The Great Aussie Housing Bubble - Reality or Fantasy?

[Value Collector]

To the topic VC and TIM are discussing, I think common sense says at SOME point it's reasonable to expect people to access equity / downsize. VC's earlier example of 1 mill is too low in today's inflation-devalued money - his next example where he re-tooled to make it $1.5 million is getting warmer IMO.

I don't think many would argue that anyone with a fully owned property realistically worth over say $10 or 15 million should be an old age pensioner. Probably not a large number like that - but no doubt some. In the end, quite probably too small a problem to even stuff around with - for admin reasons.

Well, the government only increases the asset level allowed for a non homeowner by $250k.

So a renter is allowed to have $240k more cash and shares than a non home owner before their pension is affected.

For example a home owner can own -

$300k of assets + there home

Renter can only have -

$540k of assets.

So by allowing home owners to keep houses worth over $1 Million you are giving them a massive advantage over other people that own different asset types.

 

[Value Collector]

The only difference is the home you live in is not a investment vehicle.

Cash and shares will generate some annual returns, a roof over your head is shelter

Your home does provide an annual return to you though, it provides you with tax free shelter that you would other wise have to rent, that’s your annual return.

A renter that has a $1million investment like a term deposit or shares would need to use their annual returns of interest or dividends to pay their rent.

A home is definitely a capital asset that provides a return for you, it’s just not taxed as income. Think about how much before tax income you would have to earn to rent your house, then minus of the rates and minor maintenance, the difference is your return.

 

[Value Collector]

It is different, no matter what, you need to rent or buy a home to have a roof over your head. You don't need shares to live or to have an income.

As I tried to explain to you the govt will not win here, the taxpayer will pay for more people going into social housing. People aren't inept in figuring out that if their neighbour squanders the value of their home through a reverse mortgage due to being kicked off the pension it would be smarter to spend the money on yourself than to struggle and save up for a home in the first place. I'd rather pass on my assets to my kids than give them to the govt after years of working hard and paying taxes.

There is no difference between some one “squandering” their assets themselves or giving them to their kids to “squander” for them.

You can pass on as much wealth to your kids as you like, but it’s a bit rich to expect to live off the other taxpayers just so you can leave a $1M house to your kids.

Either way $1.5M in investments should be treated just like $1.5M in real estate in my opinion.

———————
It makes no sense that I could own $1.5M house and get the full pension, but if I sell the house and it back, suddenly because I have $1.5 Million in cash I lose the pension.

The government would suddenly say because I have $1.5M cash I need to use that to pay my rent and eat, essentially a reverse mortgage.

 

[StockyGuy]

Well, the government only increases the asset level allowed for a non homeowner by $250k.

So a renter is allowed to have $240k more cash and shares than a non home owner before their pension is affected.

For example a home owner can own -

$300k of assets + there home

Renter can only have -

$540k of assets.

So by allowing home owners to keep houses worth over $1 Million you are giving them a massive advantage over other people that own different asset types.

Right, like others have said: your own home IS different from speculation in the stock market. Go re-watch The Castle. We (by which I do not include you ) want there to be protections and special treatment for it. But I do also take on board, in principle, that at a certain point some oldie sitting in a mansion (or super prime Sydney / Melbourne real estate etc) should downsize before asking for living support from the public purse.

 

[StockyGuy]

It makes no sense that I could own $1.5M house and get the full pension, but if I sell the house and it back, suddenly because I have $1.5 Million in cash I lose the pension.

The government would suddenly say because I have $1.5M cash I need to use that to pay my rent and eat, essentially a reverse mortgage.

Not quite that simple - https://nationalseniors.com.au/news/finance/house-sales-and-the-age-pension-how-it-works

 

[divs4ever]

It is different, no matter what, you need to rent or buy a home to have a roof over your head. You don't need shares to live or to have an income.

As I tried to explain to you the govt will not win here, the taxpayer will pay for more people going into social housing. People aren't inept in figuring out that if their neighbour squanders the value of their home through a reverse mortgage due to being kicked off the pension it would be smarter to spend the money on yourself than to struggle and save up for a home in the first place. I'd rather pass on my assets to my kids than give them to the govt after years of working hard and paying taxes.

you forgot the elephant in the room

productivity will crater ( not that it has been stellar in recent decades , but will tumble to a new low )

what is the point of trying hard if everyone gets a participation trophy ( whether they turned up or not )

BTW have worked with several that have lived out of their car/wagon , a couple even did so with small children ( for months at a time when i was their co-worker )

it won't be hard to really screw up the economy at the current direction

 

[qldfrog]

The only difference is the home you live in is not a investment vehicle.

Cash and shares will generate some annual returns, a roof over your head is shelter

And a cost being scammed by utilities and councils

 

[qldfrog]

My own view is everyone should get a taxable pension from a certain age, for the wealthier it will be taxed at 50,% or so no big deal cost wise, and much simpler to administer but hey jealousy needs to come in play soon ..
It is not fair

 

[divs4ever]

That’s like saying “after you have scrimped and saved to buy $1.5 Million of shares, why would you want to sell them”

The answer is to feed yourself, and give yourself a decent standard of living without having to work.

Why should the tax payer help fund your child’s inheritances, as I said I would be happy with some sort of claw back deal where the government takes so of your home equity when you pass away.

but will the politicians and senior public servants do that to themselves ??

probably not and THAT is the problem

you either have incentive to improve your life , or equality for everyone and watch civilization decay anything else evolves into massive civil unrest

 

[qldfrog]

but will the politicians and senior public servants do that to themselves ??

probably not and THAT is the problem

you either have incentive to improve your life , or equality for everyone and watch civilization decay anything else evolves into massive civil unrest

Exactly, if pension payment is taken from assets, why bother saving at all..
Current system is bloody unfair with pension provided to both losers and genuine in need so the reason pension should be provided for everyone, be very minimal to provide incentive and taxed as all incomes IMHO.
Anyway, that won't sell in an election.
By counting the PPOR as an asset excluded from pension test but counting VC shares, the government is de facto taxing these shares a second time....
No logic but usual tax grabbing

 

[dyna]

ABC Radio podcast " Nightlife" Finance with Alan Kohler ( Tuesday 14 Nov 2023 ) still available . Worth a listen . 50 minutes.

 

[Value Collector]

Right, like others have said: your own home IS different from speculation in the stock market. Go re-watch The Castle. We (by which I do not include you ) want there to be protections and special treatment for it. But I do also take on board, in principle, that at a certain point some oldie sitting in a mansion (or super prime Sydney / Melbourne real estate etc) should downsize before asking for living support from the public purse.

I don’t see home ownership as that different (and I am a home owner).

When you decide to own a home you are deciding to allocate capital towards providing you a place to live that you would other wise have to rent. So that capital you allocate towards your home is a productive asset,

If you don’t own a home you have to pay rent for one, which requires income.

By allowing a home owner to keep $1M of house working for them, but only allowing a renter to keep an additional $250K you put the renter at a disadvantage.

 

[Value Collector]

you either have incentive to improve your life , or equality for everyone and watch civilization decay anything else evolves into massive civil unrest

I would say both the renter with $1.5M in shares and the Home owner with $1.5M in house, have both been trying to improve their life.

But one gets better treatment in old age.

The home owner gets to keep their capital in their house, providing them with tax free annual income in the form no rent to pay (except minor costs)

Where as the investor in other assets is told he must pay tax on his earnings, and use up his capital before recieving the pension, Even though the earnings from those investments after tax might barely cover the rent he would have to pay to live in a $1.5 Million home that the home owner gets to keep uncounted.

 

[Value Collector]

Let me point out one final comparison that should show the unfairness at play.

A home owner can own a $1.5 Million house, and live in it at minimal cost avoiding perhaps $70,000 per year in rental expenses and collect a full pension to walk around with, then hand $1.5 Million over to their kids tax free when they die.

But.

A renter with a $1.5 Million Term deposit, would only earn about $35,000 in interest after tax, we’ll short of the $70,000 it would take to rent a home equal to the home owners $1.5M uncounted home.

So both own $1.5 Million in assets, except the guy with the term deposit pays tax, doesn’t get the pension and is forced to draw down his capital to live.

Where as the home owner (because for some reason home owners are a special class of people) gets to pay no tax, live in a house that would cost $70,000 a year to rent, and gets fortnightly pension to walk around with, then gets to hand $1.5million to his kids when he dies.

Both people were hard working, great citizens, salt of the earth types, at exactly the same wealth level, But both received different treatment.

Basically we are incentivising people to accumulate wealth in real estate over other productive assets, my question is why???

I don’t think there is a good reason, except emotional responses.

 

[TimeISmoney]

Let me point out one final comparison that should show the unfairness at play.

A home owner can own a $1.5 Million house, and live in it at minimal cost avoiding perhaps $70,000 per year in rental expenses and collect a full pension to walk around with, then hand $1.5 Million over to their kids tax free when they die.

But.

A renter with a $1.5 Million Term deposit, would only earn about $35,000 in interest after tax, we’ll short of the $70,000 it would take to rent a home equal to the home owners $1.5M uncounted home.

So both own $1.5 Million in assets, except the guy with the term deposit pays tax, doesn’t get the pension and is forced to draw down his capital to live.

Where as the home owner (because for some reason home owners are a special class of people) gets to pay no tax, live in a house that would cost $70,000 a year to rent, and gets fortnightly pension to walk around with, then gets to hand $1.5million to his kids when he dies.

Where was the fairness when the homeowner worked their heart and went without, risking losing everything if the economy turned on them, and most likely their family also? The homeowner took the risk, not the banks, not the government but the person paying the loan off. Would the govt pay the homeowner back if the housing market went in reverse?

 

[StockyGuy]

Would the govt pay the homeowner back if the housing market went in reverse?

And house valuation is a tricky thing. Do oldies have to endure the steely gaze of some government valuer eyeing their private castle inside and out once (or more!) every year to determine fair market value?

 

[divs4ever]

The home owner gets to keep their capital in their house, providing them with tax free annual income in the form no rent to pay (except minor costs)

i w9ould debate 'the minor costs ' home ownership does have it's expenses , repairs maintenance ( outrageous scam tradies sometimes like house painters and roof/window cleaners then you have insurance premiums ... and BTW that capital gain is often conveniently ignoring inflation ( which trickles through to other costs )

now some might have found ways to create some income from the property ( feed-in tariffs from roof-top solar , maybe some event parking if you are near an arena or similar , a little side-hustle ) but in reality the land is the appreciating asset ( if intelligently chosen ) and the building on the property is the depreciating asset/liability

BTW your rent usually includes utility charges , rates and insurance cover and a few other costs wrapped up into weekly/fortnightly installments

also owning the home locks you into a more settled life path not always easy to unload your home when it comes time to move and that move/sale comes with extra costs as well

also i can tell $1.5 million doesn't buy as much today as it did in 1972

wait until capital city residents work that out

 

[Value Collector]

Where was the fairness when the homeowner worked their heart and went without, risking losing everything if the economy turned on them, and most likely their family also? The homeowner took the risk, not the banks, not the government but the person paying the loan off. Would the govt pay the homeowner back if the housing market went in reverse?

For this example let’s assume the guy that accumulated the $1.5 Million term deposit worked his heart out too, and went without on equal amounts to the home owner, remember the term deposit guy is still paying tax on his interest, the home owners returns are not taxed. (The home owner had inflation working for him creating a windfall, the battling term deposit holder had to slug out every dollar he saved with his sweat and tears hahaha)

Without appealing to emotions and trying to conjure up images of battling home owners, why is it that some one who happens to own a home rather than a term deposit of equal value deserves such a favoured position.

Why are we penalising non home owners?

 

[Value Collector]

i w9ould debate 'the minor costs ' home ownership does have it's expenses , repairs maintenance ( outrageous scam tradies sometimes like house painters and roof/window cleaners then you have insurance premiums ... and BTW that capital gain is often conveniently ignoring inflation ( which trickles through to other costs )

now some might have found ways to create some income from the property ( feed-in tariffs from roof-top solar , maybe some event parking if you are near an arena or similar , a little side-hustle ) but in reality the land is the appreciating asset ( if intelligently chosen ) and the building on the property is the depreciating asset/liability

BTW your rent usually includes utility charges , rates and insurance cover and a few other costs wrapped up into weekly/fortnightly installments

also owning the home locks you into a more settled life path not always easy to unload your home when it comes time to move and that move/sale comes with extra costs as well

also i can tell $1.5 million doesn't buy as much today as it did in 1972

wait until capital city residents work that out

As both a home owner, and a land lord of two rentals, I can tell you the cost of home ownership is much less than the rent would have to pay.

That’s why people own investment property, eg to make money.

As a home owner this “profit” (eg difference between cost you actually pay to live in your home vs what you would have to pay in rent) goes to you untaxed, and doesn’t stop you claiming the pension.

 

[TimeISmoney]

i w9ould debate 'the minor costs ' home ownership does have it's expenses , repairs maintenance ( outrageous scam tradies sometimes like house painters and roof/window cleaners then you have insurance premiums ... and BTW that capital gain is often conveniently ignoring inflation ( which trickles through to other costs )

now some might have found ways to create some income from the property ( feed-in tariffs from roof-top solar , maybe some event parking if you are near an arena or similar , a little side-hustle ) but in reality the land is the appreciating asset ( if intelligently chosen ) and the building on the property is the depreciating asset/liability

BTW your rent usually includes utility charges , rates and insurance cover and a few other costs wrapped up into weekly/fortnightly installments

also owning the home locks you into a more settled life path not always easy to unload your home when it comes time to move and that move/sale comes with extra costs as well

also i can tell $1.5 million doesn't buy as much today as it did in 1972

wait until capital city residents work that out

I've put them on ignore, don't have much time for ignorant people, and most likely don't own a home by the looks of things. The insurance for my one of my rentals is 8x the gross weekly rent, you can't even get a plumber out to fix a tap washer they're just not interested unless it's over $400. It's always the same useless crap coming from the type of people who have never had anything to do with supplying housing and have no idea about the holding costs. The reason the govt didn't keep up with social housing is because they knew the cost of it and tried to push it onto defenseless mum and dad investors who are naive and gullible. I've got over 40 years of experience with rentals and that's why I migrated over to this site because I no longer want to deal with all the garbage around the rental industry.