FormulaNova said

I hope I don't come across as a bitter person

You come across as a GENERALLY easy going person short of having a few subtle stabs now and again though not even yours truly is perfect.

But you should try to be perfect.

I bought my first character home in about 1981, I ran into the current owner the other day and he showed me through. It was fun looking at some of my renovations and checking out the new work. He's had it valued at $1.5 million.

My plan when I was 22 was to never pay rent and buy a place with as much land as I could aford as close as possible to the city.

Probably a formula that still works.

remery said..
Probably a formula that still works.

In Australia that plan has been working my entire life. Apartments in Melbourne have been stagnant/dropping in Melbourne over the past decade.

fangman said..
Boomers and XGen have reaped the rewards of the house value, they will probably just have to pass on some of that return to their kids if they want them out of the household.

I think the worst thing about this is that the Boomers and GenX are happy. Why not? If they were lucky to get in at the right time they would have had an easy time of it. I recall a work colleague telling me he "worked hard" to get 12 investment properties. I am sure he did work, but no harder than the rest of us and the normal amount for that job.

So why should we be lucky just because we got born at the right time?

People being what they are will all think "they worked hard for it", so not many of them are going to vote for something that disturbs their house values.

The kids that do get help from their bank of mum and dad will also think that they deserve it and will be happy with the status quo. So they won't vote against it either.

But seriously, why is Australia full of houses worth 1.5 million dollars?

I think the negative gearing discount needs to be dropped by phasing it out and then going for an indexed solution to capital gains.

People argue that it is just like any investment. Sure, but why should it be classed as any other investment? In most cases people are not creating extra housing, tending to just buy and sell existing houses.

I would be happy if the gov allowed any new builds to be used as normal investments with all the claims that go along, but why allow all houses this treatment?

FormulaNova said..
If they were lucky to get in at the right time they would have had an easy time of it. I recall a work colleague telling me he "worked hard" to get 12 investment properties. I am sure he did work, but no harder than the rest of us and the normal amount for that job.

So why should we be lucky just because we got born at the right time?

You do understand the phrase 'the harder I work, the luckier I get'? It relates nothing to luck and suggests that hard work actually creates the positive outcome.

myscreenname said..

FormulaNova said..
If they were lucky to get in at the right time they would have had an easy time of it. I recall a work colleague telling me he "worked hard" to get 12 investment properties. I am sure he did work, but no harder than the rest of us and the normal amount for that job.

So why should we be lucky just because we got born at the right time?

You do understand the phrase 'the harder I work, the luckier I get'? It relates nothing to luck and suggests that hard work actually creates the positive outcome.

Hey, the AI is repeating me. Or is that I am repeating the AI? Or the AI is repeating what my AI said before?

Nope, to give a straight answer instead of your detour to crazy, just being born in a particular era should not make you so disadvantaged. Society is a bit unequal at the moment in Aus.

www.abc.net.au/news/2024-08-05/cost-of-living-interest-rates-burgers/104156654

This article is quite interesting and relates to the topic.

The high price of a big mac in 2024, along with increases in sales and falling profits in Australia is due to huge increases to McDonald's royalty fees, which redirect profits overseas, and are not counted. They went up by 29 per cent.

FormulaNova said..
I wonder what perfect is?

This is a relative World.
The only absolute is 0 degrees kelvin.
The only constant is change, --- (and the speed of light of course)
I don't think perfect has any meaning when all is relative.

A perfected human is probably no longer human.

But that sea level may vary due to gravity varying around the globe

myscreenname said.. Gravity, would be a constant at sea level.

I think constant, implies that a very long time is involved.
There's no reason to think the Earth's mass won't change.

And the speed of light as a constant, is not so much about how fast light travels, but about the upper limit of speed generally.

decrepit said..
And the speed of light as a constant, is not so much about how fast light travels, but about the upper limit of speed generally.

So you meaning an Absolute, like 0 degrees Kelvin. As there are many constants: taxes, death, speed of sound, weight of the earth

bjw said..

FormulaNova said..
But seriously, why is Australia full of houses worth 1.5 million dollars?

It's not because of negative gearing, otherwise properties would be expensive and rentals would be cheap.

It's because we allow left councilors to restrict construction in 'my area'.

Demand vs supply.

The more with allow government intervention, the more will kick the problem down the road.

Before Covid and a surge in migration, rents were relatively cheap. I know that my rental income on a place I had in Sydney took 10 years before it caught up with the interest payments. That's ten years of losses and the other tax payers subsidised me.

The excess demand we have now is because of people wanting smaller households and more demand from immigration. How many migrants came in versus the number of new houses?

You cannot ignore negative gearing and how easy it makes for an investor to pay more and more, gambling on it being worth more when they go to sell. The gambling itself makes it worth more because other people also speculate, banks lend, and prices go higher.

Councils will always restrict development. Whether its for planning or fears of local residents. Why should a person that has live in an area for 50 years be forced to modify their life because of some random person in government that decided that they wanted that area to cater for more housing against immigration?

I think it has even been shown recently that despite rezoning around major transport hubs, developers are finding its not good enough financially to develop yet.

Governments have the power to create new areas for growth, away from the main transport hubs. Where is the big plan for that to ease the pressure on the other areas? There doesn't seem to be one.

If it weren't for negative gearing, it would be much harder to buy additional properties. There is no way around it, it helps and if it helps it encourages more demand.

I haven't done the maths on investment returns in Sydney right now with the current prices and current cost of money, but I would guess that the majority of them are negative. Most likely ALL of them as a seller will be selling at a price above what it would return in rent.

If you went to your bank and said 'I want to borrow $1.5M and I will lose $10k a year on it, I am not sure they would be happy to lend. Your income effectively drops by $20k, instead of the $5k it does now. I am sure someone will tell me if my maths is wrong though.

As I have said before, older people won't care. They have their share of the pie and don't care if its not fair to others.

bjw said..
It's easy to blame immigration over supply, but rather than relying on correlation, are the fastest price growth areas where the immigrants are moving to? How much of this immigration is student visas?

You just said 'supply and demand' yourself. Which way do you want it? No supply and demand problem or supply and demand problem? Sure supply is a failure, but so is demand, and Covid and immigration levels have increased this.

The government have dropped the ball on supply. Instead of actively building houses, they have turned to opening up planning rules hoping that developers will build the required places. They haven't.

Immigrants don't need to move to the higher priced areas. They just need to demand a house. Where it comes from matters little as somewhere else someone that sold that house needs to buy another.

If someone bought a house in a cheaper suburb and the seller then buys a house in a more expensive suburb, there is still demand.

But, for the people that own 20 properties, or 10 properties, this doesn't matter too much. As long as the bank lends them the money and they think they can get increased equity, it just means they can buy more. More demand, yet again.

Interestingly if the number of people in a location was static, the shift from owner occupied to rental wouldn't matter too much. Net demand would still be the same. Add another 600 thousand people though and tell me what that does to rental prices and house prices?

bjw said..
It's easy to blame immigration over supply, but rather than relying on correlation, are the fastest price growth areas where the immigrants are moving to? How much of this immigration is student visas?

I wonder if "immigration" includes people returning home due to covid?

remery said..
I bought a couple of properties in the "welfare belt" on interest only loans. As a PAYG worker, I don't remember any great benefit from negative gearing. I'm pretty sure my tax return was only a few thousand each year... like many full time employees. I made maybe $500k after 20 years and had to pay of the loans and then pay capital gains tax on half that. I reckon I should have invested in muscle cars.

Edit: I should have added that the only reason the bank gave me a couple of loans was that I out the family home up as collateral.

Yeah, muscle cars. Or even collectable cars, but who thinks that even average cars are going to appreciate when you own them. When they are old, they are rubbish and need lots of work. It's only 30 years later that they are worth something if they survive and you have a pandemic at the same time. Old cars are so much work and at least to me, they are still old cars.

You got a few thousand back each year on your tax? I must be the only person that would normally get almost nothing as generally my employers paid me the correct amount and the correct amount of tax on that. A few thousand back is impressive. Was it from work deductions or negative gearing?

The guy I was mentioning before that had 12 investment properties back in about 2004 had one of those agreements with the tax office where due to a obvious reduction in tax at the end of the year, you can get that brought forward and pay less tax upfront instead. It certainly improves your cash flow.

Your example seems decent. $500k after 20 years sounds okay. Did you need to put a lot of work in, or was it set and forget, just paying the loans?

I think all this stuff amplified around the mid 2000s as speculation increased and the capital gains discount kicked in. Negative gearing was certainly a thing before 2000, but no one seemed to snap up property like they do now.