Housing plan to tackle affordability

[krisbarry]

FEDERAL and State governments will develop a national affordable housing policy amid fears a whole generation of young Australians may be locked out of the housing market.

Housing, planning and local government ministers met in Melbourne today and agreed to begin work on the strategy, South Australian Housing Minister Jay Weatherill said.

"Today's decision is a significant outcome because the Commonwealth holds so many levers in contributing to housing affordability," Mr Weatherill said after putting the proposal on the agenda.

"We acknowledge all states and territories are working on their own affordable housing initiatives and that's why we united today in our push for a national agreement."

Without a national plan, Mr Weatherill said a whole generation of young Australians was at risk of being forever locked out of the market.

"The great Australian dream of owning your own home is slipping through the fingers of too many people," he said.

"With high house prices, many young people just can't afford to get into the market.

"If they go to university they get saddled with high HECS debts which are already taking nearly seven years to pay off and those debts are expected to get bigger.

"If they go straight to the workforce, they often get low paid and increasingly casualised jobs with no security."

A coalition of housing industry groups also called for a national plan today and urged federal, state and local governments to invest at least $2 billion in affordable housing.

"The recent cooling in the housing market has done little to reverse the collapse in affordability," Housing Industry Association managing director Ron Silberberg said.

"A year after the boom ended, first home buyers are still struggling to enter the market and many households are in mortgage stress."

Mr Weatherill said a national affordable housing agreement would promote an integrated and long-term vision for housing, providing more funds to help struggling tenants or young people burdened by debt.

"I'm pleased we've achieved agreement from the federal government to examine a national framework, which could do a lot to help a generation get back into the housing market," he said.


Source: 4/8/2005 http://www.theadvertiser.news.com.au/common/story_page/0,5936,16150103%5E1702,00.html

 

[money tree]

wonder if that means the FHOG is going up to $14k or something. I cant see them developing a whole new system, easier to modify old one since it worked well.

 

[wayneL]

Nothing a decent housing price crash and recession wouldn't sort out.

 

[Smurf1976]

Sorry to sound negative but the only real solutions IMO are to either reduce the price of housing (that is, substantial falls in nominal house prices (otherwise known as a house price crash)) or a very large wage increase.

Neither outcome seems likely unless by accident so I expect that whatever is done will be token at best and more likely make the problem worse.

Requiring a minimum 20% deposit from genuine savings (excluding grants etc) and requiring that this deposit be for 20% of the full purchase price including legal costs, stamp duty etc. would be a very good start. Including house PRICES in the CPI at an appropriate (relatively large) weighting would be another. Can't see either happening though.

The recent house price rises are good in just the same way that it would be good if food or petrol prices more than doubled. Good for those making the profits, not so good for the rest.

If there's one bit of good news for the victims of the house price increases it's that the widespread media attention, political attention and so on looks very much like the rises are over and done for this cycle. Indeed, with prices in many locations now going DOWN we may have already seen the top.

I don't wish anyone bad luck with their investments (property or otherwise) but please understand my point that there has been a truly MASSIVE social cost of this house price boom with too many grown adults literally reduced to tears as their dreams are shattered. Young families in many situations simply can not buy and, unless the ratio of house prices to income changes, they never will be able to.

Typical wages in this country are 40-45K for a substantial portion of the workforce with many on less than that. The small number of very high earners inflates the mean average often quoted as being over 50K.

As for whether or not real estate makes a good investment right now, I don't give advice but I must point out that the long term value of an average house in an average suburb is about 3.5 to 4 times average earnings. I'll leave it to you to decide whether wages are going up or house prices down but sooner or later something has to give. Markets revert to the mean.

 

[TjamesX]

A coalition of housing industry groups also called for a national plan today and urged federal, state and local governments to invest at least $2 billion in affordable housing.

Use taxpayer money to prop up the value of Housing.... as a tax payer - I don't like that idea, very shortsighted

"The recent cooling in the housing market has done little to reverse the collapse in affordability," Housing Industry Association managing director Ron Silberberg said.

"A year after the boom ended, first home buyers are still struggling to enter the market and many households are in mortgage stress."

Probably because its got a long way to go yet

Mr Weatherill said a national affordable housing agreement would promote an integrated and long-term vision for housing, providing more funds to help struggling tenants or young people burdened by debt.

Just like the FHOG was a great idea! it just threw pertol onto the flames of the boom. How about addressing something serious like the amount of money invested into housing and associated tax brakes - try diverting that money into something decent like creating businesses that keep Australia competitive globally.

As a young person with no real estate - i'm happy to rent and save the difference for the time being...... lets see what happens

 

[wayneL]

How about addressing something serious like the amount of money invested into housing and associated tax brakes - try diverting that money into something decent like creating businesses that keep Australia competitive globally.

Now we're talking!!!

I still think we need the HPC and recession first....pruning an overgrown bush so to speak....and then do exactly as you say.

If that happens, I'll be investing with my ears pinned back..until then, I'm happy to shuffle paper for a living.

 

[krisbarry]

I think one key area missed is the "Generous” and I mean “Generous” handouts given to investor via our ludicrous taxation system. Reward the rich and punish the poor!

Time the ATO cut back on negative gearing and deductions for investment properties. This would share the wealth a little more evenly and stop the filthy greed I see. A very few people own almost all the property and the rest are battlers struggling to pay of one house or have given up even thinking of buying a house because the cost out-strips the average wage earner.

I truly feel that if you haven’t bought a house buy now, your completely stuffed, and I mean stuffed.

The South Australia Government (Revenue SA) handed out $7,000 first homebuyer’s grants to people purchasing million dollar homes!!!!!!

(You say how can this happen…there was no means test applied to the grant. Just another government ****-up!)

I have been abused by many on this discussion board about my anger towards those who own many properties. I am sure they all work very hard to own their properties, and good luck to them. I am sure they have sacrificed a lot to set themselves up.

BUT

Just for one minute remove your shoes, step in your childrens shoes and see the crippling HECS debts they have endured.

The rising house costs.

And their wages!

Now could you afford to purchase your own house over again, at todays prices?

I very much doubt it!

Just remeber your greed has contributed to the property cycle rising at its most rapid rate in almost 30 years.

** You can own shares but you cannot live in them

** Housing is a necessity, share it around!

 

[TjamesX]

This would share the wealth a little more evenly and stop the filthy greed I see. A very few people own almost all the property and the rest are battlers struggling to pay of one house or have given up even thinking of buying a house because the cost out-strips the average wage earner.

nothing is gonna stop greed (in you me or anyone else). I don't think property ownership is exclusive, a lot of Aussies own property. I think its more of a generational issue - as the property boom only benefited those who owned the assets (tend to be older people). I feel for those that have stepped in and purchased in the last year or so and are at their debt limits, but we all have the choice (youger generation) to not participate. Sure it delays the settling down of families etc but thats the price society will have to pay.

I don't have a crystal ball but while its significantly cheaper to rent, thats exactly what I'll do. House prices as a multiple of wages has been historically the best indicator to judge exactly whats going on - ill address this more in the next post.....

I truly feel that if you haven’t bought a house buy now, your completely stuffed, and I mean stuffed.

Oh NO - im screwed!!!

Just for one minute remove your shoes, step in your childrens shoes and see the crippling HECS debts they have endured.

The rising house costs.

And their wages!

Now could you afford to purchase your own house over again, at todays prices?

I very much doubt it!

Just remeber your greed has contributed to the property cycle rising at its most rapid rate in almost 30 years.

You really can't blame people for taking advantage of the situation. I think the government turning a blind eye to a lot of it are much more accountable. However, as younger people will be facing more pressures as they get older, government policies would be sensilble to understand these same people will be supporting the baby boomers in their retirement. Lets just hope they can all live off the equity in their houses!!!

Kris, there's no point blaming specific people for the current situation. Play it as best you can

 

[TjamesX]

On to wage to house price multiples. Below is a site I stumbled onto in one of the property forums, it lists affordability for major cities in Australia, Canada, New Zealand and the United States (2004 house price data against 2001 wage data).

This first link is a formulation of the multpiles for all cities;

http://www.demographia.com/dhi-data200502.htm

The second lists affordability from most unaffordable to most affordable;

http://www.demographia.com/dhi-rank200502.htm

All Aus major centres (except Darwin) are listed in the most severe group 'SEVERELY UNAFFORDABLE MARKETS'. What sticks out to me (being an Adelaidean) is that while prices in Adelaide seem very cheap relative to the rest of the Aus, according to this index it is the 13th most unaffordable city.

I for one will be sitting on the sidelines to see what happens over the next few years

 

[wayneL]

I can sympathise with Krisbarries feelings, but agree with Tjames that you cannot blame people for taking advantage.

To me negative gearing tax breaks, fhogs etc is absolutly no different to industrial protectionism...and our govts. tossed that a while ago.

If I start a business selling widgets to intentionally run at a loss for an indefinate number of years, the tax office would go thruogh me like a dose of salts, if I tried to claim a deduction.

Yet is this not what negative gearing is?

The rest of the business community can only offset these types of losses against future gains, and thats what I would like to see happen one day. This is where I am with krisbarry in that housing should not be encouraged via government policy, as a speculative investment as has occured recently...a good solid long term investment, but not a speculative investment.

Keating shoulda stuck to his guns re abolishing negative gearing. It would have sorted itself out given 2 or 3 more years.

But thats just my view.

Cheers

 

[wayneL]

The bear cometh:

Gitterdammerung (The Twilight of the Gits) - Or the coming cataclysmic property crash - and its even more cataclysmic consequences
The current global property price boom is the biggest bubble in history – we are headed for a truly cataclysmic property crash. The consequences of the crash will be much greater than they would have been in the past as so many of us have become so dependent on property price inflation. Much of the wealth of much of the middle classes will be wiped out. But the consequences will be even greater than this…

http://www.socialaffairsunit.org.uk/blog/archives/000537.php

Yo!

 

[krisbarry]

Another option, and I can hear those property investors screaming with horror on this point, would be to revalue housing and index it to the inflation rate. Now that would be a radical move to spread the wealth of an essential human need (a roof over your head).

That way all Australian can own a piece of Australia.

 

[tech/a]

Strange.

The only people I see screaming disaster from the rooftops are those who missed or didnt take advantage of any of the last 3 booms.
IT,Stockmarket,Housing.

Kids can still buy housing---10 yrs ago NSW kids were paying 2wice what SA kids were.

Nothings going to change--when you see an opportunity go for it.

(1) Cut their credit cards up and live by their means!
(2) Buy a property and place a tennent/s in there to pay the rent,invest everything you can in reducing the mortgage---live with your parents and get them to support you in your efforts.
(3) Interest becomes tax deductable,improvements become deductable,as do rates and things like lawn mowers tools and equipment.--Get a great accountant.
(4) Be a ladder climber and look for opportunities to be of more value to your employer that way he wont mind paying you a better wage to keep you.
(5) Join with family to achieve your goal of owning a home.Make sure you have everything in writing to save the enevitable family arguements.Get a good lawyer---a friendly one who understands this is for a common goal.

This can be great education for kids to learn and understand "Street Smarts"

So there stand the doomsdayers happy that THEY arent caught up in this looming crash---as they dont have anything to get caught up with!!
How stupid those who invested are!!

 

[Happy]

One sure way of property market collapse could be flu pandemic. Last one was during 1-st World War, and one of comments I heard that war ended because there were not enough soldiers to fight.
Usually flu pandemic hits once every 80 years, so we are just under 10 years overdue.

Bird flu is lingering is SouthEast Asia and with secretive Governments we don’t really know if reports that killer flu was eradicated are false or fiction, and I don't think there is true option.

Another shortage of owners could be caused by biological; chemical or God forbid radioactive terrorist attack.

Until radicals are eradicated, we have increased probability of severe properties glut.

 

[krisbarry]

Heard it on radio this morning that housing used to be about twice your income level, now its blown out to 6 times your income level.

Would that mean that you would need to suck arse with your boss, 3 extra times to get that job propmotion that pays enough to even afford the average house.

LOL, just adding a little humour to the subject!

 

[tech/a]

If there are no solutions and people arent forthcoming with solutions the point of this sort of rhetoric is?

If workers had more of their employers needs (to be as efficient and as profitable as possible) in mind rather than just a place to pick up a wage packet each week then higher wages would be a possiblilty.

 

[mit]

I'm curious about the house affordability statistics. I started earning a real wage around 1980 and I didn't think properties were affordable then at least where I thought it was desirable to live. Most people got to where they wanted by starting in a dinky flat and slowly trading up. We had a lot less consumer items available and my firiends were impressed by my 10 year old Datsun 180B not the new cars most people seem to have these days. Also our education was free then as well no HECS debt.

Also (as Carr found out to his chagrin) investment property is not held by the few but is widespread and many hold it to supplement a meagre super.

The tax deductability of property is a genuine business expense just as is the tax deductability of interest for margin loans etc and any investor in their right mind treats it as a business and expects some profit from it either from capital gains or the yield turning positive.

True that we are at the end of a speculative bubble and like speculative bubbles in shares, prices outstripped earnings and we are currently in a correction.

Negative gearing (Note in the US you can claim your own mortgage interest against your earnings) also not only allows an investor to bid up price by being able to afford more housing, it also causes the rents to be bid down and my English friends are amazed at the low yields we achieve on rental properties. Canning Negative gearing would have a short term negative affect on houses but I think in the long run it would only have a marginal affect on prices but a larger affect on rents. When Keating canned negative gearing in the late 80's prices went down but rents went up quicker to around a 10% yield. The renters didn't have much choice as a the pool or rentable properties dropped.

I think the other things to look at is the fact that as a population we are very concentrated into a few large population centres and everybody is bidding to get to the prime spots in these centres which is unsustainable, investors or no investors. We either need more higher density living in cities or the infrastructure in the regions in get more people out of the city rather than just building more suburbs on the outskirts.

Down the road from me in Nowra you can buy an older three bedroom house for just under $200k in a reasonable area 15 minutes from an uncrowded beach and a couple of hours from Sydney.

I think kicking property investors and negative gearing is an easy target for politicians to deflect people from their own lack of planning.

MIT

 

[Smurf1976]

The bottom line is that the property bubble is very much inflated and we can not change the fact that this has occurred.

Property crashes have historically lead to recessions and there can be no guarantee that this will not happen again. Or is this going to be the one bubble where "this time it really is different"?

So, what to do?

My personal opinion is leave the market to itself. Do away with the FHOG and all other sorts of grants. NO taxpayer bail outs of failed investors / developers. Those who take the risks should be the same people who profit if it goes well. This is NOT the taxpayer! (Unless the investors were planning on handing all their profits straight to the tax office which I very much doubt.)

The market will sort itself out. Let a few highly leveraged investors go broke (I've seen plenty of evidence that the pressure is starting to impact these people) just like in any other market. Nobody bails out stock investors so leave the property market to itself.

No guarantees but my best guess is that 5 years from now there will be no issue with property prices apart from a larger than usual number of people on the bankruptcy lists becasue they over leveraged. Same thing happens in every boom whether it's property, stocks, resources etc.

If you want evidence of the faltering market in many areas then just look at the real estate web sites and study the photos of the interior very closely. Note how many are obviously empty and then note the price - it's usually cheaper than similar properties in the area. This looks very much like empty rental properties with the owners in a hurry to sell. With plenty of unsold properties on offer the lower prices asked by these ex-investors leaves little choice for other sellers - drop the price or don't sell. Add that to the auction clearance rates which are at levels so low that just a year ago nobody would have belived it possible and it looks very much like the property market has turned.

 

[Hanrahan]

Just like the FHOG was a great idea! it just threw pertol onto the flames of the boom.

The FHOG is NOT a grant, as the name applies, but a partial refund of the "notional" GST paid on purchase. GST increases the price of a new home so existing ones go up similarly.

So Jhonny can't renegue on it. It was a CORE PROMISE without which he would not have got the damned GST in at all. But I agree the cash in hand has fueled the fire.

 

[Smurf1976]

Does anyone know why the Commonwealth Bank stopped updating its publicly available house price data after May this year. They used to be pretty quick but it just stopped. They should have just abouot had July's data out now based on their previous timing but there is still no update for June.

Does anyone have any actual real estate sales price data? It seems very interesting that the updates stopped just as the evidence of falling prices was starting to mount.