiveness and wages and/or outright protectionism is ahead. Either that or we end up with riots in the street.

Smurf1976 said:

Logic tells me that some combination of a drastically lower AUD, a reversal of price rises by whatever cause and means, rising union effectiveness and wages and/or outright protectionism is ahead. Either that or we end up with riots in the street.

Click to expand...

Well, its not going to end with this Liberal government.

Housing price rises fill the pockets of the upper middle class rent seekers that comprise Liberal supporters, power price rises fill the pockets of the companies that they created when they split up the State owned power companies, low wages fill the pockets of the Liberal's corporate sponsors so there is no incentive for them to change.

Morrison said inequality is getting better, the Reserve Bank governor says its getting worse. Now, I wonder who to believe ?

SirRumpole said:

Why is it that 50 years ago people could afford to buy a house on a single income and now a house is out of the reach of most even with two incomes ?

Click to expand...

That is simply false. 200- 300k for a house is affordable on average wage. Again it is wanting something one can't afford. Take a back step and buy what one can afford.

Wysiwyg said:

That is simply false. 200- 300k for a house is affordable on average wage. Again it is wanting something one can't afford. Take a back step and buy what one can afford.

Click to expand...

Where can you find a house for $200k in a major city ?

SirRumpole said:

Where can you find a house for $200k in a major city ?

Click to expand...

So to be fair the thread title should be

"Housing Affordability in Capital Cities"

and the reason there is because more people are competing for less stock in capital cities.

SirRumpole said:

You are not saying that investors are supplying public housing are you ?

Why is it that 50 years ago people could afford to buy a house on a single income and now a house is out of the reach of most even with two incomes ?

Negative gearing was to encourage the building of NEW dwellings, having it available on existing dwellings does nothing for housing supply.

Click to expand...

No.....just with the general influx of people to the states there was not enough rental accommodation so they set up incentives I thought??

Cost of land for one is expensive....Not enough supply in the areas that people wish to live.
There are always going to be areas that are more expensive than others we buy were we can afford not were we like to live.

If we take out the investors and the foreign buyers and we go to buy a place in a suburb close to all facilities we are still likely to get 10 people all vying for the same property and so they are still going to push prices to whatever the market allows.

Wysiwyg said:

That is simply false. 200- 300k for a house is affordable on average wage. Again it is wanting something one can't afford. Take a back step and buy what one can afford.

Click to expand...

Your suggestion just doesn't work when there aren't jobs available for many professions where property is 200-300k. You can't even purchase a house in Geelong these days for 200-300k.

overhang said:

Your suggestion just doesn't work when there aren't jobs available for many professions where property is 200-300k. You can't even purchase a house in Geelong these days for 200-300k.

Click to expand...

Can you provide some insight as to what weekly net income, house price and house location is desired?

overhang said:

However in a globalised economy this all so makes us uncompetitive, in theory cheaper house prices allow cheaper wages which lowers our overheads and at the same time can prevent some jobs being automated.

Click to expand...

Business Managers do not consider people when aiming to run a business leaner. If the work can be done with machines quicker then that will happen regardless of human faithfullness and quality workmanship. Thank China/Asia for automation expansion. Most of us would be happy if things stayed the same.