Iain Hall's SANDPIT

Home » Blogging » “Also, if you wish to comment further on it, please address the actual arguments made in the post rather than completely ignoring them. – Jeremy”

“Also, if you wish to comment further on it, please address the actual arguments made in the post rather than completely ignoring them. – Jeremy”

No matter how affable  and polite  I try to be in  comments on his pieces my learned friend insists upon keeping my comments in moderation and then suggesting some evil intent upon my part. So after he suggested that I should address his argument I could not help thinking that the time has come to give his post a dose of the old fiskorama treatment: So without further adieu lets look in detail at what precisely Jeremy is arguing here.

Pretending to care about The Houseless Generation

Yep, that is precisely what our learned friend is trying to do. 😉

Even politicians have noticed that there’s a bit of disquiet about the ongoing transfer of the nation’s wealth from the young to the old, the poor to the rich, that is the “housing market”.

This is a bizarre opening gambit, The young and the poor have no significant part of the nations wealth to transfer to anyone.

But they don’t want to piss off the boomers who’ve spent a decade and a half addicted to the sweet sweet heroin of low-taxed investment properties, paid for by ever greater numbers of struggling young people locked into permanent renter status. But you can’t take baby’s toy away – he’ll scream and scream until he’s sick.

Somebody should explain to our learned friend that Capital Gains Tax is only avoided if the property that is being sold is the owners residence for at least a year. Investment properties do attract the tax. so It would seem that our learned friend would penalize anyone who sells their residence to buy another place to live with a large tax bill. His argument has not changed much over the years that he has been banging on about house prices though he was not complaining when he had a house of his own to sell. In fact he was very keen to get the best possible price for the property in question

So, try to undo the damage – reduce the huge CGT incentives for those with equity in an existing home to use the housing market as an investment tool, the costs of inflated prices being passed on to the generation who can’t possibly hope to beat them at auction? We can’t do that! That would make a lot of greedy boomers – those who can’t see past their own unearned property-based wealth – very angry.

No wonder he is a member of the Green (with envy) party 🙄  Only someone who wants to punish thrift and wise use of personal resources would run this line.

Could there ever be a better example of the politics of envy? Baby boomers like yours truly have a different attitude to financial priorities, we pay or bills first before buying luxuries on tick, many work hard to build up investments for their future. That is not greed, most people that I know who have investment properties are not the greedy capitalists that our learned friend thinks that they are they are just ordinary people who want to make their savings work for them.

So this is what we get instead of real change:

Crackdown to help first-home buyers

THE federal government has admitted its new crackdown on foreign investors is an acknowledgement that Australian first-home buyers are being priced out of the market.

The tightening of foreign investment rules require temporary residents to be screened and get permission from the Foreign Investment Review Board to buy a property, sell their property when they leave Australia and build on vacant land within 24 months or sell.

There have been anecdotal claims of foreign investors – especially wealthy Chinese families – ‘stockpiling’ Australian houses and leaving them idle, and of outbidding young people at auctions.

Easy politics: look like you’re doing something by bashing those who can’t vote. (Although not all that helpful, because the Liberals can for once honestly say “that was our policy in the first place”.)

Here is a clear  example of people who are definitely competing with the locals at auction for the houses in question being excluded from the market, which has to be a good thing for the locals who may wish to buy and our learned friend can only whine about it.

But let’s be clear: foreign investment is not the reason why the market has got so out of control. (That’s why they can only mention “anecdotal claims”.) Rather, the other way around: with Australian city house prices inflating well ahead of any other investment, no wonder investors from everywhere have rushed to get a piece of that action. And those prices have been inflating ever since Howard’s late nineties bribes to the building industry to make up for the GST: halving CGT and the first home buyer’s grant.

Markets for housing have never been under control so our learned friend is in error to imply otherwise. The price of real estate is alway determined by one most important equation and that is the relationship between the number of buyers and the number items for sale. Things like taxes and government incentives like the First home buyers Grant are really a very small part of the equation. Our learned friend would have you believe that tax regimes are the be all and end  all of the matter.

So, a couple of points:
As long as capital gains tax – tax on income that you don’t actually do anything to earn other than sit on something of value, like a property – is less than income tax, investors will push the prices of houses up beyond what actual new home-buyers can afford. CGT needs to be comparable with income tax, so that ordinary workers are not further subsidising the lucky people with property.

A capital gain is not income, and should not be taxed   as if it is. It defies  reason for our learned friend to suggest that making it more expensive to sell a property will do anything to make real estate more affordable, all that his proposal will do is to increase the reserve price set by sellers to cover their expected tax liabilities. His beloved young home buyers would be no better off.
The first home buyer’s grant needs to disappear completely – it only inflates prices beyond its value. It was always a very poor piece of policy that transferred public money away from the young and to those who already owned investment properties;
I would love to see our learned friend prove this often claimed assertion because I really think that when you are talking about property prices in the many hundreds of thousands of dollars a measly 7 grand is not of much consequence at all .
Increasing land availability won’t solve the problem while investors still flood the market – they’ve still got a disproportionate amount of money to spend, and will;
We do need to encourage the building of new homes, rather than the fighting over existing ones – but this will not solve the problem by itself. Population growth, which has been gradual over the period, did not propel this boom – flooding the market with investors did.
Just how gradual has that population growth been my learned friend? Some figures I have seen suggest almost 8% per annum for his beloved Melbourne that is only gradual by stretching the definition and  building of the supply in recent years has not been keeping pace. The classic lack of supply plus increasing demand equals rising prices is in action here .
If we don’t somehow burst the bubble, we will have a generation that simply cannot buy a home, unless they’re in the very top tier of earners or they inherit property. We will have an unprecedented divide between the rich and the poor in this country;
As anyone has applied a pin to a balloon knows making things go bang is not always the best course of action if you want to deflate anything. Likewise “bursting” the housing bubble may be attractive to those who operate on envy like our learned friend  but lots of middle Australians would be hurt if his prescription was ever to be filled. He would be more convincing if instead of his economic self loathing he would advocate the current government of Brother Number One should have spent a goodly proportion of that stimulus spending on public housing rather than having wasted it on the failed insulation programs and teh rorted BER program
Crime rates will rise – owning property is one thing that greatly reduces a person’s propensity to engage in crime. It gives a person something to lose. It gives a person respect for the value of property. It is a massively stabilising effect on a population. Take that away, leave increasing numbers of people in homes they don’t own, over which they have no control, that they can’t upgrade, out of which they could be kicked with three month’s notice, with ever increasing rents, and what do you think will happen?
Well I find myself agreeing with the claim that owning property has a stabilizing effect upon society  and I also agree that security of tenure has some virtue as well.
Homelessness will also rise. The increased rents also mean that, without dramatically increased welfare payments, we’re going to have an ever-growing homeless problem. Centrelink payments simply won’t cover renting anywhere near a city – expect crimes of desperation to get out of hand. Law And Order politicians will respond by locking them up – we’ll have to build more prisons, at great public expense and injustice, and it will become ever more dangerous to walk the streets of our cities.
The biggest driver of homelessness is not the supply of housing (although it is a factor) it is the failure of some individuals to properly mange their own lives, this may be due to mental illness  or it may be due to substance abuse but there will always  be societies fuck ups who end up in the gutter.
The inflated property market might make homeowners think they’re wealthier, but it’s not money they can use (except to take out another loan) – in fact, they’re punished with higher rates. The only people who really benefit are those with more than one property, and those inheriting property. And they do so at the expense of everyone else.
This is a ridiculous argument, it assumes that those who own houses are all in the position of still owing more than they own. His bold above suggests that he has a major objection to any form of inheritance. Could he be advocating some sort of death duty here?
The more out of hand the problem gets, the harder it will be to solve: you can’t push prices back without really screwing over those young people who just took out enormous mortgages to buy a small shack in a swamp in remotest Cranbourne – and it’s not like all that pretend money that’s floating around on people’s rate certificates is actually available to them to use. And of course, the financial industry has locked itself in, to great advantage, but if prices were to fall they’d immediately call it a financial crisis and demand that we, the public, bail them out again. It’s going to be a long, slow road fixing this mess. And the first step is raising CGT, so that it’s not less than income tax: the existing system penalises those who work for a living as against those who sit back and just sit on property. It should be the other way around.
Yawn! does this claim do anything but scream inner city arrogance? In typical far left style all he can do is advocate higher taxes.
Australia’s birth rate will decline, as the Houseless Generation finds itself in increased poverty, unable to find any security in housing and unable to find housing adequate for raising a family. Couples will put off having kids till even later, and will consequently have fewer of them.
Housing may be a factor in deciding when to make a family but I think that most people are not as calculating about it as our learned friend suggests. Through out history people have found a way to provide for their children heck they may even decide that the Melbourne metropolis is not the best place to raise a family and make a better life for themselves elsewhere in this wide brown land  where the housing is more affordable.
Existing home-owners who got themselves on the ladder in time and don’t care about anyone else’s family should consider this: do you want your kids living with you ’till they’re 40? They’re not going to have much choice.
I agree with you that having offspring living at home forever is not a good thing. But I think that you are wrong to claim that many adults are forced to do so out of financial necessity.

I think this is one of the most critical issues facing Australia today. And none of the major parties have the slightest interest in doing anything about it – they’re too busy pandering to boomers’ fears about SCARY IMMIGRANTS.

My learned friend loves playing the race card, he does it on a regular basis.  But what are we to expect from someone who wants to accept all comers and reject none at  all who come a knocking in leaky boats. The Australian people are among the most welcoming and generous on the planet but we want to offer our largess on our own terms and not have it demanded. That said I agree that housing the people so that they have security of tenure and  a place close to their employment  to live is important. There is no reason to make it a case of the “boomers” against everyone else, I know as many of my fellow boomers   who have never managed to buy their own homes and they never will I fully support the building of public housing in our cities.

The Liberals under Howard gave us the problem in the first place – and the ALP is too gutless to actually tackle it in any meaningful way.

How in all fairness can my learned friend make this claim? It is the state governments who control public housing and it is municipal councils who control building approvals. Oh thats right he just had to invoke the Ghost of the Howard government  to play to his gallery of latte sippers.

My fear is that by the time the Houseless Generation becomes a powerful enough voting force to be listened to, it will have absorbed the status quo as The Way It Is, and be so resentful that it will resist giving the next generation any easier a time than it had. And we’ll be stuck with this fundamentally broken model, and poisoned society, forever.

I will concede that as long as demand exceeds supply in our cities we will face an ever increasing afford-ability problem when it comes to housing but where I disagree with him is his insistence that the tax regime is the most important element of the problem and I disagree with his contention that the mum and dad investors who have a rental house or two are all some sort of evil slumlords who deserve to be the recipients of government action to punish them for investing in houses with their hard earned money.

It’s a crisis, no doubt about it.

Housing afford-ability may certainly be an ongoing problem But a crisis?

Hmm I don’t think so

Minions of the left are most fond of declaring all sorts of things to be one sort of crisis or another but their constant over use  of the term succeeds in doing only one thing and that is to devalue the  word. The housing market is tough for all new entrants but then it always has been and mucking around with things like the tax regimes or removing grants for first home buyers  will not make that much difference while the population in the big three cities of Australia keep growing  as fast as they have  been over the last few decades.

I do really wish that housing was more affordable for new entrants to the market in the big three cities of this country But whining about it won’t make a difference any more than pretending that a paltry  seven grand available only once in your life time  will either.

Cheers Comrades

8)


111 Comments

  1. JM says:

    Iain: This is a bizarre opening gambit, The young and the poor have no significant part of the nations wealth to transfer to anyone.

    This is an opening statement that shows you are flat-out ignorant.

    You might remember that during a certain Treasurer’s service (Peter Costello I’m thinking of) there was a white paper on “generational equity”.

    What that was about was that under the current regime the young no longer have the means or opportunity to build up wealth during their early (and later peak) earning years, but are locked into a financial structure where wealth accrues to the older generation.

    Mostly through artificially inflated house prices.

    In a normal market Iain, abnormally high prices don’t develop. But the housing market is not normal at the moment because there is a very strong bias – through ridiculously low capital gains tax and negative gearing (something no other country in the western world allows) – towards investment in housing and away from productive investment.

    (There’s also the important matter that there is also a relatively new bias towards replacement of housing stock rather than construction of new stock – but that’s a bit more technical, even though it is a relatively recent phenonomen in Australia caused by legal changes made during the ’90’s)

    What both Costello and Jeremy were pointing out is that the current tax system is – over time – impoverishing the young and enriching the old, while at the same time distorting the investment markets away from the productive investment needed to build the economy in the future.

    You’re really in a lonesome place Iain when politicians of both major parties recognize a problem and you don’t. Particularly, when one of the politicians pointing it out is the prime architect of a major part of the problem (Costello and capital gains).

    Jeremy’s complaint is that the cowards won’t do anything about it, because the boomers, who are a pretty large and influential cohort of voters, will scream blue murder if they try.

  2. JM says:

    Iain: Investment properties do attract the tax.

    Superficially you’re right, in practice not.

    The rule is that so long as the property has been the investors principle place of residence for at least 1 year, tax is avoided no matter how long they actually own it. This means that amateurs can buy, live in the place while they renovate (or something) and then move out later. If they’re really adventurous they can simply lie to the tax office about where they’re living and move their “principle place of residence” token around from property to property.

    Both things happen a lot, and have been for years.

    The second problem is that capital gains is

    a.) only 15% where other forms of investment get the full whack
    b.) is discounted linearly (ie. favourably) over time so that once you’ve owned a property for a number of years you owe next to nothing in capital gains (about 7 years usually does the trick)

    When this is combined with negative gearing (which has grown explosively over the last 10-15 years) you have a toxic situation.

  3. Ray Dixon says:

    People have been making money out of real estate since the year dot and it will always be that way. To blame one generation alone for spiralling prices is just ridiculous.

  4. JM says:

    Ray, I refer you to the “Global Financial Crisis” (GFC) recently experienced in the US and elsewhere (Iceland, Ireland and now Greece and others)

    Financial structure, particularly when set up to disproportionately benefit one particular section of the community over another, is an important issue.

    If you think that Australia which has seen residential property prices rise two fold in real terms over the last decade pricing new entrants out of the market, is a matter of no consequence then I refer you to the frequent comments of Reserve Bank Governors over the same period.

    This matters and Jeremy is right – the housing market is “on air”.

  5. Iain Hall says:

    JM
    I will answer your points in turn 😉

    Iain: This is a bizarre opening gambit, The young and the poor have no significant part of the nations wealth to transfer to anyone.

    This is an opening statement that shows you are flat-out ignorant.

    NO It shows that you have no grasp of sarcasm 🙄

    You might remember that during a certain Treasurer’s service (Peter Costello I’m thinking of) there was a white paper on “generational equity”.

    Citation?

    What that was about was that under the current regime the young no longer have the means or opportunity to build up wealth during their early (and later peak) earning years, but are locked into a financial structure where wealth accrues to the older generation.

    Mostly through artificially inflated house prices.

    Really? strangely there are enough young people out there with flash duds, driving blinged up cars, with the latest techno toys and lots of frequent flier points to dispute this claim.

    In a normal market Iain, abnormally high prices don’t develop. But the housing market is not normal at the moment because there is a very strong bias – through ridiculously low capital gains tax and negative gearing (something no other country in the western world allows) – towards investment in housing and away from productive investment.

    there is no such thing as a “normal” or “abnormal” real estate market, there is just buyers and sellers and negative gearing only makes sense for investors who have a large tax liability.

    (There’s also the important matter that there is also a relatively new bias towards replacement of housing stock rather than construction of new stock – but that’s a bit more technical, even though it is a relatively recent phenonomen in Australia caused by legal changes made during the ’90′s)

    If the density of housing is to increase ( as it must to accommodate the growth in population in the same physical area ) of course older housing must be replaced with new. 🙄 If you want endless sprawl you can stop this .

    What both Costello and Jeremy were pointing out is that the current tax system is – over time – impoverishing the young and enriching the old, while at the same time distorting the investment markets away from the productive investment needed to build the economy in the future.

    It all depends on what you consider productive investment to be doesn’t it? Personally I don’t think that the stock market is a wonderful as either you and Jeremy thinks it is.


    Iain: Investment properties do attract the tax.

    Superficially you’re right, in practice not.

    The rule is that so long as the property has been the investors principle place of residence for at least 1 year, tax is avoided no matter how long they actually own it. This means that amateurs can buy, live in the place while they renovate (or something) and then move out later. If they’re really adventurous they can simply lie to the tax office about where they’re living and move their “principle place of residence” token around from property to property.

    Both things happen a lot, and have been for years.

    Do you have any idea how high a hurdle the residential requirement actually is? In any case I dispute your claim that many people lie about having lived in the property to the tax office. It is also clear to me that you have no idea how onerous it is to live in a house while you renovate it. Because it is no cake walk I think that any capital gain is actually very hard won and deserved.

    The second problem is that capital gains is

    a.) only 15% where other forms of investment get the full whack
    b.) is discounted linearly (ie. favourably) over time so that once you’ve owned a property for a number of years you owe next to nothing in capital gains (about 7 years usually does the trick)

    When this is combined with negative gearing (which has grown explosively over the last 10-15 years) you have a toxic situation.

    So you are claiming that the high rate of income tax is appropriate and that other taxes should be raised up to match it? Perhaps the problem is the other way around that Income tax it too high….

    You’re really in a lonesome place Iain when politicians of both major parties recognize a problem and you don’t. Particularly, when one of the politicians pointing it out is the prime architect of a major part of the problem (Costello and capital gains).

    Since when has Jeremy been a politician in a Major party? 😆 Unlike you I don’t object to anyone benefiting from a capital gain on their investments.

    Jeremy’s complaint is that the cowards won’t do anything about it, because the boomers, who are a pretty large and influential cohort of voters, will scream blue murder if they try.

    There is bravery JM and then there is stupidity, You may believe in futile gestures but fortunately wiser heads than yours disagree. That is the beauty of democracy minority ideologues driven by class envy are prevented from impoverishing those who have made something of their lives.

  6. Ray Dixon says:

    This matters and Jeremy is right – the housing market is “on air”.

    I think Jeremy’s only half right on this, JM, and so is Iain. The property market certainly is on air, but Jeremy’s proposals for, er, adjusting it could cause economic collapse.

    By and large it’s interest rates that are the biggest influence over the market (in that they spur or deter demand), and I’m pretty sure they’re going north. You have to let the market find its own level without too much interference.

    As for what happened in the US there is no relevance to Australia. Their collapse was created by fraud.

  7. Jeremy says:

    “Jeremy’s proposals for, er, adjusting it could cause economic collapse”

    What proposals do you mean? Returning CGT on investment properties to something approaching income tax?

    You’d have to phase it in on existing investment properties (say over five-ten years), but you could implement it immediately for purchases of new investment properties. You’d get rid of the ability of people to have multiple primary residences above (if JM is right and that’s happening) – people could only declare one primary residence at a time, and all the others would attract CGT. You’d have discounts and incentives for those building new houses (not just upgrading existing ones), adding to the housing supply.

    How would this “cause economic collapse”?

    The market cannot solve this problem by itself because the government that created it has created two distinct groups of Australians – those who had housing before the boom and those who didn’t. And the latter cannot, particularly while there are so many advantages for investors in addition to the equity they now have, compete with the former.

    Anyway, if anyone wants to debate me on this they can do it at my original comment thread that Iain’s trying to hijack.

  8. Ray Dixon says:

    Jeremy, rather than trying to fix the problem with disincentives to invest wouldn’t it be better to introduce some real incentives for people to relocate to regional centres away from the 3 major capitals, which are the only places this problem is occurring?

    How about these ‘ off the cuff’ ideas?:

    1. Triple the first home buyers grant for those buying established homes in the country and quadruple it for those building in those areas.

    2. Offer a stamp duty moratorium to anyone selling up in a capital and buying in the bush.

    I know these ideas are not fully thought-through (yet) but surely they are the type of measures needed to ease the problem in our capitals and at the same time maintain our population growth.

    I see your approach as punitive and finger-pointing rather than trying to assist anyone.

  9. Billy Bedlam AKA Iain Lygo says:

    Nice ideas Ray but I doubt they’ll happen. For one thing the States, esp. Victoria, will never give an inch on stamp duty since it’s too lucrative an ‘earner’. Also, tripling/quadrupling the first home buyers grants for regional areas sounds good in theory but like practice it’ll probably just jack up the prices in those areas (like it has in Melbourne).

    The best way to encourage people to shift to the country is jobs, infrastructure and transport. The last two state govts in Vic. have pretty much neglected the bush unless they wanted somewhere to run a water pipeline through or to house a toxic waste dump. The Bedlam Four Point Plan (TM) for regional growth includes:

    1. Tax breaks for corporations who invest in and/or relocate to rural and regional areas. And maybe ‘native’ rural businesses who employ 50+ people, so they can continue and expand?

    2. Increased funding for schools, universities and TAFEs in those areas. Maybe some incentives for the ‘big’ unis like Melb and Monash to open more regional campuses?

    3. Improving internet and data services to those areas. Maybe also television and pay TV reception which is apparently crud in some parts of Vic.

    4. The rebuilding of our rail network and subsidies so that rail freight and passenger travel is more affordable than at present.

  10. Iain Hall says:

    Jeremy

    Anyway, if anyone wants to debate me on this they can do it at my original comment thread that Iain’s trying to hijack.

    The trouble is that you don’t want debate you want agreement and adoration and had you been willing to openly debate me at yours rather than churlishly deleting my comment and replacing it with the comment in my screen shot I would not have been inspired to Fisk your post in the first place. At my most recent count you have four of my comments in your moderation waiting list.
    Ray
    I agree that encouraging people to settle in the regional and rural parts of the country is a very good way to ease the pressure on our cities as you say your suggestions are just plucked out of the air but They are the sort of things that can help.
    Billy
    Some of your ideas seem to have merit as well but I tend to think that things like tertiary education should follow rather than lead regional development though. Where I live TV reception can sometimes be real crap (especially when it rains) and I do appreciate the value of developing infrastructure but I think that developing ways for people to telecommute may be a better way than developing the far more expensive infrastructure for them to commute in person.

  11. Ray Dixon says:

    The best way to encourage people to shift to the country is jobs, infrastructure and transport

    Billy, that’s all been tried and it hasn’t worked. The best way to create jobs & infrastructure in regional areas is to first build a population basis.

    And it’s not as ‘chicken & egg’ as it may sound. Firstly, many regional cities already offer jobs and good infrastructure.

    Secondly, if the boomers are encouraged to retire or semi-retire in the country they will either not need jobs or will create new businesses themselves.

    You see, to create industry in regional towns & cities you first need a growing local market that creates the demand. I kid you not, the sooner we give massive incentives for people (not companies) to relocate the better, for the cities and the bush alike.

  12. Jeremy says:

    “The trouble is that you don’t want debate you want agreement and adoration”

    Anyone reading the thread in question can see that that claim is total garbage.

    “had you been willing to openly debate me at yours rather than churlishly deleting my comment and replacing it with the comment in my screen shot”

    Happy to debate. Not happy to indulge your wild speculation about my private circumstances.

    Ray – it’s not “punitive” to tax capital gains at a rate commensurate with income tax. Why should those who work for a living be taxed harder than those who just sit on property?

  13. Len says:

    You guys are missing an important point.

    For years, Australia’s doors have been open, to foreign investors, with their swelled pockets, to come in, and buy at their whim. As Iain states, it is simply a case of supply and demand here. The more buyers you have competing in a market, the higher the price goes, as has been previously mentioned.

    Have a read of the following article. It is short, and a real eye opener ?
    http://topnews.net.nz/content/23479-foreign-property-investors-face-tight-regulations-rudd-government

    Add to this, low interest rates, a relatively stable economy (inflation index), and it’s full steam ahead !

    You cannot just cancel the first home buyers scheme. That would be political suicide just for starters. IMO it should be expanded, not curtailed. We have to help our people, into their first homes, as best we can. Stringent rules, have to be put in place, like elsewhere in the world. Residents only allowed to purchase homes. The same rule should also apply to our natural resources, as well as our commercial icons ? Vegemite should ring a few bells here for everybody ?

    Unfortunately, we have an inherent gene in us, given to us by our parents, that we must own our own home. Nothing wrong with that. It is the one single purchase in our life, that will cost the most, and will have the longest lasting effect on our economic well being for the future. We should be giving incentives for people to think outside the box. Properties outside the major city centres are cheaper to buy. A great example was the Albury/Wodonga plan all those decades ago. Decentralisation is the only way to go, at least for the future anyway. Young people won’t do it though. Have a look at the Tassy markets. You can buy a great 3 beddy BV for just over $100k down there, and work is available ? Why are the prices so cheap ? Simple really. No foreign investment. The returns down there are no where near as great, or as quick. These o/s investors want quick buxom returns. They don’t get them, hence the relatively stable market down there.

    Sorry guys, but a bit of a no brainer here.

  14. Iain Hall says:


    Jeremy

    Iain, we’re not talking about “fashionable inner city addresses”. We’re talking about shacks and units in outer suburbs.

    Australia does not end at the Melbourne city limits

    And not everyone has a job (or a partner’s job) that is so portable.

    We have lived in the same place for the last decade, that is hardly a portable job, But people change their jobs all the time.

    Well, quite – negative gearing is a way to help the rich get richer. It doesn’t help the poor.

    No it does not make them richer it just stops the government taking more of their money in tax.

    They sure are, when the price of their property is skyrocketing! All they have to do is sit back and get a huge return – rather than investing in something constructive. Those who bought investment properties before the boom are set with a massively advantageous form of investment not available to anyone else.

    That sounds like Envy to me Jeremy 🙄 define constructive? and if there were fewer people investing in housing for rental where pray tell would the country’s rental stocks come from?

    I’ll find ‘em for you if there’d be a point. Would you concede anything if I presented you with figures demonstrating the increase in percentage of investors to owner-occupiers in the housing market over the last twenty years?

    Produce the figures if you can find them and I will honestly respond this sort of line from you is really weak.

    Which part of “that wouldn’t get you a house now” do you not understand? You WOULD NOT be able to do that today.

    Maybe not in this precise location ( my place is now “worth” 5 or 6 times what I paid for it) But there are places in this country with the same level of amenity that this place had a decade ago at equivalent prices.

    Lucky them. I wonder if you realise just how much and for how long you’re going to have to help them at this rate if you want to see them in their own home. They’d better be captains of industry or you might eat those words.

    I will help them for as long as it takes and then some, but then as a socialist you object to inheritance don’t you?

    It’s not, and the evidence for that is that if you look at a graph of population increases over the last sixty years as opposed to housing prices, you’ll find that there was no population spike just before the market exploded. It therefore could not be the cause. QED.

    But its not just the sheer numbers of a population that drives the housing market it is how wealth those new comers are that matters. Thus if you have 1000 poor people move into Melbourne they will not be competing with you at real estate auctions but if you import 1000 professionals with some capital brought from their home country they will be. That seems pretty obvious to me QED 😉

    And I didn’t link to your post because I don’t link to your blog. You know, the one that just last week published my private correspondence with a third party out of spite. And long time readers know that that’s neither the first, nor the worst, instance of your reprehensible conduct.

    Yawn! You were debating the issue with Leon and you made no claims that the conversation was privileged (except in retrospect) so you are gilding the Lilly to suggest that any of the emails that I published were private. If you want to claim the moral high ground behave as if you deserve it.

  15. Ray Dixon says:

    Jeremy, most investors do not just “sit on property” and wait for the capital gain.

    And the last time negative gearing was removed (in the mid 80s) it caused a crisis in the supply of rental housing and had to be immediately reinstated. That was when CGT was first introduced, and at the full rate. If full rate CGT were re-introduced investors would just hold onto their properties for longer creating more shortages and higher prices. That’s what happened in the 80s.

    Incidentally, I just did a search of houses for sale in Wodonga (one of Australia’s fastest growing regional cities). In the price range of $150,000 to $250,000 there are 80 houses listed for sale on realestate.com.au: http://www.realestate.com.au/buy/property-house-between-150000-250000-in-wodonga/list-1

    Wodonga has a population of about 40,000. The results would be more than double that if I included its twin city of Albury (population 50,000 & growing).

    There are plenty of jobs in the Albury-Wodonga area. Good transport, schools, unis, industries & infrastructure too.

  16. Leon Befrtrand says:

    As usual, I disagree with Jeremy, but only partly this time. I also partly disagree with Iain.

    Ray, the negative effects of abolition of negative gearing you describe are impossible. That’s because for every seller who sells their house usually there’s a buyer who stops being a renter. That is, supply and demand for rental properties would fall.

    Also increases in CGT would not make people hang onto their houses for longer, unless the discount rate applied after longer tenure. I don’t accept that CGT changes affect when or whether people sell their properties. Demand however may be slighly affected.

    The first home owner’s grant should be abolished. It primarily benefits sellers, not buyers.

    I agree with Jeremy that CGT should be increased, probably to around 30%, whilst negative gearing should be abolished. Although perhaps not for those who have built homes.

    However, I don’t think that the Howard Government is entirely to blame. Rising house prices have been a result of a booming economy which has put money in people’s pockets, as well as high immigration. Both of these factors have increased the supply for housing. Meanwhile, construction of new homes in capital cities has been unable to keep up.

    It’s primarily about supply and demand, not about the rate of CGT or negative gearing.

  17. Ray Dixon says:

    the negative effects of abolition of negative gearing you describe are impossible

    They’re not impossible, Leon, they are a fact and they happened in the 80s.

    I’d answer you more fully than below but, quite frankly, not much of what you’ve said makes any sense:

    On the one hand you say renters (i.e. who are mostly first home buyers) would buy the properties that investors otherwise would if negative gearing is abolished. Then you say we should abolish the first home buyers grant … which would make it harder for the renters to buy!

    Btw, most first home buyers use the grant to build a home (saving on stamp duty as well) so how does the grant assist sellers in the bulk of cases? The beneficiaries are (in order) 1. the first home buyer 2. the LAND seller 3. the builder. Which is all good for the economy.

    As for saying increasing CGT would not encourage investors to hold onto their investment properties instead of selling … well that’s just economic nonsense.

  18. Ray Dixon says:

    And then you finish off by saying: It’s primarily about supply and demand, not about the rate of CGT or negative gearing

    Geezus Leon, you’re all over the place. Forget about interest rates did we?

  19. Billy Bedlam AKA Iain Lygo says:

    Billy, that’s all been tried and it hasn’t worked. The best way to create jobs & infrastructure in regional areas is to first build a population basis.

    It has not been tried before, Ray, at least not in the last 20 years or so. If it has, feel free to furnish us with some examples.

    You can’t expect people to upstakes and move to the country if there are no jobs for them to go to. Your idea seems to be that if you offer cheap housing then they’ll move. But no sensible person is going to move on that basis alone if there is no work. You are putting the cart before the horse.

  20. Ray Dixon says:

    It was tried in the 70s under Whitlam, Billy, and the industries refused to relocate. Why? Because there were insufficient workers and distance-from-market concerns.

    As for individuals relocating and your belief that there are ‘no jobs in the bush’, suck it and see. As someone who has done it I can assure you it’s possible to make a living out here. Give it a go.

  21. Iain Hall says:

    Billy
    Just add to what Ray has said in the time of the not so sainted Gough there was no Internet and no possibility for people to do screen based work from home as there is now which makes it possible for people in some professions to live anywhere they chose and still earn a living.

  22. JM says:

    Ray, Leon is actually making a good point but I think you missed it. Negative gearing and low GCT don’t affect the supply of housing; and turning a renter into an owner (or vice versa) doesn’t change housing demand either.

    But providing tax incentives to make unproductive investments – such as buying and selling existing property – certainly does change demand. It increases the number of investors until they come to dominate the market, as they are now.

    What happened in the eighties was not a change in supply, but an increase (small) in rents as landlords attempted to retain their margins while recouping their increased interest costs which were no longer paid for by the taxpayer. (Of course it didn’t help that interest rates were going up at the same time – in fact they probably accounted for more of the rent rise than the tax effects)

    The question is not one for the market, it is for public policy – do we want two unequal groups in society one of which – landlords – benefits from the public purse while the other doesn’t? Do we want this large distortion in our tax system or not?

    Particularly since it has gotten so out of control over the last 10 years.

  23. Billy Bedlam AKA Iain Lygo says:

    Whitlam?!? Like I said, it hasn’t been tried in the last 20 or so years. No Victorian government since before Cain has initiated or supported a major project or corporate investment in regional Vic since before the days of John Cain. And Ray, you shouldnt expect your own example to apply to all, most people need a job to go to before they consider relocating, and from what I can tell there arent that many in regional areas.

  24. Jeremy says:

    Leon’s made the points I would’ve made – Ray, seriously, do you not get how the FHOG punishes buyers? Because banks loan several times more than someone’s deposit, increasing the first home buyers’ deposit by X dollars increases the amount they can borrow by MORE than X dollars, and consequently inflates prices on first homes by much more than the level of the grant. The FHOG actually pushes young people further into debt – the only beneficiaries are sellers.

    I agree with you Leon that a booming economy would’ve inflated house prices – but, since the cut to CGT, they’ve increased well beyond the prices of pretty much anything else. Well ahead of other investments. Immigration also does not explain the boom in prices, since it’s been rising fairly steadily over a long period without that effect. There wasn’t a spike in immigration just before the runaway house market.

  25. Ray Dixon says:

    JM, if you remove negative gearing of investment property (which is a legitimate business investment) and you increase CGT then you will most certainly deter investors from the property market. That is a given.

    Where Leon, Jeremy and you get it wrong is to assume that this would result in a more stable market, when what it would do (as history proves) is to cause a massive slump, leading to an economic downturn.

    Sorry, we are locked in to a property driven economy and we need to find more productive and less punitive ways of making it more affordable for new entries.

  26. JM says:

    Iain wants a citation so here it is remarks by Productivity Commission Chairman, Gary Banks on 12 August 2003 in a speech to a Center for Independent Studies ‘Consilium’ (he’s basing his comments on submissions made to the then-in-progress public inquiry into First Home Ownership):

    “The Commission identified more suitable candidates for demand-side action among income tax provisions and subsidies that favour housing. (Negative gearing is usually seen as the main culprit. But we saw it as less problematic than the concessional arrangements for capital gains taxation that were introduced in 1999 and appeared to be having a pro-cyclical effect on investment demand.)”

  27. JM says:

    Ray, it’s a simple fact that house prices in Australia are about 180% of their long term value (however you measure it – price/average earnings, price/rent etc)

    That’s a bigger increase than the US saw over the same period, and the really worrying thing is that we are the only country that hasn’t seen a fall over the last 2-3 years. In other words the Rudd government’s stimulus worked so well in keeping the economy afloat that there was no deflationary effect to burst the bubble.

    It won’t be tax changes that burst the bubble, it will either be a very large rise in interest rates as at the end of the 1980’s (very unlikely I’d think), or a rise in unemployment.

  28. JM says:

    And the key findings of the 2004 Productivity Commission Report on First Home Ownership (my bold and [a couple of interpolated comments]):


    Key findings

    • Fluctuations in prices and ‘affordability’ are inherent features of housing markets.

    • The upswing in housing prices since the mid-1990s has been bigger and more widespread than in previous cycles.

    – Notwithstanding lower interest rates, housing ‘affordability’ has declined
    considerably in the past two or three years.
    [ and gotten worse since 2004]

    • Rising house prices indicate that demand has been outstripping supply.

    – Much of this increase in housing demand has been due to cheaper, more
    accessible finance and buoyant economic growth through the 1990s.

    – This led to higher prices because of inherent limitations on the responsiveness of housing supply to surges in demand, particularly as much of the demand came from existing home owners seeking to ‘upgrade’ in established areas.

    • Only in the last couple of years have house prices surpassed levels that are explicable on this basis, with some additional investment seemingly predicated on unrealistic expectations (in a ‘supportive’ tax environment) of ongoing capital gains.

    • To the extent that currently low housing affordability reflects cyclical price pressures, this will eventually be reversed. (Evidence of market cooling is already emerging. [But it didn’t emerge, prices kept going up]) However, there is a role for policy to address forces that can cause prices to be
    excessive over the entire housing cycle.

    Interactions between negative gearing, ‘capital works’ deductions, post-1999 capital gains provisions and marginal income tax rates have lent impetus to investment demand during the housing boom. [Leon and Jeremy’s point I think]

    – These influences are not confined to housing and selective ‘fixes’ could have ramifications across the economy. Potential reforms need to be assessed through a broader review, with a focus on capital gains provisions.

    • Reducing reliance on stamp duties would help first home buyers and improve the efficiency of housing markets over time.

    • There is also scope to moderate price and affordability pressures over time by:

    – improving land release and planning approval processes; and

    – ensuring that developer charges for infrastructure relate appropriately to the
    benefits provided to home buyers in new housing developments.

    • The First Home Owner Scheme, though conceived to compensate for the GST, would have more impact on home ownership if better targeted at lower income households.

    – But the funds may generate larger social benefits if used to address the broader housing needs of the lowest income Australians, which should be the subject of a separate public review.

    And Iain, as for “generational equity”, Costello has been banging on about this for years, I think the first time he mentioned it might have been in the lead up to the 1996 election. Pity, he then had to go and pour petrol on the fire.

  29. Leon Bertrand says:

    “Where Leon, Jeremy and you get it wrong is to assume that this would result in a more stable market, when what it would do (as history proves) is to cause a massive slump, leading to an economic downturn. ”

    Ray, can you please tell us then which economic downturn was caused by increasing CGT and/ or abolishing negative earing?

  30. Len says:

    I don’t see the point you are trying to make here JM ?

    A couple of points however.

    Stamp Duty was eliminated for first home buyers, originally around Gough’s time.

    The first home owners grant, ($500) was also introduced around that time.

    The First Home Owner Scheme, was also introduced at that time. The reason why it was introduced, was in fact introduced prior to the GST , under another name, and had nothing to do with the tax, but deposit gap, and home loan eligibility access for the poorer in our community, around the time of the massive housing boom in the 80’s.

    Land prices will not cool that much. The reason ? New housing estates, or land releases, are a massive investment, and mostly purely speculative in nature. The land will never be released for sale, in a downward moving market. That is why there is little land out there to buy. They are a massive risk, and a massive investment dollar wise. If there is any sniff of downward trends around, then they are held over.

    The market has been extremely buoyant for years, artificially so, by the hunger for younger couples feeling the need to have their own home. Nothing wrong with that as I said, but in entering this market, the buyers have to be even more wary of the traps involved. Buying their dream home first off ? That has only occurred in the latest generations. In older generations, you first bought the cheap house, got into the market, then did it up, and sold it to upgrade to a better one. So it went on. Not good enough these days. Young couples want their dream house first off. Doesn’t work.

  31. Ray Dixon says:

    banks loan several times more than someone’s deposit, increasing the first home buyers’ deposit by X dollars increases the amount they can borrow by MORE than X dollars, and consequently inflates prices on first homes by much more than the level of the grant

    That’s just not the case, Jeremy. Bank loans are calculated solely on the property value and the ability to repay. The size of the deposit does not infllate the purchase price. How could it? The seller does not know how much deposit the buyer has.

    And again, most first home buyer grants are used to build new homes, not to purchase established ones.

  32. JM says:

    Len:

    Stamp Duty was eliminated for first home buyers, originally around Gough’s time.
    The first home owners grant, ($500) was also introduced around that time.
    The First Home Owner Scheme, was also introduced at that time.

    I see your grasp of legislative history is no better than that of military history.

    The First Home Buyers Scheme was first introduced in 1963 by the Menzies government in the lead up to the election. The amount of the grant was linked to the savings record of the applicants and was (from memory) 667 pounds, pound-for-pound, against their savings record for the previous 3 years.

    This continued up until about 1982 when it was abolished, but then reinstated by the new Hawke government from 1 August 1982 (in a limited form with a grant of $2500 – I think, but no savings requirement), and in a more extended form from 1 October 1982 for a total of $7000 paid in a combination of a lump sum and monthly payments over 5 years.

    Stamp duty was “eliminated” for properties purchased by first home buyers under $100,000 by the Cain government in the same year. Other states followed suit.

    It continued in a moribund state up until the mid 90’s (Hawke was keen on it, Keating not) and was abolished again during the Keating government.

    Howard, “creative political genius” that he was (not), decided to emulate Hawke and reinstate it.

    He later blew the walls out in the 2000’s by doubling it for new construction and promising to abolish it later thereby imitating Thatcher’s entirely-unlamented Chancellor Lawson who doubled mortgage tax relief in 1988 while at the same time promising to abolish it entirely 6 months later.

    That single action led to a disastrous collapse in the UK property market circa 1990. Those of us living there at the time remember it well.

    The first home owners scheme – in all its forms – has at best been a short term stimulus, but mostly a rort.

  33. JM says:

    Ray: most first home buyer grants are used to build new homes

    Do you have a reference for that? You’ve said it a couple of times, but my understanding is the the grant is available for both established homes and new construction. New construction forms only a small part of the market; and from my past knowledge of this scheme I’d put grants against new construction as only constituting about 15% of the total.

  34. JM says:

    Ray: Bank loans are calculated solely on the property value and the ability to repay. The size of the deposit does not infllate the purchase price. How could it?

    Banks today look at 3 elements in a loan (the “3 C’s”):- credit, capacity, collateral.

    For a housing loan this boils down to:-

    * credit – are you a reliable repayer?
    * capacity – do you have the income to support the loan?
    * collateral – how big is your deposit?

    Jeremy is right. Your collateral (ie. your deposit) is leveraged to form the maximum loan amount. You can have the heaviest income you like but unless you have a deposit they ain’t lending to you, so the size of your deposit is (one of) the thing that set your upper loan amount.

    I know it’s not a common way of looking at it, but he is right. The more usual way of analysing this is to observe that all the grant does is touch down briefly in the first home buyers account before ending up in the sellers pocket.

    The price of housing is inflated by (at least) the amount of the grant. Jeremy is simply observing that in actuality – because the deposit is leveraged – the price of housing is inflated by more than the grant

  35. Leon Bertrand says:

    Note that Ray has not nominated a single economic downturn caused by no negative gearing.

  36. Ray Dixon says:

    * collateral – how big is your deposit?

    JM, collateral is NOT the deposit. The collateral is the security of the loan i.e. the value of the property that the bank is lending against. The value of the property is usually the selling price, which is in no way determined by the size of the deposit. Typically banks will lend up to 95% of the value of the property (more in some cases). The grant merely helps the buyer bridge the deposit gap. It is a quantum leap in logic to suggest that because a buyer’s deposit is partly made up of a $7,000 grant this somehow increases the value or selling price of the property.

    Put yourself in the seller’s shoes. You get an offer of $500,000 for your property. Do you ask “does the buyer have a first home buyer’s grant?” No,

  37. Ray Dixon says:

    Leon, I already cited the mid 80s removal of negative gearing which caused a rental crisis and was reinstated within 12 months because investors pulled out of the market. Maybe you’re not old enough to remember it but it did happen.

  38. Billy Bedlam AKA Iain Lygo says:

    It’s an established fact spoken of by many economists that the FHB grant contributed to price rises in housing. The housing market is driven by competition and if one or more buyers has an extra $14,000 in their pocket, this will obviously put upward pressure on competing buyers, and maybe make vendors a little more greedy.

    Worth noting that with the GFC banks today are not lending so freely and that even with a 5% deposit and $7,000 FHB grant many are struggling to get their finance approved.

  39. Ray Dixon says:

    It’s not an “established fact”, Billy, it’s only an opinion expressed by *some* people.

    if one or more buyers has an extra $14,000 in their pocket, this will obviously put upward pressure on competing buyers

    Huh? It’s not obvious at all. They still can only bid to a certain limit – i.e. the amount they can borrow.

    And I’m not sure how any ‘greedy vendor’ would be aware (or care) if the buyer has a grant in his pocket.

  40. Len says:

    Before I comment JM, what is your source for :

    The First Home Buyers Scheme was first introduced in 1963 by the Menzies government in the lead up to the election

    Even after an hour of searching in between work, I can’t find anything even resembling a housing policy for Menzies at that time ?
    Man, you talk about my credibility ?

  41. Ray Dixon says:

    We could go on forever about this. I think I’ll just round-off my comments by saying this:

    The proposition (put by Jeremy and supported by Leon, JM et al) is that if we remove:

    The first home buyers grant
    Negative Gearing deductions
    The discounted Capital Gains Tax

    This will return the market to normal levels. Or that is more or less the argument being put forward.

    I would suggest that such drastic actions would have the combined effect of collapsing the market leading to a severe economic downturn. Don’t forget that the wealth created by property is redistributed throughout the economy and reflected in many other sectors such as travel, consumer goods and retail spending.

    And that is my opinion. I don’t think anyone really knows the full dynamics of the property boom, not even the Reserve Bank, although they will most likely end it by putting interest rates up, hurting everyone. I honestly believe the best solution is to encourage (and I mean really encourage) relocation away from the rapidly growing capitals.

  42. Billy Bedlam AKA Iain Lygo says:

    It’s not an “established fact”, Billy, it’s only an opinion expressed by *some* people.

    Just like your own posts, Ray.

    Huh? It’s not obvious at all. They still can only bid to a certain limit – i.e. the amount they can borrow.

    Yeah, plus the $7,000 or $14,000 they’ve been handed by the government. Which increases their bidding power by $7,000 or $14,000. It’s pretty simple really.

    And I’m not sure how any ‘greedy vendor’ would be aware (or care) if the buyer has a grant in his pocket.

    Easy – the real estate agent tells them. Agents know the market, knows the buying cohort and deals with prospective buyers. They know who’s a first-home buyer and who’s not. Again, pretty simple.

  43. Len says:

    The premise you put forward sounds ok in principle Ray, BUT what about those who may never be able to afford to purchase their own home, or are saving and need a home to live in the interim ? What about rental properties ?

    As you say, I doubt whether this action would return us to normal levels. What the hell is ‘normal’ anyway ? This action would bring the housing industry to a crashing halt, and with it the millions of jobs, both directly, and indirectly involved with that industry.

    I still think incentives should still be available, but only to Australian residents. Property ownership, should be limited again, to only Australian residents. Your idea of decentralisation is a great one, but the carrot incentives have to be there, before industry/business make the shift. Obviously, what is there now is no where near sufficient ?

  44. Ray Dixon says:

    Oh Billy, I really wanted to bow out of this but your misguided response demands correction:

    1. Yes, I have clearly stated that my comments here are my opinion. They are an opinion based on knowledge and decades of experience. But unlike YOU I did not use the words “established fact”.

    2. A first home buyer’s “bidding power” is limited by the size of the loan they qualify for. And that is dependent on their income & ability to repay. It is NOT determined (or increased) by the grant.

    3. Conspiracy theory? “Psst”, says the agent to the vendor. “This guy’s got a grant, put your price up”. Give me abreak, it doesn’t work that way.

  45. Billy Bedlam says:

    Ray, I said it was an “established fact” that many economists argue that FHB grants push up the price of housing. That is not in dispute. These people are experts and you are a self-proclaimed expert. I’ll take their view over yours if it’s all the same to you.

    Despite your “decades of experience” you can’t seem to understand basic math – that if someone gives someone else $14,000 then they have $14,000 more to spend, regardless of whatever amount they can or do borrow. The banks lend on the basis of income and ability to repay. The grants increase buying power which increases competition which has an upward effect on prices. If you deny that then you’re living in Noddy land.

    And you obviously haven’t bought or sold too many houses in the last few years, because agents will spruik to vendors to secure a contract and increase their commission. It’s no conspiracy theory, except perhaps in your mind.

  46. Ray Dixon says:

    I said it was an “established fact” that many economists argue that FHB grants push up the price of housing

    No, Billy, what you said was this:

    “It’s an established fact spoken of by many economists that the FHB grant contributed to price rises in housing”.

    In other words you said that it was an “established fact” that the the grant increases prices.

    As for your “theory” of the grant pushing up prices, I’ll try to explain it so it doesn’t go over your head:

    1. The grant goes to the deposit gap.

    2. Without the grant most first home buyers would not be able to buy anything.

    3. It would only increase their buying power if they already had a very large deposit, sufficient to cover both the deposit AND the extra costs of buying.

    4. How many first home buyers do you think are in that position?

    As for your last paragraph, I worked in real estate for many years and never – never! – have I seen or heard an agent “spruik” to his vendor to increase his price so the agent can get a higher commission. It’s usually the other way around with agents “spruiking” to their vendors to bring down their ridiculous price and meet the market. An extra $10,000 or $20,000 on the sale price means bugger all to the agent. What’s important to them is making the sale.

    That is all from me on this topic, thanks.

  47. Len says:

    Your arguing semantics guys.

    Do you honestly think, that a first home owners grant of $14000, has an effect on a market, where the mean price averages up to, and over $485,000 ? Talking about the proverbial drop in the bucket ?

    A short, but interesting read on the subject, is at http://www.smh.com.au/business/property/australia-faces-housing-affordability-time-bomb-developer-20100317-qdii.html and is where the above figure is quoted from.

  48. Ray Dixon says:

    No semantics from me, Len. I am clearly saying I don’t believe the grant is a major factor in pushing up prices.

  49. Len says:

    In that regard then Ray, I agree, you are spot on !

  50. Iain Hall says:

    I agree as well Ray

  51. Ray Dixon says:

    I suppose you can understand the frustration of those trying to get back into the market. They see first home buyers getting grants and feel they are being somehow disadvantaged by this. But the first home buyers are very real victims of the rising prices and to take away the grant now would only compound their plight.

  52. Iain Hall says:

    Of course another factor that Jeremy et al ignore is the fact that people expect so much more now than they did even ten years ago . For instance it used to be considered a luxury for there to be a sealed road in new housing developments and just one bathroom and a flush toilet was the norm, Now every new dwelling is expected to have multiple bathrooms garages with electric doors, wooden floor boards were fine once The list is endless so Just comparing house prices now and house prices twenty years ago starts to become an invalid comparison just on the specification alone.
    The usual thing for real estate sales outside Melbourne is that properties are not sold at auction anyway and it is more a case just negotiating with the seller through their agent. In this scenario it matters more who can negotiate an agreement and who can raise the agreed price. Jeremy seems to argue as if every sale will be by auction.
    I would argue that auctions are only viable as normal practice when there is consistently more buyers than sellers It is certainly not the situation up here in Queensland as i have discovered while currently trying to help a friend find a new house.
    Just as an aside we looked at a very nice house three big bedrooms and two bathrooms a lovely veranda on a quiet street close to amenities (like the train) and it was only 369k asking price and the seller would have accepted 360 cash.

  53. Billy Bedlam AKA Iain Lygo says:

    So the FHB grant doesn’t push up prices eh?

    http://www.perthnow.com.au/news/western-australia/first-home-buyers-grant-pushes-median-land-price-to-250000/story-e6frg13u-1225795126883

    http://www.news.com.au/money/property/first-home-buyers-boost-hiked-prices-aussie-john-symond-says/story-e6frfmd0-1225835062911

    http://blogs.crikey.com.au/thestump/2008/10/15/boosting-first-home-owners-grant-a-bad-idea/

    So there you’ve got a real-estate association president, a mortgage company owner and a former senator all saying that the FHB grant has boosted prices. I think their opinions carry a bit more weight than those of you three.

  54. Iain Hall says:

    Firstly Billy
    more than two links and your comment goes into moderation automatically so please try to keep links per post to just two OK? (its because the Askimet filter thinks that you are a spammer if it finds lots of links)
    I checked out your links the first two are from the real estate sections of their respective publications and anyone with common sense would dismiss then as entirely self serving. Andrew Bartlett is running the same line as Jeremy but he is hardly a dispassionate judge of the situation either.
    Sorry but your evidence is not that strong.
    Thanks for trying though 🙂

  55. Ray Dixon says:

    I absolutely agree, Iain. There were much stronger forces at work than the grant – namely low interest rates.

  56. Iain Hall says:

    Yes Ray Interest rates are the biggest factor along with relaxation of the banks lending criteria that allowed many people who would other wise be ineligible for a loan to borrow which allowed more competition when it come to buying a house.

  57. Billy Bedlam AKA Iain Lygo says:

    Iain, both the first two articles quote independent sources – namely the REIWA president and ‘Aussie’ John Symonds. They are both strong sources with current expertise in the industry. You, Ray and Len are not.

  58. Len says:

    Again, I reiterate, you honestly think $14k is making all that much difference ?

    You think people are walking into r/e agents offices, with a big sticker on their heads, stating, “pick me pick me, I’m a first home buyer ?”

    Also, advertisements that bring ALL buyers to view/purchase a property, have a price attached. At least a starting price, to allow the haggling process to begin. You think the seller, embeds in this price, an automatic $14k extra buffer, to allow for the first home buyer ?
    Bullsh*t !

    Prices are set by demand, and what the market dictates. Local area values, as well interest rate pressures, etc all dictate what the price will be. First home buyers, are not the only people in the market place looking for homes.

    As Iain said, your links are weak, and without substantiation. WA’s home prices have been volatile, ever since the latest mining boom began. Once the world hunger for our mineral resources slows, watch what happens to that market. It will fall like a bloody big rock, and you know what ? FHB scheme will have had nothing to do with it.

  59. JM says:

    Ray (and everybody else who doesn’t understand this)

    The deposit is leveraged to create the maximum borrowing amount. If as you say a bank will only lend to 95% that means you need a 5% deposit, so $5000 lets you buy up to $100,000.

    But $12,000 (including the $7,000 grant) will let you go up to $240,0000 (provided you have the other two legs of the stool)

    And if you have any doubts about this I suggest you look at house prices between July 1983 and December 1983 when there was a transition from the old scheme to the Hawke scheme (which almost tripled the grant) and particularly at the first two weeks of October when the Hawke scheme came into effect.

    House prices exploded that month.

    This thing really does have an effect on house prices, I don’t think anyone who has looked at things closely doubts that.

    Len, from the Liberal Party website:

    The Menzies Government achieved much during its 16 years …. Some of the significant achievements that highlighted the Menzies era include:


    * the establishment of the Department of Housing, the Home Savings Grants Scheme and Housing Loans Insurance Corporation as a means of helping more Australians own their own home

    ….

    And from the Sydney Morning Herald, June 8 1965 an ad in the top left hand corner (being a regular feature of newspapers at the time):

    “Home Savings Grant Scheme

    You may be eligible for a grant of 250 [pounds] ….

    Sorry, Len, wrong again.

    BTW – I did screw up a little bit earlier. The scheme was also rewritten in 1976 by the Fraser Government. Gough did very little with it other than increasing the amount at some point.

    He certainly didn’t start it.

  60. Iain Hall says:

    Billy
    I acknowledge what you are saying about your sources, independent they may be but each has an agenda the first to keep a real-estate market buoyant and confident and the second to keep people borrowing money. You can not take what they say as if it is some sort of holy writ.
    Anyone who knows me realizes that I have a very healthy cynicism about people with vested interests offering opinions. Find some sources that do not have an axe to grind and they will have more credibility.

  61. Billy Bedlam AKA Iain Lygo says:

    Iain, for a bloke who quotes newspapers ad nauseam on his blog and then expects us to accept what they claim as fact, you have developed a pretty strong cynicism about the three links I have posted. Probably because they are contrary to your own views.

    JM has already explained it better than I could anyway. My view is that FHB grants increase housing prices and you have done nothing to change that view.

  62. Iain Hall says:

    JM
    I have been deeply involved with the process of helping a friend try to buy a house (not financially but as Moral support when looking ect) and as Len says when you are talking about purchases of 400k or more 14 k makes bugger all difference especially when only a tiny proportion of those seeking to buy even qualify for that grant. All the agents want to know is if you can pay what is asked. My friend is a cash buyer and boy does that get them salivating!

    This graph
    was cited in a new Matilda piece about housing afford-ability and the way that I read it suggests that there has actually been an increase of owner occupiers and a steady level of renters. which contradicts Jeremy’s unsupported contention that the opposite is the case.

  63. Iain Hall says:

    Billy
    When was the last time that you had anything to do with buying a house?
    How many people have claimed the FHG in recent times?
    How many houses have changed ownership in the last decade?

  64. Len says:

    The $500 savings scheme.
    Ok, pay you that. BUT ? again, using the same analogy, what difference to you honestly think that money made in the market ? You say prices of homes went up, ok, without googling well into the night, even if I grant you that fact, what about the people who didn’t qualify for that savings grant. If I remember correctly, that scheme, entailed that you open a passbook account, specifically designed for the grant, then show a savings history over a period of many months, if not years. All for five hundred bux ?

    Any thoughts that $500 would increase house prices is just irrational. Again, I state, FHBs were not the only people in the market at that time. Prices for homes, are always negotiable. You can wipe off 14k of the price, just by haggling. Again, when an agent advertises a place, you think that FHB are all their intended market ? Hardly so, c’mon man.

    I do grant you the fact though, that after a scheme such as this is introduced, prices may temporarily rise, to account for the extra demand created by such a scheme. Simple demand/supply theory. But, after the scheme has time to settle down, then prices generally move back to their market directed place. FHB scheme has been around for many years under numerous reincarnations. You think that the reason why our home land package prices have been artificially inflated all this time ? Hardly think so. There are too many outside forces in play. As others have said here, interest rate levels will dictate prices more than a miserly $14k grant level. Look what happens, and has happened to the market in the last few months alone. That is why the RBA does it ? To reduce demand. It doesn’t work though. A couple of months, maybe even less, people will continue buying properties at existing, and perhaps rising interest rate levels, purely to get into the market, whether or not they are intitled to the FHB grant.

  65. Ray Dixon says:

    JM, your come-back is crap. Banks do not look at your deposit to determine how much they will lend you. They look at your income & expenses. Period. Oh, and the “collateral” offered, which is the value of the house, not the deposit, as you have also incorrectly claimed.

  66. JM says:

    Len: “All for five hundred bux ?
    Any thoughts that $500 would increase house prices is just irrational.”

    Len it was 1963 for heavens sake. My parents bought a house in 1964 for 4000 pounds and got this grant of 250 pounds. (And yes, you had to have steady savings over 3 years, of which only 85 pounds per year could be counted)

    But 250 pounds (aka “500 bux” as you dismissively put it) was 6% of the house and a large part of their deposit.

    Ray: ” Banks do not look at your deposit to determine how much they will lend you. They look at your income & expenses. Period. “

    You obviously haven’t been to see a bank lately. They’ve gone back to the 3 ‘C’s with a vengeance. They have always looked at the size of your deposit (and you concede this point when you quote the pretty-much-standard 95% rate).

    And the deposit does form part of the collateral, without it the value of the house is only the price you are willing to pay, and banks don’t lend like that.

    As for your contention that real estate agents don’t ask if the buyer is eligible for the grant – bollocks. When I was looking for my first house they always asked. It was, and is, a sales tool for them that lets them stretch the buyer that little bit further. (So much so that the industry has made several attempts over the years to take on the administration and assessment of applications – ie. outsourcing – so they can push them through on the nod).

  67. JM says:

    Iain: “This graph was cited in a new Matilda piece about housing afford-ability and the way that I read it suggests that there has actually been an increase of owner occupiers and a steady level of renters.”

    You’re innumerate.

    The graph is in percentage terms (ie. out of 100), it is mathematically impossible for owner occupiers to increase while renters are steady.

    Go and have another look. What it actually shows is that:

    a.) between 2002 and 2008 the number of renters (and therefore the number of owner occupiers) has not changed

    b.) the number of indebted owner-occupiers has risen while the number owning their homes outright has fallen (ie. total number of owner-occupiers indebted or not hasn’t changed)

    ie. the much hallowed Howard First Home Buyers Scheme hasn’t affected home ownership rates one jot, all it’s done is increase debt levels. What do you think caused that? Rising prices perhaps?

    And I quote from the New Matilda article:

    We don’t have a housing shortage in Australia — we’re having an affordability crisis

    and

    “over the really long term, house prices are way out of whack with historical averages. According to the ABS, for example, capital city house prices have more than tripled since 1986.”

    and

    “Australia has one of the most skewed property taxation regimes in the industrialised world, rewarding investors and owner-occupiers at the expense of renters and those looking to buy a house”

    etc

    The whole article is a very loud retort to your post here.

  68. JM says:

    Len: after the scheme has time to settle down, then prices generally move back to their market directed place.

    This is a fallacy. The market price is determined by all factors in the market. You are claiming here that financial incentives like the FHB grant, negative gearing and capital gains concessions are not market factors

    All of those tend to raise the market price of homes, there is no magical “real price” that is set independent of them.

    You are talking nonsense.

  69. Ray Dixon says:

    Well yes, JM, the bank will want to see proof that you HAVE a deposit, but it by no means affects the size of the loan they will give you. That depends entirely on your ability to repay.

    As for saying, ” the deposit does form part of the collateral, without it the value of the house is only the price you are willing to pay”, that doesn’t make any sense. The value of the house IS the price paid regardless of how much deposit you have. If I have 50% deposit the collateral is still the value of the house, ie the price I paid, not the deposit I have. And the size of the loan is still determined by my ability to repay. You are going in circles and getting mighty confused.

    And so what if the agent asked you if you if you had a grant? They probably just wanted to make sure you were a genuine buyer. Agents don’t like to waste their time with ‘tyre kickers’.

  70. JM says:

    And lastly, Len this is one of the most ignorant statements you’ve ever made:

    I can’t find anything even resembling a housing policy for Menzies at that time ?

    WTF? Menzies entire political program was virtually defined by housing policy. Have you no knowledge of Australian politics at all?

    After he failed to ban the Communist Party (and therefore by proxy the union movement), he turned to stealth.

    He planned to undermine the unions by greatly increasing home ownership rates on the theory that a mortgaged workforce is a docile workforce and less likely to strike, and also much more conservative and therefore likely to vote Liberal.

    And he was very successful, Australia ended up for many years with one of the highest home ownership rates in the world.

    Treating home ownership like the holy grail is virtually the definition of the LIberal Party platform even to this day.

    Of course Menzies had a housing policy, he had more than a housing policy – he made the quarter acre block the sacred cow of Australian political life.

  71. JM says:

    Ray, I can assure you that the deposit is collateral, why else do the banks not lend beyond 95%.

    And the size of the loan is still determined by my ability to repay

    No, it’s only one of the factors. The deposit is definitely one of them, you can’t get a loan from a bank on 100% of valuation, and the fringe lenders will only do it on punitive rates to offset the risk.

    And so what if the agent asked you if you if you had a grant? They probably just wanted to make sure you were a genuine buyer.

    Now you’re being ignorant. You only get the grant after you sign the contract, not before. They’re not weeding out tire kickers, they’re using it as a sales tool – “yeah but you’ll get the grant so you can afford to pay a bit more”

  72. JM says:

    And Ray, you’re tire kicker argument is garbage anyway. I always had to say “no” as it was income tested at the time and I earned too much and didn’t qualify.

    It didn’t stop them from selling to me, they didn’t treat me as “not serious”, they just didn’t bother trying to use that argument to stretch me. Instead they used the “surely you can put a few thousand on your credit card” argument instead.

    You know what they’re like, they’re shameless, they’ll use any lever to get the last dollar out of you.

  73. Len says:

    The market price is determined by all factors in the market

    Finally !
    There it is folks.
    The eureka moment ? Finally, an admission that the FHBG is/was not the only factor in the market place. Woohoo ! Now perhaps we can move on ?

    Again, the 500 bux was not a grant per sae, but a carrot, given to people who saved over a designated period of time. It was part of the loan qualifying process. The savings incentive. To say different is b/s. Again I reiterate, over a period of time.

    I never said they weren’t market factors, what I did say, was that whether or not FHBS applied, was not the deciding factor, at least what you seem to believe. They are important, extra monies, for those who qualify, to buy their own first home. But again, they are dependent on couples income. Too much, and you miss out. As in my case all those years ago. I have purchased many homes over my lifetime, and not once, have I been asked if I qualified for the scheme. Not bloody once ! The price never altered. The young couple that purchased one of my first homes was also never asked if they had access to the scheme, and that was at the time, when it was at its peak ?

    Also, before you criticise Ray here, better check again sunshine, cos he’s correct. The three c’s huh ? If they are Compliance, Communication, Common Sense then I have news for you. They aren’t in the five prerequisites for a valid contract. They are Agreement, Capacity, Consideration, Legality, Genuine Assent, and perhaps a sixth being in proper form, whether written, oral or anal who cares.

    These days, I would say that Capacity is one of the most important ones. Ray was mentioning income/expenses, how do banks work out capacity JM ? The ability to repay a loan ? Would expenses against income, to provide a figure of disposal income be what they are looking for ? Don’t worry Ray, your bloody spot on !

    FHB grant, negative gearing and capital gains concessions are not market factors

    You’re contradicting yourself again. One minute you say they are, and then they aren’t. The are a small, but important part, of deciding whether or not a person has the capacity to service a mortgage. The last two only come into play if you don’t live in the home concerned. i.e. a rental, holiday house etc. In that case, you wouldn’t qualify for FHB anyway. Under FHB scheme, part of the qualification is that you live in the home concerned.

    The reasons why banks don’t lend higher than 95%, is to take into account downward market movements. Only that high level was attained, after years of continual competition from building societies that allowed up to 95%.

    Finally,

    Menzies entire political program was virtually defined by housing policy

    You know the drill, source please, or it didn’t happen ?

  74. Ray Dixon says:

    JM, you’re making my head spin. It sounds like you’re pissed off because you didn’t get a first home buyers grant and now you resent others getting one. I don’t know why you missed out. You say you “earned too much” but the grant is not means tested to income. It doesn’t matter how much you earn, if it’s your first home you get one.

  75. JM says:

    No Len, the 3 C’s are not Compliance, Communication, Common Sense, they are Credit, Capacity, Collateral (Ray seems to think only Capacity matters, he’s wrong). I explained this already.

    And these are lending criteria, not contractual criteria. Completely different.

    You’re contradicting yourself again.

    No I’m not, you’re misquoting me. I’m accusing you of pretending that FHB, negative gearing and capital gains are not market factors. Which is exactly what you’ve done, so I don’t think it’s an unfair accusation.

    The reasons why banks don’t lend higher than 95%, is to take into account downward market movements.

    Have I said otherwise?

    You know the drill, source please, or it didn’t happen ?

    Now you’re being ridiculous. Are you seriously saying that Menzies didn’t have a housing policy when the LIberal Party website claim his housing policies as one of his major achievements?

  76. JM says:

    I say all factors, Len says

    Finally, an admission that the FHBG is/was not the only factor in the market place.

    No contradiction at all Len. You really do have a problem with logic don’t you?

    And previously you did argue that FHB, negative gearing and capital gains had no effect, or only a temporary effect that disappears over time.

    Which is nonsense.

  77. JM says:

    Ray: but the grant is not means tested to income. It doesn’t matter how much you earn,

    As I said in my comment, it was means tested at the time. OK?

    And I’m not resentful at all. At the time, it was specifically targeted to low income earners and had much less of an inflationary effect on house prices as a result.

    I refer you to one of the Productivity Commissions key findings which I quoted upthread:

    The First Home Owner Scheme, though conceived to compensate for the GST, would have more impact on home ownership if better targeted at lower income households.

    The Hawke version (which I was subject to) was means tested and better targeted, the Howard scheme is an untrammeled, out of control train wreck that simply puts a higher floor in the market.

  78. Len says:

    My logic skills are not the problem here JM. Trying to figure out yours, however is ?

    The source for your premise about the Menzies government’s FHBS ? I looked at Menzies website, as well as did a google historically, and couldn’t find anything apart from the 250 quid scheme. That was, as discussed, a savings incentive. I know, at the time, my parents opened me a passbook home savers account with the CBA. What a crock that was.

    Yes I did argue about the three schemes not having an effect on FHBs. They don’t. You think that a purchase, at the mean price of over 300k, is going to hinge on a FHBG of $7+k ? If you can afford a $300k home, there is no way that you would qualify for the grant. Qualification for the finance, would block you out of the grant straight off.

    Also, negative gearing, and capital gains have nothing to do with FHBG. You have to live in the home that you are purchasing through the scheme, or else you cannot get the grant. The only exception, is if you are serving in the military, as they get moved around so much. So, in the case of negative gearing, or capital gains, the FHBG doesn’t apply in those cases, so there goes that argument out the window ?

    Nonsense huh ? Those matters simply do not apply to the First Home Owner’s market place. Trying to compare apples to oranges again ? Again, to apply and be granted FHBG, part of that agreement, is that you have to live in the house concerned. The only exception is if you are serving military as mentioned. So, your negative gearing, or capital gains tax becomes irrelevant.

  79. JM says:

    Len, do you understand what the word ‘policy’ actually means?

    It means what the government encourages and discourages. The encouragement or discouragement doesn’t have to go to the same individuals in the community at all. So some people get one benefit, while others get another, it all has an effect.

    The key question is what the overall effect is, and in the case of housing policy it has been to inflate house prices – and therefore benefit those already owning them over those who don’t.

    Over time, this will lead to (and has) inequality between the two groups. A distortion in the market. I don’t think that’s too hard a concept to grasp.

  80. JM says:

    Len: I looked at Menzies website, as well as did a google historically, and couldn’t find anything apart from the 250 quid scheme.

    Really Len, http://www.menzies.com.au is a Sydney hotel. Oh you mean the the Menzies Foundation, or perhaps the unofficial haigograhphy of the Liberal Party*. No?

    Perhaps then Menzies House, the “leading Australian blog for conservative, centre-right and libertarian thinkers and activists.”. That’s a think tank Len, cloaking themselves in the record of a major politician while completely ignoring his actual record and the substance of his thought. They’ve got no interest in it, they just want the brand name.

    Menzies had a housing policy. The current Liberal Party which near deifies the guy (as evidenced this page which I referred to earlier No-one of any sense disputes that.

    (WTF am I doing, here I am defending Menzies actual record against some fantasist who wants to rewrite the whole thing to suit himself – I hated the bastard, but here comes Len just making stuff up, while here I am defending his actual and real achievements.)

    * I do love the final sentence on that page though: “On 15 May 1978, the founder of the Liberals was finally gone. Seems fitting somehow.

  81. JM says:

    Ray, you think that real estate agents don’t use the grant as a selling tool? Try this site Plug in your phone number or email address and they’ll contact you and start the sales pitch.

    And Len you’re really off with the pixies here:


    If you can afford a $300k home, there is no way that you would qualify for the grant. Qualification for the finance, would block you out of the grant straight off

    Here is the WA government’s info pack (the States administer this thing now)

    Does my income affect the grant?

    No, the grant is not income tested.

    Try to learn what you’re talking about first.

  82. Len says:

    Websters defines policy as “a course of action”.
    Your point ?

    It means that a government has an outcome in mind, and develops a plan to achieve that. If this is related to the topic, then the FHBS was a policy to assist FHB purchase their own homes.

    If I read your premise correctly, you are saying that the FHBS was in fact the reason as to why house and land prices went inflationary at a ballistic rate ? If that is correct, I have two words you, b/s ! There is no proof out there, or even in my memory of the time, to substantiate such a theory.

    One major factor, brought around by a million other economic factors at the time, was that house and land prices, went through the roof, making the grant miniscule, and pretty well useless in the grand scheme of being able to afford that first home.

    The massive increases in house and land prices, in our cities was due to many things. One argument is the amount of buyers in the market place. Don’t you find it strange, that as house land prices began to inflate wildly many things were occurring. The oil crisis in the seventies, and eighties. The share market crashes, changed how people invested. Bricks and mortar, as well as land became popular again, as gold edge investment strategies. The fact that baby boomers were turning roughly 30, and were active in that house buying market ? No one has mentioned that anywhere. What happens to prices, when you have competing buyers, in a market place, with limited supply ? Basic economics ?

    The government has one instrument that helps regulate the housing market, and we all know what that is. Interest rates. But, in doing that, they know that they are effectively blocking out probably the most important buyers from a market place, that is, absolutely dependent on those buyers, just for its very survival.

    When the RBA ensured interest rates went as high as 17+% interest rates, certainly, it curtailed the housing industry to such an extent. It achieved its aim alright. It nearly sent the country into a bloody depression. What it did show however, was that the Australian consumer, is indeed a hearty species. People still went out and bought houses, as well as go into unbelievable debt ratios, just to get into the game. It didn’t slow demand for housing funds all that much did it ? Nor did it drop house prices much either did it ? The housing industry survived, as well as those subsidiary industries reliant on that parent industry.

    The FHB is a most valuable part of the r/e market, as well s the loan market, but not the be all and end all. People are now a lot more mobile in their lives. No longer, do people sit in the same job for 50 years, or in fact the same house, as our parents, or grandparents did. We move around. Our careers are mobile, and no longer do we have one job to last us our lifetimes. This means that we have an unbelievably fluid real estate market, as well as a much more fluid loan system to back that up.

  83. Len says:

    So you reckon that a paltry $7000 grant, is going to affect the market, where prices are up to half a mill ?
    Who is away with the pixies ?
    Give me a break

  84. JM says:

    Len, look at late 1983 where the grant went from $2500 to $7000. Compare to house prices in the same period – particularly focus on the difference between September and October/November prices (the Hawke scheme came in on 1 October).

    Get back to me once you’ve done that.

  85. JM says:

    Ok, while you’re doing that you’ll probably have to factor in a lag.

    Auction prices are ok generally, but not good if you’re talking about first home buyers who tend to buy “by private treaty” as they don’t have the capacity to bid at public auction (they lack the capital of an existing investment behind them so their risk at auction is much higher than that of an investor or someone buying their second home).

    What you need to look at is the transfer prices posted at the Titles Office on settlement about 2-3 months later.

    I think you’ll find the jump between September and October is quite sharp, and actually exceeds the increase in the grant. I remember it well, I was there at the time. Jeremy’s point is well founded.

  86. Len says:

    That was the time when I applied for my FHBG, and guess what, it was income dependent

    I remember, cos I was p/off, as I was earning too much at the time. All I got was the stamp duty concession. Whoopey do ! That was 1986.

    That period of time, what was the interest rate ? Remember ?
    12% in 1983 increasing to a wild 17+% only starting to fall in 1990+
    http://www.loansense.com.au/historical-rates.html

    Why then, looking at the above, do you think the grant went up so substantially ? Not hard to explain is it ? You have problems getting around the fact, that there are many factors that influence prices in a market place. Even up to $21k, the maximum amount as far as I know, it would have little effect on properties at their respective historical price peaks. Even in those years, where the scheme was shelved, house prices still went up.

  87. JM says:

    Len, please excuse me, but can you read? I referred you to a particular period in 1983, not 1986 and not 1990.

    The reason I did that was because the grant more than doubled during a very short period. That period is a litmus test of the proposition (which I support) that it has a strong positive influence on house prices.

    It didn’t change at all during 1986 or 1990 so those years are irrelevant to the argument.

    And I really don’t know what the hell you mean by this:

    Even up to $21k, the maximum amount as far as I know,

    The maximum amount of what? What one earth are you referring to?

    Further:

    Even in those years, where the scheme was shelved,

    Which years are you talking about?

  88. Ray Dixon says:

    JM misses the whole point. He (and Jeremy etc) argue that it was the increasing of the grant that gave first home buyers more “buying power”, which in turn was a major factor in pushing up prices. Rubbish. What has caused prices to go up is lower interest rates. The record low interest rates of 2009 gave the first home buyers (and everyone else) far more “buying power” in that they suddenly qualified for much bigger loans. This brought about the biggest spike in demand we have ever seen and was by far the major factor in pushing prices through the roof.

    To suggest that doubling the grant on established homes from $7,000 to $14,000 was a major factor is absurd. And to remove the grant now (which is back to $7,000 anyway, the same level it was ages ago) will be of any benefit to anyone is equally absurd. That would just make it even harder for first home buyers to qualify for a loan.

    The market will cool off once the Reserve Bank lifts rates closer to 10% but then again, that will greatly reduce the “buying power” of borrowers, so it won’t solve anything.

    The problem is we are only looking at this in terms of the major capital cities and, given their growth of people and their limited supply of new housing I honestly don’t think you can fix the problem without introducing a major relocation program.

    City dwellers with no real understanding of life in the regional and country areas will scoff at the idea of relocation but unless it’s done we are indeed looking at a generation of renters.

  89. Jeremy says:

    “JM misses the whole point. He (and Jeremy etc) argue that it was the increasing of the grant that gave first home buyers more “buying power”, which in turn was a major factor in pushing up prices. Rubbish. What has caused prices to go up is lower interest rates. “

    Actually, I argued that the biggest push to house prices was the influx of investors following the halving of CGT. The FHOG just makes the situation worse for young buyers.

    Ray, please answer me: do you understand that a person with the grant is able to borrow MORE because of it? And consequently they have the value of the grant in their pocket plus the extra borrowing added to what they could originally borrow, and so do all the other first home buyers. Consequently, prices increase by more than the value of the grant. The FHOG does not benefit first home buyers.

    Also, we’re not saying raise CGT, abolish negative gearing etc instantaneously to cause a sudden economic collapse – we’re saying phase it in over five to ten years.

  90. Ray Dixon says:

    Hi Jeremy. I think the key issue is that a person with the grant is able to borrow, full stop. Whereas without one they may not qualify at all. That’s the whole point of it, to help people buy their first home and, in that sense, it certainly does benefit them. I don’t accept that having an extra $7,000 “in their pocket” is a major contributor to the price increases we’ve seen, especially over the past 12 months. It brings more people into the market for sure, but without it our building industry would be in major strife. I think the premise that it doesn’t benefit them is seriously flawed.

  91. Billy Bedlam AKA Iain Lygo says:

    When was the last time that you had anything to do with buying a house?

    Actually I have been involved in the sale/purchase of three houses in the last two years inc. our own family home, and my eldest son is currently looking to buy or build and is claiming the FHB grant. Not that it is relevant and I think it’s pretty piss poor for you to ask such a question.

    How many people have claimed the FHG in recent times?
    How many houses have changed ownership in the last decade?

    How long is a piece of string? I have already given sources that support my belief that FHB grants push up the price of homes, Im not going to go researching stats on your say-so.

    Also JM is right, I have never said that other factors like low interest rates and foreign buyers also push up the price of homes, of course there are a number of factors both “push” and “pull” factors.

  92. JM says:

    Ray: . I think the key issue is that a person with the grant is able to borrow, full stop. Whereas without one they may not qualify at all.

    You’re agreeing with me. The grant increases demand. Increased demand on (relatively) fixed supply increases prices.

    The grant increases prices.

    And the combination of negative gearing and low CGT makes housing a more attractive form of investment, bringing in more investors and increasing demand.

    Increased demand, increased prices.

    Simple economics, I don’t understand why you can’t see it.

  93. Billy Bedlam AKA Iain Lygo says:

    I don’t accept that having an extra $7,000 “in their pocket” is a major contributor to the price increases we’ve seen, especially over the past 12 months

    We’re not talking about the last 12 months but the FHB grant generally, which was kicked up to $14-21k by Howard and Costello.

    It brings more people into the market for sure

    So you acknowledge that it brings more people into the market, which increases competition, but you deny this has any impact on prices? Geezus Ray.

    Look, my argument (and probably JM’s) is not that the FHB grants is the largest or the only factor in rising property prices – only that it is a factor. Of course low interest rates are important, because people don’t borrow money when it’s expensive to do so. Of course low supply is an issue, especially given that State governments and local councils have been slack releasing and zoning land for urban developments and providing outer suburban areas with transport infrastructure. Of course the lending practices of banks and mortgage companies are important.

  94. Len says:

    It doesn’t bring more people into the market, all it does, is perhaps make those people more active, or slightly earlier in the piece, than they otherwise may have been. They can participate in the market perhaps a few months earlier, than otherwise would have been the case, had the FHBG not been available ?

    At $7k, the FHGB is hardly startling in the grand scheme of things is it ? Especially where the mean price of a house is perhaps $300k ? The market comprises of much more than the FHB. They are in reality, a small part of the whole scenario. Due to the fact, that generally, they are asset and cash poor, they are limited to certain areas in our cities to buy their first homes. I remember when I was in that situation, I was living in Melbourne, and those areas were Werribee, Hoppers Xing etc, where the houses were cheaper, and aimed at young families, just starting out. These estates were built, right at the time of the FHBG, and house land packages started at about $49k. Not great, but a good place to start, and less than half an hour on the train to the Melbourne CBD. During many years of the FHBG scheme, prices didn’t skyrocket in places such as these. They were pretty stable, and rose in relative unison along with the rest of Melbourne prices.

    Jeremy
    Your premise is difficult to ascertain. Again, FHB is not available to investors. The major prerequisite is that you have to live in the home, at least for 12 months. So your CGT and negative gearing concerns are moot.

    Secondly, you can’t abolish negative gearing. Where do the rental properties come from ? Australia is already in the grip of a massive shortage or rental properties, and has been for years. Schemes that benefit buyers of investment properties should be expanded, not curtailed. Sure that is a debatable issue, but if more rental properties were out there, perhaps, just perhaps, rents would come down to a more reasonable level, to allow for young couples to save for their first home.

  95. Ray Dixon says:

    “Geezus” to you too, Billy. I didn’t say it has no impact on prices. Of course it does, but it’s not significant, and in reality it’s more a stabiliser than a push factor. As Len points out the grant just helps to bring first home buyers into the market earlier.

    First home buyers are still people and they are still potential buyers with or without the grant. They need a home. The major impact of the grant is that it helps them qualify and/or reduces their loan repayments. This is hardly a key factor in rising prices and to take it away now, with prices so high, is just cruel and self-defeating.

  96. Billy Bedlam AKA Iain Lygo says:

    It has already been explained to you Len. $7k may not sound like much in the context of a $300k home but given that you need $15k for a 5% deposit then it brings new buyers into the market, which increases competition, demand and prices. Bear in mind too that the FHOG has been as high as $14k, even $21k if you are building. It has only dropped back down to $7k in the last couple of years.

  97. Len says:

    I quote from : http://www.docstoc.com/docs/28077923/HOME-OWNERS-VS-RENTERS-THE-MAGIC-OF-7-OWNING-A-HOME—THERES-MORE/

    In NSW, the number of first home buyers jumped by 50 per cent between February and March. And with Sydney-siders, with median house prices falling around four per cent over that period (and 12.3 per cent in 2008), and interest rates more than attractive than they’ve been in years, it’s no wonder housing has been at its most affordable level in 15 years.

    Interesting, since the FHBG was still available during and before that period ? Increased prices huh ?
    Next !

    Hmm, there goes that argument down the tube ?

  98. Iain Hall says:

    Close to the tipping point…

  99. Len says:

    And the silence is deafening.

    Congrats on the 100 Iain !
    😉

  100. Iain Hall says:

    Thanks for stepping up for the guernsey Len !
    It certainly has been interesting

  101. Billy Bedlam AKA Iain Lygo says:

    Hahahahaha!

    You blokes are unreal. You criticise me for citing ‘Aussie’ John Symonds, Andrew Bartlett and the head of the Real Estate Association, saying they are “weak sources”.

    Then Len comes up with (wait for it) a real-estate newsletter.

    Yeah, “tipping point”. Bullshitting point more like!

    Nice try Len.

  102. Billy Bedlam AKA Iain Lygo says:

    Incidentally, it’s not surprising that house prices have fallen in some areas since 2008:

    1. Interest rates have risen.
    2. There’s a global financial crisis and decreasing confidence.
    3. Banks have tightened their lending criteria so there are fewer buyers in the market.

    Len, you seem to like picking the timeframe to suit your own argument. Why not provide some figures about prices immediately after Howard and Costello bumped up the FHOG to $14k? Let’s see if they prove your point.

  103. Iain Hall says:

    Billy I was talking about the comment count hitting the”ton” not about the way the debate is going 😉

  104. Billy Bedlam AKA Iain Lygo says:

    OK Iain, OK. 😉

  105. Len says:

    If they had been around BB, you would have provided them yourself, in some twisted ego boost. They obviously aren’t, otherwise you would have ? 😉

    But, your claim however, that the FHBG has unnaturally interfered with, or inflated prices, is starting to look pretty shaky. Now you are trying to introduce other factors to prove an unprovable hypotheses ? Your causal relationship premise, simply is not a cogent argument. What you are saying didn’t happen. There were way too many other market factors involved.

    However, if you want to change that, by saying that the introduction, or increase of the FHGB got young people in trouble with their lenders by over reaching, then hey, I might even start to agree with you.
    Firstly,
    1. Interest rates have risen.

    Yep, can’t argue with. With an increase in demand for loan funds, simple d+s applies.

    2. There’s a global financial crisis and decreasing confidence.

    That is under conjecture. Perhaps in the rest of the world, that has way less regulation than us perhaps. Fanny May et al should ring a few bells here ? Australia continues to trundle along at a great pace, due to its diverse economy. Agriculture, Mining and massive mineral wealth, as well as its large manufacturing base fortunately for us, helps spread the load. Standard procedure in a credit crunch type situation, is that investors change their strategy, get out of ‘paper’ investments, change to classic brick and mortar type investments.

    3. Banks have tightened their lending criteria so there are fewer buyers in the market.

    The cause for this is also speculation at best. Again, due to the Fanny May, Mac episode in the US, sure our market got tighter. But with falling property prices, and with the policy of banks lending up to and over 85% of valuation value, anyone could see that a downturn in property values, would have been disastrous for them. Respective Liberal governments, in the preceding years, were desperate to get the building industry going.

    Then there was the political disaster, of people being put out of their homes due to that over commitment ?

    Then there is this :

    The Age – 1st May 2009 – NATALIE CRAIG, PROPERTY REPORTER

    FIRST home buyers are leaping aboard a “sinking ship”, with house prices set to fall about 20per cent in the next two years, says an Australian National University economist.

    Professor Quentin Grafton said house prices could not continue to grow at a faster rate than incomes and consumer prices. This “property bubble” was about to deflate, he said, and first-timers who were encouraged through government grants to buy at the top of the market could be over-committed when hit by job losses and, later, higher interest rates.

    Notice he mentions nothing about the effect of the FHBG ?

  106. Len says:

    Sorry, forgot the source for the above quote.
    http://www.investsmart.com.au/news/news.asp?Action=Display&DocID=AGE090501EB1H56RHJKN

    But, I suppose, that source lacks cred as well ?

  107. Len says:

    He says later in the article :

    But Professor Grafton said prices at the lower end of the market were being artificially inflated by the Federal Government’s first home buyers’ boost announced in October, which saw grants doubled to $14,000 for existing homes and tripled to $21,000 for new homes. He also warned that interest rates were not going to get much lower.

    Note though, he provides no factual source, nor explanation of this theory, which so closely matches yours.
    Why do you think that the FHBG was at $21k for those who built ? Would the fact that land improved value, increases at a vastly greater rate, once a new house gets put on it ?

    All this theory by both of us is just that, bloody theory. Wonderful for a blog, but as to what will happen is anyones guess. With the winding down of the FHBG, the industry will slow even further. Given interest rates are on the rise, this will have more of an effect than the FHBG would ever have had, both in the past, now, and well into the future. Hence the reason why our pollies are so politically active regarding interest rates ?

  108. JM says:

    Len, we seem to have gotten a little side tracked. There are 3 market distortions here, the FHBG (which I think we now all understand doesn’t benefit first home buyers at all in the long run, and it’s had a long run of around 50 years so maybe it’s time to stop) and negative gearing and concessional capital gains.

    Interest rates also affect prices but they are not distortions, simply the price of money as set by the market.

    Those 3 distortions should go, unless you can demonstrate some social benefit to them. In other words, explain why we are privileging a wealthy section of our community – landlords – over a poorer section, first home buyers and renters.

    It’s an obscene policy framework and no-one on this thread has come close to justifying it.

  109. Len says:

    I agree somewhat JM.
    The only real benefit of FHBG, is if you build your home from scratch. We all know, that land is relatively cheap in Oz, and its value increases substantially, when a house is built on it. We all know, for example, if we put a $100k house on a $50k block, in a neighborhood with similar houses, that the price of the house and land package completed, will be a sh*tload more than $150k won’t it ?
    Where the young are getting into trouble, is buying their dream home first cab off the rank. The previous generations had the right idea. Get the dump first, in a good suburb, do it up, and that starts the journey up the “equity” ladder, doesn’t it ? But they won’t do that anymore. The first kid comes along, and guess what, interest rates go up a percentage point or two, then the inevitable happens. They are out, and all of a sudden, it becomes an election issue, and a blog post or two ?

    The problem with FHBs is that they have no collateral. They have little cash, and as such, with society’s paranoia regarding home ownership, they feel they have to hock themselves to the ying-yang, to be like everyone else.

    There are so many factors involved in the home market. Listening to the news the last couple of days, the government is crying crocodile tears, softening us up, for the inevitable, that interest rates are on the rise to 9% again. Who knows if it will happen, but, me personally, I am getting quite sick of King Kev apologising for his mistakes, and in so, pardoning the mistakes of wealthy industrial and banking moguls, who have been ripping us off collectively for bloody decades. Banks especially. The RBA has been a paper tiger, and has been so for years. Sack the dickhead, at the top, probably on a million or two a year, and replace them with someone who has had to work a real job for a decade or two. I think we would all be surprised at the policy decisions coming out of the place, if the board, were filled with people who lived in the real world ?

  110. Billy Bedlam AKA Iain Lygo says:

    Len, although you have talked a load of bollocks re: the FHOG not contributing to housing price rises, Im in agreement with just about everything you’ve said there 😉

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