Time to stop pointing fingers and start offering solutions!

The Federal Government blames the State Governments, the State Governments blame the Federal Government! What not one person has done over the past 12 months is, had a serious debate about the future of home affordability. Recently SBS aired a debate with contributors just skirting the issues. Today we see home affordability back on the agenda. Isn’t it strange how an election year will roll out all of the same rubbish from both sides of the Parliament. One thing is crystal clear, as it stands today, the kids of tomorrow will not be buying homes, this spells gloom and eventually doom for agents – something must be done in these next few years.

Listed here are some ideas.
1. Release more land: Seems like a no brainer, but more land available means lower prices for that land.
Problem: It is just so expensive to build a home today and with heavy taxes, taxes and taxes (you can call them taxes, levies, duties, fees paid to councils utilities etc. anything that goes to any level of government is a TAX) adding to costs ridiculously to build a decent home.
Solution: Kit Homes. I know we have seen these before but some of these kit homes coming out of the USA are extra-ordinary. When an order is placed, the house is built in a factory, trucked to the home site, and assembled in just one day! All levels of Government should approve certain designs so that buyers can confidently go in and purchase without all of the hassles usually associated with building a home.

See
http://www.kierantimberlake.com
http://www.fabprefab.com
http://www.treehugger.com
http://www.livinghomes.net

2. Taxes: Stamp Duty? No, lets not call it that! It is Stamp Tax from now on and it simply has to go. Originally this was introduced to pay for the processing of forms. Today it is 100% automated in all states and electronic and has nothing to do with processing forms. State Governments sit around waiting for someone else to do something all of the time. It is time this right was taken away from them. The Federal Government did a deal and it is time for State Governments to honor that deal. Solution: 2 minutes of thinking in the naughty corner for State Treasurers around the country.

3. Interests Rates: 17 years ago Interest rates were 17% but the average home cost less than half of what it costs today. Michael Costa (NSW Treasurer) tells us yesterday that the reason people are not building or buying is that Interest rates are too high, that is just rubbish, it is the cost of servicing the loans -stupid! People do not worry too much about interest rates it is the amount and time it takes to pay off their home that they are concerned about.

Solution: Well I do know what banks do, they just increase the loan repayments to 40, 45, 50 years until we have what Japan has, and that is inter-generational loans. The solution is NOT sharing loans with strangers, this is just nonsence thinking and people will not do it, those who do will certainly run into problems in the future. Good governance and a lot of luck keeps Interest rates low.

4. Income: The Liberal Party do not like to hear it, but they will pay for Work Choices in the long term, keeping wages low when all other products/services and costs keep rising to market, is a recipe for disaster. Lower wages are great for inflation and great for business owners but bad news for employees. The government is lucky/smart we are in good times because when they turn the other way, employees will have to work for anything just to survive. The thinking is that if business costs are lower in good times then they employ more people (correct) and if wages are kept low then inflation/interest rates are kept low (correct to some degree). Currently there are more jobs available than people skilled for those jobs, but what happens when there are 10’s of thousands of people being laid off and all of these skilled people are competing for that one low paid job that they must take to survive? Ouch!

5. Negative Gearing It is the one thing that no one, not one commentator has brushed upon, but the main reason house prices are so high is because of negative gearing. To my thinking, agents need a future and they may think that dumping these tax benefits will hurt them, but it will not, the market will still grow slowly and maybe there will be no more booms, but there will also be no busts. What agents need are buyers and what buyers need are homes they can afford and scrapping negative gearing is what is needed, but I can tell you not one level of government has the courage to touch it. Paul Keating proposed this in the early 90’s and was howled down in days but, he was 100% right.

So here is what is needed in my opinion:
1. Scrap Negative Gearing over 5 years (no new benefits for first home buyers)
2. Scrap Stamp Duty.
3. Lower Land tax for first home buyers.
4. No new taxes.
5. First Home Buyers Federal Grant Lifted to $15,000 and matched by States.

If all of these things are done there will be a slight hold on the market but prices will remain steady for middle Australia and our kids into the future.

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23 Comments

  • Geoff
    Posted July 4, 2007 at 10:45 am 0Likes

    The market determines housing afforability, nothing else.
    When interest rates climb as they surely will prices will drop big time.
    The incredibly long stretch of incredibly low interest rates has caused this.
    I wish my ,and everyone elses, house was half the price it is now.

    Rates and stamp duty would be lower and young people would have a chance, unfortunately all the recent entrants into the housing market would go immediately broke.

  • Robert Simeon
    Posted July 4, 2007 at 11:51 am 0Likes

    What an absolute load of rubbish !! Home affordability is all about governments and taxes just look at the recent census results. I wrote last week “The 2006 Census data has confirmed many interesting points with one of the most significant being that fewer Australians own their homes outright. Compared with 2001, the proportion of fully

  • Geoff
    Posted July 4, 2007 at 12:03 pm 0Likes

    “””Interest rates have little to no effect on the top end markets as a vast number don

  • Robert Simeon
    Posted July 4, 2007 at 12:15 pm 0Likes

    Alas, a subscriber to the economic ideology more often referred to in modern times as the hope factor !!

  • Kitchen Designer
    Posted July 4, 2007 at 3:18 pm 0Likes

    I do like the idea of buying a home and setting it up quite quickly.

    Those houses displayed on the FABPREFAB website look great. Just think, no more ‘faux federation’ houses! Woohoo!

  • Paul D
    Posted July 4, 2007 at 4:59 pm 0Likes

    I thought GST was supposed to be the end of all those taxes such as Stamp duty, mortgage duty, and every other lame excuse for a tax. And to suggest that rates have absolutely anything to do with land value , Geoff, is to admit that you don’t know what you’re talking about. For example Woollahra Council rates are something like 0.0007 cents in the dollar, and Blacktown rates are about 0.50 cents in the dollar. Does that mean that it costs Blacktown Council 750 times what it costs Woolahra Council a year to do what Councils do? Certainly NOT. What Councils do, is add up all the costs to run the council for a year and divide it by the property values to get a rate in the dollar, not the other way round. So land increases have nothing to do with rate values, it’s just a method of apportionment of the rate burden. The other difference is that the controls on the economy are so finely tuned these days, that economic models can accurately predict what will happen in response to interest rate rises before they happen. Small increases are the norm these days. I remember in 1994 when interest rates went up 2% overnight. These days a larger number of increases at a much smaller percentage tend to smooth out the effects. I agree with everthing you say Peter, except negative gearing (which is not that great in a low interest rate environment in any case) Last time they tried it the rental situation was badly affected. To do that now would cause serious housing shortages on top of the already stretched supply.

  • Geoff
    Posted July 4, 2007 at 5:17 pm 0Likes

    “””And to suggest that rates have absolutely anything to do with land value , Geoff, is to admit that you don

  • Peter Ricci
    Posted July 4, 2007 at 5:48 pm 0Likes

    I really think negative gearing is for the haves of this world. Take an apartment in Bondi. To purchase this 2 bedroom apartment costs $600,000. To take a loan over 30 years for say $550k and you are paying back $4000 per month. Rental income for this property is around about $650 per week, if you take out expenses of say 100 per week you are left with $2200 per month revenue and a $1800 per month shortfall. This is to far out of reach for about 90% of our population wanting to start into the market today and imagine what this is going to be like in the future.

    In my mind all other measures are just paying lip service, yes, it has to be a mixture, but something serious has to be done. If you create incentives for the haves then you will continue to leave behind the have nots.

    If you have a market that is driven my investment, then property prices will continue to rise and with governments making measures to limit wage increases it only gets worse for the majority of the population and therefore worse for real estate agents.

    As for Councils, they hate raising rates, because this is how they get elected and kicked out, so they raise just about everything else to compensate for minimal rate increases and increased costs. Check out your parking fines!

    Federal, State and Local Governments are often the worst run organisations as far as cost blowouts are concerned and Kerry Packer was right, they do not spend it well enough for us to give them any more than is absolutely necessary.

  • Geoff
    Posted July 4, 2007 at 6:18 pm 0Likes

    They could cut negative gearing for residential property I guess from a ceetain date but not retrospective, like they did with capital gains tax, over time it works through the system, those with negatively geared residential property at the time of the announcement would be laughing, those who had a residential investment property on the market would be crying.

  • snoop
    Posted July 4, 2007 at 6:30 pm 0Likes

    Definitely a step away from funding inefficient state govts with property stamp duty would be a great affordability improvement.
    It should be waived 100% for first home buyers.

  • Peter Ricci
    Posted July 4, 2007 at 6:51 pm 0Likes

    Geoff, I would phase it out over 5 years, gives everyone an opportunity to diversify. There are so many other options now for investment (obviously not property trusts) but the stock market is an investment vehicle that was not used by the majority of Australians 15 years ago, now many are in that area.

  • Geoff
    Posted July 4, 2007 at 7:38 pm 0Likes

    Phasing it out ALTOGETHER over 5 years, if that’s what you mean I wold go along with that.

    Stamp duty on property should be reviewed from the ground up, made more reasonable rather than a huge burdon and state govt’s could become more efficient to compensate for the loss of revenue.

    Why should people struggling to buy a home be forced by law to prop up buildings full of bludgers ?

  • Paul D
    Posted July 4, 2007 at 7:39 pm 0Likes

    “I was talking about interest rates not Council rates.

    Are you for real?”

    You may not have noticed Geoff but interest rates are already low, how much lower do you want them to go, and yes I am for real — Are you ?????

  • Geoff
    Posted July 4, 2007 at 8:11 pm 0Likes

    Oh Paul you are having a laugh aren’t you ?

    I was saying the current housing crisis was partly caused by prolonged low interest rates and that when they go up it will stop the rot of spiralling prices.

    Now trot along like a good lad and get someone to explain that to you.

  • John Dedes
    Posted July 5, 2007 at 8:07 am 0Likes

    Planning is another key word here and issue.

    One solution is quicker outer land releases for mum & dad & kids type housing straight to the public not developers by Govt’s at a fair break even retail cost, with medium to high density affordable housing/gentification happening very close to CBD areas &/or transport routes etc.
    In other words a double whammy effect.
    Affordable Housing far and near as choice.

    You need to get Govt’s acting more as Developers and getting the Developer margins out of the buyers equation.

    As mentioned also by other posters.
    Reducing the taxes piled on housing and land releases.

    JD

  • Geoff
    Posted July 5, 2007 at 11:02 am 0Likes

    Unfortunately we can’t get more affordable housing without a sharp decrease in prices OR everyone’s salary doubles overnight………but if prices fall all those who bought in the boom will be in trouble, no way out without a lot of pain and as I said when intetrest rates eventually REALLY start to climb that will be the catalyst.

    The event to trigger this could come from anywhere, domestic or international events but it will come just a matter of when. AU has always been a boom bust economy, the bigger the boom the bigger the bust, I just can’t quite imagine how bad this one will be.

  • Paul D
    Posted July 5, 2007 at 12:15 pm 0Likes

    No Geoff, I’m not having a laugh. Just go back to the top of this page, and read your first contribution. You say the “rates and stamp duty would be lower” (meaning interest rates – because you so definitely said it was interest rates)

    My questions to you are as follows:
    1. Why would lower property prices mean lower interest rates ?

    2. Why are you saying that lower interest rates would give younger people a chance, then later advocating higher interest rates to “stop the rot of spiralling prices”?

    3. Please explain your statement “Why should people struggling to buy a home be forced by law to prop up buildings full of bludgers ?”
    I’d like to hear your theory on that.

    And by the way, I do not have any axe to grind with you, and I am not trying to put you down like you seem to be trying to do to me.

  • Geoff
    Posted July 5, 2007 at 12:35 pm 0Likes

    You’re getting my reference to interest rates confused with council rates.

    “”””1. Why would lower property prices mean lower interest rates ?””””

    I didn’t say that I said lower property prices would mean lower COUNCIL rates.

    “”””Why are you saying that lower interest rates would give younger people a chance, then later advocating higher interest rates to

  • Elizabeth
    Posted July 5, 2007 at 8:26 pm 0Likes

    Good Evening,

    I think that Peter is very close to the mark when he itemizes all the things which influence the market. However a drastic change in any one/all of the current market influencers would increase the level of risk.

    For stamp duty to be abolished over night, would see house prices increase as the perception would be that there is increased demand.

    I understand Peters argument about negative gearing as a barrier to getting into the market, however once in the market it does assist people in increasing their wealth. Now if we took away these ‘barriers’ we would make buying your first home more affordable, but the ability to invest and increase wealth would then be out of reach?

    Peter, I am not going to get caught up in satisfying all the instant demands of Generation Y’s – when I started out in with my first property, I found the suburb I could afford to live in, and then found my flat. Of course the appeal of Bondi is tremendous, but if you cannot afford it in the first place, is the problem really Stamp Duty?

    Perhaps we need to look at all the influencing factors, acknowledge their impact, and start planning to alter them as a collective and not just individual measures.

    How could this be coordinated? I would not trust the current Government to do this as they would artificially create the perception of change. Would I trust the Labor Party? well if we need change then they are the ones to do it, but they would need to be held accountable for each change they made.

    The question I have once again, is where are the institutes? Should not they be coming up with the strategies and then educating the Market or lobbying all governments? Where is their high profile consumer website, informing consumers about changes which could bring beneficial outcomes for them?

    This is a great time and opportunity for the institutes to reinvent themselves and expose themselves to a whole new membership and following.

    E

  • Glenn
    Posted July 6, 2007 at 8:57 pm 0Likes

    I like some of the suggestions raised but by no means all of them.

    What the interesting part about it though is that many of the suggestions point at the inefficiencies of the three levels of government in this country.

  • Geoff
    Posted July 6, 2007 at 9:03 pm 0Likes

    unfortunately correct…………..

  • Peter Ricci
    Posted July 6, 2007 at 9:18 pm 0Likes

    Hi E.
    My suggestions are not for half measures. Since 1986 median property prices have risen 500%. Where wages have kept well below this. If we are to do anything about it then drastic changes have to be made and ye4s some markets will be effected in the short term and many people may look elsewhere for investment.

    However what is at stake here is generations of Australians not being able to afford a home and that spells disaster for real estate agents and investors.
    As for my property hunting solution Elizabeth, I am not talking about myself, I am not thinking of myself at all in this. More than likely I will buy in Bondi and I know what I will pay to live in an area that gives me my lifestyle.

    I am however thinking of my nieces and nephews who in 20 years could be looking at a $150,000 deposit/taxes just to live in a very basic home.

    That puts a strain on everyone, including parents, employers and governments. So we can either just put in place petty measures and keep the status quo or take some real action.

    It has to be a multi pronged approach and it has to be big.

  • under the radar
    Posted July 27, 2007 at 4:51 am 0Likes

    At the risk of sounding like a pinko leftist (which I’m certainly not) I have to agree, wiping tax benefits from negative gearing would improve affordability. Housing is a necessity – it shouldn’t be exploited by the rich. In the words of Ryan Heath: ‘Please just Fuck off, It’s Our Turn Now’ – good book – check it out some time.

    Seems the REIQ disagree:

    “Retaining negative gearing as part of the policy mix to improve housing affordability is definitely the right move, the Real Estate Institute of Australia (REIA) said this week in response to the Federal Labor Party’s recent proposals to end the crisis.”….
    Source: http://lpn.quartileresearch.com.au/index.cfm?newsletterClientid=cli717977223edoras&screen=archive&newsletterPeriodArtLinkid=npa712558034minas

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