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Comment by a_bonobo | Hacker News Reader

This is a relatively big problem in Australia - there has been talk of a housing bubble in Australia for the last few years which in part has been propped up by Chinese grey money buying whole apartment buildings for investment, which drives up prices (they can just dictate prices) and keeps young locals out [1]. I cannot afford a house and I have a well-paying job.

The government looks the other way since building is one of the last big job creators now that the mining boom is over. For example, there is a government body for foreign investment breaches (rules like you're not allowed to buy 'used' property if you don't have permanent residency, but I've personally talked to quite a few Chinese students whose parents did that for them) but it has never once initiated court action [2].

So everybody profits in the short term - Chinese corruption can move 'dead' money out of the country, Australian government gets to present itself as a job creator. Except young Australians, who have to rent and cannot rely on real estate property for their retirement.

In the long term, the bubble is going to pop and then you have dead cities with empty high rises falling apart (but then again, people have been saying for at least 10 years that the bubble is going to pop any day now and it's still inflating)

[1] Contains no numbers: http://www.smh.com.au/comment/grey-money-from-china-helps-bl...

[2] http://www.abc.net.au/news/2014-11-27/foreign-buyer-rule-enf...

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The reason that bubble has not yet popped is because over the last 10 years Oz has generally seen below average GDP growth and year on year deflation, not unlike the rest of the world.

To fight those conditions the central bank (the R.B.A.) has been forced to cut interest rates (again not unlike the rest of the world).

Those record low interest rates makes money cheap and property attractive.

But going forward, should Oz see any level of real GDP growth, interest rates will have to rise and when that happens that will be the pin that pops the housing bubble.

OK and what's the failure mode if broad GDP growth remains stagnant, but the narrow real estate market continue to grow and increasingly unobtainable? Does it fail or does it in effect behave as two economies?

If the GDP remains low and inflation remains low then property prices will continue to rise. In fact if this happens the rate of rise may well increase over the short term.

To fight low inflation and low GDP central banks around the world have all been singing from the same song sheet by adopting the policy of Quantitative Easing (QE).

QE is basically a policy of printing money and it was designed to grow inflation, but all it has done is created a massive oversupply of cash around the world.

It is this massive sea of cash that is driving up asset prices around the world.

If these central banks continue to use QE then these cash levels will keep going up.

Now naturally you just can't keep printing money, but the question is when will the party be over and inflation start to bite?

The bigger problem is these low GDP numbers have a direct impact on society as it drives up unemployment and drives down wages, creating unrest.

You can see this unrest growing with events like Brexit, the rise ot Trump and the rise of extreme right in Europe, Australia and other countries around the world.

Without that GDP growth, political parties around the world will continue to feel the wrath of their voting public and politics and political parties will move further and further to the extremes.

OK but not all asset prices are going up, it's pretty much just real estate and in particular residential real estate. Commericial real estate is doing well, but it's lagging compared to residential.

Bank loans are roughly 1/3 real estate mortgages, 1/3 commercial, and 1/3 consumer. QE affects all of these. So why is QE not resulting in growth elsewhere in the economy, being narrowly focused on real estate mortgages?

QE is not resulting in enough growth in the Western world, because there are just not enough profitable businesses for investors to pour their cheap money into.

Supplying cheap money is only one half of the equation to get investors to sponsor businesses: the other half that is needed is businesses with profitable business plans. And there the Western world has a problem: globalisation is moving mainstream business away to cheaper area's in the world. That is not a new thing, and traditionally Western economies have compensated that with new innovative businesses. And although there certainly is some innovation, it is not enough to keep up and keep the GDP growing. The aging populations in most Western countries contribute to that effect because younger generations are much more likely to take risks and start new businesses than the older.

Another factor is that employee productivity growth has been very low in developed markets since 2008, as the dividends of the computer & internet revolutions have tailed off.

QE is not resulting in enough growth in the Western world, because there are just not enough profitable businesses for investors to pour their cheap money into.

The central bankers created QE as a way to add liquidity into the markets to allow banks to lend, to allow small businesses to grow, to help economies to generate growth.

Unfortunately that money was lent to the big bankers and they realized they could take that money and make much easier profits.

The carry trade has been going on for decades and no one has taken any steps to stop it.

It is very easy to for institutes with big wallets, to borrow large amounts of money from central banks only to take advantage of countries with an interest rate differentials.

Then take a look at how JPMorgan Chase, after loosing billions on hedge positions, they took a US government bale out with the promise not to go back to their bad old ways of gambling with hedge positions.

They took the government money and sure enough put it all back on the table betting red, only find it came up black:

http://www.abc.net.au/news/2013-09-20/jp-morgan-fined-920-mi...

A broken promise to the US people with lots of money lost and as always no consequences for those who took the money on false pretenses.

In reality I can see the sense of the bet. Take someone else's money and if you lose, the billions lost will be covered by someone else.

That's a very plausible theory, but I don't think it's the problem at all. It's more that pretty much all QE so far has just gone into financial assets, and extremely little of it has flowed down into the real economy. Hence we see asset prices rising (i.e. share prices and house prices), but little growth or inflation.

It is, at least sometimes, like in the UK car market:

https://www.ft.com/content/9b727552-b48e-11e5-8358-9a82b43f6...

Car sales growing constantly, 80% of all purchases via borrowing. Prices are up too, but not radically so.

The assumption that money printing/QE leads to increased prices is based on the assumption of relatively limited supply for all things: certainly true in the past when mass manufacturing was relatively new and constrained, but given the huge drop in capacity utilisation after the Great Recession it seems you can grow consumption in some markets quite radically without driving up prices.

So if you print tons of money and it ends up in circulation via loans for cars, it may simply result in lots more cars being made and sold but not really big price increases. It may still reflect misallocation of resources, however.

House prices are a huge problem because supply is heavily constrained by building codes, the desire to live in cities, etc and people got it in their heads that a house is an investment whose price always goes up, so they're willing to pay an almost unlimited amount for one if they can get the credit. This isn't true for most other markets.

Keep in mind that the poor Australian GDP growth is also whilst we are running record levels of immigration. GDP per capita, and perhaps more importantly, real net national disposable income (RNNDI, [1]) per capita have both performed poorly since 2008. Indeed, RNNDI per capita has declined to be only 0.4% higher than it was in 2008, and has declined continuously since December 2011[2], i.e. living standards in Australia have been falling for five years! House prices keep on rising.

Inflation is not a problem for Australia. Our problem is debt deflation. We owe so much to the rest of the world for our shitty $1 million fibro and brick veneer shacks that as terms of trade decline, servicing that debt (private debt, not public debt) will suck up all the income we have.

[1] http://www.abs.gov.au/ausstats/abs@.nsf/0/3FA94A5DA5F20EDDCA...

[2] http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/5204....

The failure mode is one most economists ignore, but was the key for the few who predicted the GFC - private debt. In Australia we have some of the largest private/household debt in the world. There tends to be a point where it becomes unsustainable, and the creation of debt (credit) starts to slow. What was observed elsewhere in the world was that if it slows down and goes negative (that is, the private sector of the economy starts deleveraging), unemployment tends to start to rise. (This is in line with some non-mainstream theories that beleive credit is a major driver of demand in the economy. Mainstream (neoclassical) economic models ignore debt because they assume that it's just a transfer of funds from a more patient person to a less patient person, but that's not actually how modern banks work).

If unemployment rises, people start to not be able to pay their debts. The default rate rises, banks sell up properties, and the prices tumble.

Recently we were reassured by the Government that the private debt level wasn't a problem because the assets (mostly housing) is very valuable and rising, but I saw a quote from the US in 2005 or 2006 saying exactly the same thing...

I'm sorry to rain on your parade but Australia has had decent levels of GDP growth for the past decade. It hasn't been the lost decade that some OECD countries has experienced. Australia has experienced a mining boom not unlike Canada.

I don't think you've actually done your research. I can see lower than average GDP growth which is what the OP said. [0]

In addition it's undeniable that the RBA has been cutting the cash rate and that just like the OP said a rise in the cash rate might pop the bubble. [1]

I don't know the sources of your opinions/information but you should consider whether they are slightly biased for some reason.

[0] - http://www.tradingeconomics.com/australia/gdp-growth-annual [1] - http://www.rba.gov.au/statistics/cash-rate/

The comment I was replying to was saying Australia's GDP growth was comparable to the rest of the world, I said it was not. Your first source shows a consistent 2 - 2.5 growth rate except the last two where one was 3 and the other 1.8, majority of OECD countries would be very happy with that sort of growth.

Chinese grey money buying whole apartment buildings for investment, which drives up prices

The nice thing about housing is that one can easily build a lot more of it, and it makes a great de facto investment: http://www.slate.com/blogs/moneybox/2013/05/19/exporting_hou.... The only thing stopping most municipalities from pursuing this reasonable outcome is politics and resistance from NIMBY incumbent landowners.

No. Those policies are in place because planning makes sense.

Not everywhere should be tear down and build up in all conditions.

How about the French quarter of New Orleans or historic districts of other cities?

This argument always shows up here and is idealistic bs.

Places that have rapidly soaring housing costs need to get rid of / streamline the permitting process a la trailer bill 707 in CA (which the special interests killed - largely unions because they use the local permitting process to exact concessions). But either we need to streamline the permitting process, or revitalize a serious transit policy (not the BS high-speed rail, but a regional transit solution that makes it feasible to live in Stockton and work in SF).

I don't understand

There are groups of people that seem to think that sacrificing local experience should be shoved aside solely on the basis to add more Housing should be the most important thing.

And it really sucks when more housing is added only to be used as Chinese investments while they sit empty not being used or rented out.

Well, it doesn't play out negatively in every city. The proliferating loft towers in Las Vegas don't really affect the housing stock available to local residents (most of which ranges from single family detached homes to 2-floor apartment complexes), and the fact that the lofts stand empty most of the time (it isn't just foreign investors, there are also snowbirds and empty-nesters buying a vacation home) means that they don't strain the local infrastructure much.

The “local experience” of every young person being priced out of their hometowns and needing to move >50 miles away from home to afford a shared room in a small apartment. The “local experience” of 35-year-old couples who can’t afford to start families because they have a tiny rent-controlled studio apartment they got 10 years ago and now can’t afford to move. The “local experience” of all the artists and musicians who originally made a neighborhood trendy all getting priced out and moving far away never to return. The “local experience” of having all the teachers in the region working second jobs as bartenders so they can afford to live in a tiny apartment somewhere within a 30m commute. The “local experience” of having all the stores in town selling basic items close because the only stores that can afford the rent are upscale clothing/jewelry/etc. or fancy restaurants. Etc.

Yeah, what a wonderful “local experience”.

That's unavoidable anywhere population is growing. We don't have a right to buy a house where we grew up. Or maybe those kids can ask their parents to sell their house to them at far below market value. You're asking someone to do that, why not their own parents?

The opposite effect happens in small/shrinking towns. Kids who grow up there and move out for a career can afford to buy a house where they grew up but don't want to. Should these people be forced to move back to their small town so they don't displace the "rightful" residents of the booming city?

Sure. But historic districts are not the majority of zoned land in any city. I mean, the imperial palace gardens remain in the middle of super-dense super-expensive central Tokyo, as do many other historic landmarks and districts in dense cities (and non-historical but significant landmarks too: nobody is removing central park from NYC either).

Actually, an even stronger argument is that, well, cities need more than housing. You need city planning and zoning because huge buildings need commensurate transportation, sanitation and water/power supply infrastructure. But neither this, nor preserving hundred years old historically important districts, are what people complain when they complain about zoning. You can plan for more public infrastructure at the same time you allow lots of new construction. Hell, you can tax the developers of the new buildings to front most of the public infrastructure upgrade costs, then distribute the maintenance over the now expanded population. People complain when a city fails to do this for years even in the face of strong demand pressure, because the lower the supply the more the real state investments of existing owners appreciate in the short term.

> Hell, you can tax the developers of the new buildings to front most of the public infrastructure upgrade costs

There are a couple of ways this can fail as a result of various loopholes, but it is, in general, a good approach.

Further, you can offer developers tax credits for densifying infill development since more of the infrastructure is already in place.

the supply of money + mortgages matters a lot more in the property market than the supply of houses

you can look at seattle or vancouver for examples of property markets with massive expansion of available units with price appreciation comparable to san francisco

People like to rag on Chinese investors, but I think the main reasons are insane tax breaks and limited supply.

Which tax breaks?

Probably negative gearing: https://en.wikipedia.org/wiki/Australian_property_bubble#Inf...

Edit, better link: https://en.wikipedia.org/wiki/Negative_gearing#Australia

>Interest on an investment loan for an income producing purpose is fully deductible if the income falls short of the interest payable. The shortfall can be deducted for tax purposes from income from other sources, such as the wage or salary income of the investor.

Negative gearing is only one piece of the puzzle. There is also a 50% CGT discount if you hold an investment for more than a year.

And yes, it applies to shares too, but it's not possible to get this amount of debt leverage for buying shares.

There is also 100% CGT exemption if the property is owner-occupied. The worst part is that it extends up to 6 years after you move out (e.g. to rent somewhere cheaper). So you can buy a property, live in it for a year (at which point it's deemed primary residence), then rent it out for up to 6 years, move back in for a year, rinse, repeat, and avoid paying any CGT when you sell. Obligatory: none of this is tax advice.

Centrelink has been speculatively invoicing people to recover undeserved welfare payments based on crude data matching with income tax datasets.

How nice it would be if they did some data matching to determine who was actually living in a property as their primary residence, vs. changed their mailing address to that of their residential property to pretend it was their primary dwelling, and issued invoices for unpaid CGT.

Given foregone tax from the CGT discount and negative gearing represent significantly larger sums than that spent on Newstart, chasing property investors would seem to be lower hanging fruit...

They most certainly do chase property investors who do claim incorrect primary residence. Remember primary place of residence is only while you live there so if you change it one month before selling it only offsets one month of profits and what if you have multiple properties you can't hide it all with that.

However the bigger problem remains that capital is taxed at half the rate of labour and this matched with tax free pensions has meant people with built up capital have gotten extraordinarily rich in the past decade and a half at the expense generally of the younger generation.

Are you sure about that part about only while you live there?

I have friends who tell me they "need" (well, want to) live in their investment property for 6 months every few years, in order to get a refresh on their tax breaks?

Actually you could be right with your friends.

"it's not possible to get this amount of debt leverage for buying shares"

But it's easy to buy a call options on shares, which is equivalent.

They are not at all equivalent. Shares are a lot more volatile, and your guess needs to be accurate within a very short term or you lose 100% of your investment.

> They are not at all equivalent.

Why not?

> Shares are a lot more volatile, and

This is irrelevant.

> your guess needs to be accurate within a very short term or you lose 100% of your investment.

It's also easy to lose 100% of your investment when you buy property with leverage. At least with a call option you can't lose more than your initial investment. You can with property, unless you live in a jurisdiction which cancels the outstanding loan on a property after it's repossessed by the lender.

Perhaps your point is that, with a property purchase, you can ignore short term price movements. As long as you have enough money to pay the mortgage each month, you get 100% exposure to the price increase over 25 years, even though you put only 10% down and borrowed the rest.

The volatility doesn't matter. If I buy a 1-year call option on a particular share, it doesn't matter if the price goes up and down every day during that year. What matters is the price at the time the option expires.

What _does_ matter, and this may have been what you were thinking, is that it's hard to buy a long term call option on an individual share. The longest you can buy easily is probably 2 years, which is much less than the length of a mortgage.

As well as negative gearing, there is also the main residence exemption from capital gains tax. Aside from the tax system, residences are also assessed differently from other wealth when determining if someone should receive the old-age pension.

Insane tax breaks yes, but in general there is not limited supply. Rental vacancy rates are rising, rental yields are dropping, which would indicate that we have more than enough housing for the number of people in the country.

Further, a group called LF economics did a study on this - some graphs on page 22 here - http://www.aph.gov.au/DocumentStore.ashx?id=cafe7b04-e06c-4e... (PDF warning - it's a submission to the recent enquiry on house prices). Turns out that they found most Australian markets are in oversupply at the moment. They also found no correlation between supply and prices over the last 30 years, and have some points in there for why that would be the case.

In the end, it's more the availability of credit that determines the prices, not supply and demand.

There's something terribly wrong at FIRB, but unfortunately we have a Treasurer (ScoMo) either too incompetent or too conflicted to do anything about it (he used to be the 'director of policy' at the real estate institute of Australia, a lobby group).

For instance, the chairman of FIRB thought it was perfectly fine for him to take a job with the Carlyle group, a massive international foreign equity fund, while staying on a chairman of FIRB [0]. Even worse, ScoMo was totally cool with this. He's since caved to the public pressure and resigned from Carlyle.

There's also the fact that, last year, the ATO were given a bucket of money to comb through their data and find home-owners likely in breach of FIRB rules (they have all the required bits and pieces, including data-matching programmes with state revenue/land-title offices & immigration). As far as I know, the ATO did this and handed the data to FIRB. No further action after that...

Our politics has pretty much become a game of hot-potato: whoever gets in to power tries their hardest to ensure the housing bubble doesn't pop on their watch. When it does pop, it's going to be one for the history books, given how long they have kicked the can down the road. It's also pretty worrying to see state-level Chinese 'soft-power' being deployed in Australia, via our traitorous ex-politicians:

- Andrew Robb, former Minister for Trade: 'consultant' for Landbridge Group (the Chinese company that was, for some insane reason, allowed to purchase a 99 year lease of the port of Darwin)[1].

- Bob Carr, former Foreign Minister: employed by the 'Australia China Relations Institute' at UTS, an 'independent' think tank on Aus-China relations (funded by the YuHu Group, the Chinese company that bribed Senator Sam Dastyari)[2]

- Alexander Downer, former Foreign Minister and Former Opposition Leader: was appointed (but has since resigned) to the board of Huawei, the Chinese company banned as a supplier for the 'National Broadband Network' amid national security concerns [3]. Is now Australia's High Commissioner (ambassador) to the UK.

- Bunch of others we are not currently aware of...

I am by no means 'anti-China'. But Australia is at a point where it needs to have a serious conversation about how it reconciles its relationship with the US and its increasing economic dependence on China. There's also the small matter of national defence, an area thrown into disarray by the election of President Trump. But it's going to be hard to have a rational conversation, one that produces the best outcome for Australia, if half of the participants are traitorous, paid-up shills.

[0] http://www.macrobusiness.com.au/2016/09/firb-chairman-brain-...

[1] http://www.abc.net.au/news/2016-10-30/andrew-robb-joins-chin...

[2] http://webcache.googleusercontent.com/search?q=cache:c3JxEyT...

[3] http://www.abc.net.au/news/2013-10-30/danby-will-the-china-c...

This was a common fear in Vancouver and Toronto in Canada, but I remember reading that a study found foreign Chinese investment was only 5-10%, while playing a role it wasn't the primary issue everyone made it out to be. Can't find the link just now.

I remember thinking they might have just been good at hiding the fact they were foreign by having their student kids or extended family who have moved here permanently buy the properties, or shell companies. Which wouldn't attract as much scrutiny. This is just speculation but it's good to be highly sceptical when people put all the blame on foreigners.

5-10% of total housing stock, or 5-10% of houses on the market?

Prices are set on the margin, reflected by the goods that are actively on the market, and at any given time only a small percentage of housing units are on the market. If 5-10% of total housing units are owned by Chinese nationals, and that percentage has grown rapidly in the last few years, it could easily translate to > 50% of real estate transactions.

    Except young Australians, who have to rent and cannot rely
    on real estate property for their retirement.

This is orthogonal to the money laundering, but what's stopping the young people from investing for their retirement? Houses are not the only way to build savings.

That's true, the Australian system of superannuation is actually pretty great, your job pays a portion of your income into your super which gets invested for you, you have some choice as to where it gets invested (high risk vs. low risk etc.)

However what I fear is that if the super isn't managed well, inflation hits, or you just don't build up a large enough investment the high rental prices in Australia will eat up the majority of your investment returns.

But you don't fear buying a house that depreciates in value, or doesn't appreciate enough to cover mortgage interest, property tax, house insurance, and maintenance costs?

People don't fear buying housing because we always (as a general rule) need a roof over our heads.

Because you still have to pay rent - if you could buy, your housing costs would be earning equity.

It's not uncommon for it to be better financially to always rent and just invest the difference between rent and mortgage+maintenance+taxes. With interest first mortgages as they are it is generally a long time before you earn any equity at all.

This. I did the math when I rented an apartment in downtown Toronto and the rent was less than mortgage interest + condo fees + property tax + maintenance.

Except if the value of the real estate goes up.

Ah but my equities-heavy roboadvisor portfolio has gone up way more than the landlord's apartment...

is it so? Is that still the case when your landlord leverages 20/80?

Usually when mortgage interest + etc. > rent, it indicates that the property is overvalued and the value (over the long term) is more likely to fall than rise. Every other buyer - or almost every other buyer, except the ones that need to launder money - is making the same economic calculation, and if the cost of money to buy the property is more expensive than the rent you can earn from the property, they're not going to buy the property.

So let's say you save 10¢ on every dollar by renting in your scenario. You'd have to have a hell of a return on that 10¢ you saved to beat the 90¢ you would have invested in the property but instead flushed down the drain in the form of rent....

You seem to think that 90c is going straight to equity when for many years it will be going straight to interest payments. So for the first 5-10 years your $1 is going down the drain vs the renters 10c going into investments.

At any point over those 5-10 you can turn around and sell the property and collect the full gain - it's entirely irrelevant to the mortgage payments being dedicated to interest. My $1 gets my name on the title, your 90¢ gets your name on the lease. Think about what your net investment is. So maybe my maintainance/tax/interest costs equate to 50¢. I'm still investing 50¢ compared to your 10¢. Also, I get incredible leverage. Let'say my property costs $1 million. I'm controlling a $1 million investment vehicle with a $4k/month mortgage payment + tax/maintenance. That's incredible. My return on the property is driven from the $1 million basis, and I get to keep all of it despite not having much of an equity stake in the property.

It sounds like nothing I will say will sway your beliefs so good luck with your investment.

it's how long term wealth is built best.

until the bubble pops up, like it did in 2008, but it comes back up so it's a rather temporary set back. Also, rents rarely come down, so most often the property value decline is temporary, or it is another opportunity to buy when things are in water - when there is blood in the streets, there is money to be made.

>My return on the property is driven from the $1 million basis, and I get to keep all of it despite not having much of an equity stake in the property

And if that property falls to $900,000? Now you owe $1 million on a home worth less; literally throwing away $100,000.

You don't actually lose anything until you sell. A paper loss is a different thing. It has plusses and minuses.

If you're willing to employ a "buy and hold" strategy for property to ride out the bottom of the RE market, you should be able to do it just as well with a diversified investment portfolio.

>You don't actually lose anything until you sell.

If the value of your asset falls, you've lost net worth.

It's preposterous to claim that, even though the price of your home has fallen by half, and you are servicing the mortgage on the old value, that you haven't lost anything. Or that the fact that you can offset capital gains with capital losses somehow makes a plunge in value "worth it".

"Paper losses" are losses. The value of the asset isn't based on the price you paid.

If you think of it in these terms, that's about two years worth of rent. But as a renter, you have no chance at benefitting from future appreciation. If you think the housing market is going to be in decline from your move in time, then it might be a good idea to rent depending on your time horizon. Over the long term, it has proven to generally not be a good idea.

"flushed down the drain"

Oh not this crap again

https://www.youtube.com/watch?v=KAMeI4uHAFE

"But practically speaking, ownership has worked out better for most people over the long run."

As I said before, as long as you don't buy high and sell low, your money has effectively been flushed down the drain in the form of rent.

You can't predict the property market. It's kind of financially risky to put your entire investment into not just a single sector of the economy or a single industry but a single property! What if you'd bought your house in Detroit? What if you bought at the peak of a bubble? Even if it's not such an obvious disaster, it can still easily perform worse than other investments.

You think 90% of the mortgage is equity??

It would take you a decade for the equity you earn to match the interests you pay. (http://www.mortgagecalculator.org/ to fool around).

Theres property that rented out produces 2% income. If you can make more than 2% a year, then renters will be richer and compundingly so if they rent over buy.

>Theres property that rented out produces 2% income.

Exactly right. Most people here have probably seen nothing but rising house prices their adult life. Even with a massive bust, people still believe it. In reality, real returns to real estate are barely above inflation.

But once you have completely bought your house/apartment, you have that warm comforting feeling that it's yours. Nobody will get you out to puts in his children, nobody will raise the rent because, you know, he has no choice, etc.

But in the case of a house, you'll have to repair it as times goes by and that can be quite expensive. But the one who rents it to you would have to do it as well, so, buying a house just makes sure you don't pay the little profit margin of the landlord (just the one of the bank :))

>so, buying a house just makes sure you don't pay the little profit margin of the landlord

Buying is not universally better than renting, period. There is no such thing as a free lunch; any profit received by owning the capital asset is compensation for the risk of holding that asset.

Yep you're right. I just wanted to explain that there is also a psychological argument at play. That warm comforting feeling...

I would feel like there was a noose around my neck if I couldn't move without paying $30k in realtors fees (and possibly incurring capital loss depending on timing).

In Australia you are often treated poorly as a tenant. Rent increases every 6 months, 60 day eviction notice if the landlord wants to do anything (sell, paint the walls, let their cousin stay there, consider selling it...). You can't do any modifications or get longer than a 12 month lease.

Also, there is a collective paranoia about missing out, of tumbling off the 'property ladder' and neither you or your children ever escaping wage slave poverty.

This is very rarely true. The only case where I can think of where you may be right is when real estate is purchased at the top of the market and sold at the bottom. When you go to sell real estate, it doesn't matter how much equity you have in the property, you will fully collect the gain or absorb the loss resulting from the sale. Equity is usually only relevant when looking at creditworthiness.

It isn't that rare actually in major western cities. So you are betting on large increases in property value to offset the loss from front loaded interest payments to make your investment better? That's a gamble.

The interest is part of the investment. It gives you control of the property and ability to collect all appreciation. It takes a very minor increase in value to turn a profit if your time horizon is short term. A renter doesn't have anything to show for his or her rent payment and cannot collect any appreciation.

>It takes a very minor increase in value to turn a profit if your time horizon is short term.

It's hard to believe that amateurs on this board actually believe house-flipping is a sure thing.

I guess it depends heavily on the location's property market and the regional tax rules. E.g. here in Norway, good tax breaks for owning property means we're currently paying $1k/month on mortgage+maintenance+taxes, but renting the same apartment costs 50% more.

It also means you essentially can't rent anything bigger than a 2 bedroom apartment; bigger units make so much more financial sense to own (easily $1k/month cheaper even before you include the investment aspect) that there is no market for renting them.

In other economies that would severely punished poor people, but I'm guessing there is sufficient social housing. It still seems like it would lead to problems though.

Well that would be true if things were normal, like 10 years ago. But the rate of return on real estate is much higher than the rate of return of say the S&P 500.

10 years ago things were very much not normal in housing prices and 8 years ago a lot of people lost everything because they counted on prices increasing at way above historic norms. Much like you're doing here.

pundits have been predicting the bubble bursting here since the GFC. But the 'economic miracle' of the housing boom keeps rolling on in Sydney and Melbourne.

With Australian interest rates at record lows, property investors keep borrowing unperturbed.

That's extremely illogical thinking though. If the pundits have good reasons for thinking the market will crash (and I believe they do), and the fact that it hasn't yet doesn't make it less likely, or mean it won't happen. It just means that it's likely to happen sooner rather than later!

It's not an economic miracle, it's a huge amount of asset speculation built on one of the largest levels of household debt in the world, just like in the US and many other countries before the GFC. All it will take is a rise in unemployment, or a shock from China, and it will go (of course interest rates won't rise, the RBA would have to be insane).

Keep in mind that as an individual you cannot have a near-million dollar leverage at a relatively low rate to buy other investments.

Especially when rent for young people is around one third to one half of their income (I would know, it's about 1/3 of mine). Would take me about 6-8 years to save for a deposit on an older apartment.

If your rent is 30-50% of your income you are living in too expensive of an area for your means or need more housemates.

I've found that 30-50% of income being used for rent is fairly normal, regardless of where you might be living.

It's also the market rate in the affected cities.

You begin to see the nature of the problem.

I've lived in 2 of the affected cities. When I was making less I had housemates to bring the rental costs down(Sydney) or lived outside the city and commuted(Toronto). Both would work for either city and allow you to not have to spend 30-50% of your income on rent.

The existence of ways to work around a problem doesn't mean there isn't an actual problem.

I don't consider high demand locations having high cost a problem personally. But if you want to live in a high demand area and you don't make enough money there are ways to do it without spending excessively on rent.

Don't underestimate the costs of living outside a city and commuting. Not just the opportunity cost of lack of socializing, but commuting measurably decreases people's happiness, quite apart from how much time it takes.

It's also not morally wrong to pay more for accommodation that suits your lifestyle better.

I've not said it is morally wrong. Though I think it is wrong to complain about the costs of high demand areas if you're not willing to take actions to decrease those costs.

30 to 50% of a high take-home actually leaves you with quite a lot of disposable income. 30 to 50% of a low take-home is probably unsustainable. Not all costs are directly proportional to housing costs in a housing bubble.

Particularly for younger people, it makes a lot of sense to suffer the higher proportion on rent. Quality of life is much higher living centrally, and income will probably grow, while rents are usually a bit sticky.

I gave an option for lowering cost and living centrally too. Housemates.

I live with two other housemates, in one of the cheaper, older apartments in the area. I chose it because it's only one bus away from my work/uni, where a cheaper location (much further away) was only $30 a week cheaper, and saving 2 hours a day of commuting is worth $6 a day to me. I see other commenters saying 30-50% isn't that bad, but that's not taking Sydney's high cost of living into account.

What area are you in now and what area were you looking at because your experience really doesn't match up with mine of living in Sydney.

The east (think Kensingington/Kingsford), was in the south last year.

What about somewhere like Ultimo/Glebe surely they would have housing >$30/week cheaper than your area? And be ~20 minutes commute time.

When I lived in Ultimo my rent at both places was less than half what it was for my places in Bondi or Clovelly.

What price range? Mine's around 250, but I haven't checked the innerwest. I mostly like the east because it's close(ish) to the beach and a lot of my uni friends stayed in the east. I could never justify Bondi or even clov, too much money, and the culture is too far up it's own a@@. Coogee is liveable though.

I was paying ~$100/week for a 3 share in something called Dalgety Square in Ultimo which was a really nice building. That was close to a decade ago now though but I'd be surprised if it had more than doubled but even if it had it was one of the nicer options in the area so I'm sure there is a lot for less.

Understandable on wanting to stay east. Once I moved east I didn't want to go back but there are definitely options available if you do.

Though I did end up moving to Yamba this year for more space for my money.

I have friends in Glebe paying $300, but I think they're close to good bars/transport.

I love Yamba! It has always been my dream to get a remote job and move somewhere on the north coast. How much do you pay in Yamba/which part?

Glebe is the more upmarket of the two. Ultimo always seems to be overlooked though. Must just be drown out by Pyrmont/Glebe.

I pay $550/week for a 4 bedroom house with a separate full apartment(bed/living room/kitchen/bath) downstairs that I use as an office(for comparison I paid the same for a 1 bedroom apartment on Melrose Pde in Clovelly that was smaller than my office now). We're pretty much dead middle between Pippis/Main so a few minutes walk to 3 beaches and 15 or so to the river.

We had a floor of $400 when looking so not sure what the lower end is like here to be honest but given the work situation I'd assume there is a fair bit available around your price range.

Remote work is definitely required up here. When we were looking at houses the most common phrase we heard was "There are no jobs in Yamba".

You would be surprised how much Ultimo has been gentrified in the past decade, it's quite trendy now.

That's a good price for proximity to the main beach, and especially with the separate apartment. Have you considered subletting it out (maybe even just the holiday season?), could probably get a good price for that location. Do you find Yamba a bit dead? I grew up in Grafton, and know how slow-paced rural Australia can be.

Yeah probably, I've not gone to the area in a long time to be honest so I could be all wrong.

It is, it was a toss up between this place and one over by Coles which was far from the beaches but had a private dock and a pool. There was certainly a lot around though as I was told many many times "no jobs". :)

For subletting not really though I think we're the first people to rent the whole building. I like having the separate office space too much to give it up and we'd need to furnish it down here with more than desks/bookshelves/filing cabinets and whiteboards.

Yeah it's pretty dead here but that aligns pretty well with our interests. I like running/gym/working and my wife loves the gym/beach. Then we both like hiking which there is ton to do within sort of a 1-1.5h radius.

The slow paced part is definitely a problem but we lived in Chang mai for most of 2015 so we have had experience with it to an even worse degree fairly recently.

If your rent is more than 30% of your income and you are between the ages of 25 and 34, you are normal (46% of the renting population). Even at above 50% your rent to income ratio is still fairly common (23%). Having a rent to income ratio above 30% is also correlated with having an income that is very low [1].

If you are at 30%, you are also meeting one of the most common recommendations in personal finance (regardless of whether that recommendation is _good_ or not).

It seems obvious to me that recommendations of either moving or finding additional housemates both can have significant short and long term negative impacts on financial stability, emotional, and physical health (I didn't bother looking for a source for this because this is hacker news not a dissertation).

1. https://www.earnest.com/blog/rent-and-the-30-percent-rule/ which cites http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jch...

I didn't say it was uncommon I said it was too much.

I would think the feeling that you're never getting ahead will have a more negative mental health cost than a housemate ever will.

Property investment in Australia has a huge amount of subsidies that make it an extremely lucrative investment category compared to things like shares.

If you get into the property market, you can count on capital gains tax benefits and negative gearing against any other income you have. Additionally, other benefits that are means-tested often exclude property (at least primary residences).

No, but it takes a lot less work to invest in real estate that you also live in than to try to find and monitor a 6% annual return on your own.

I've been throwing money into broad spectrum index mutual funds for the last 10 years, and in that time have averaged about 9% annually while investing maybe 20 hours thinking about asset allocation ("my age in bonds"), fees ("as low as possible") and deleting brokerage statements from my email inbox ("I know my worth to the cent already, thanks").

Meanwhile, I have invested at least 50 hours touring houses, applying for loans and trading texts with braindead realtors in December of 2016 alone while trying to buy my family's first home.

From where I stand, real estate is a terrible waste of time, energy and effort. If you want exposure to the asset class (why?!) buy into an MBS mutual fund; if you feel the itch to be a landlord (again, why?!) toss money into a REIT[1]. Do anything, basically, to avoid a large, career limiting[2] asset of uncertain value on your personal balance sheet.

[1] Assumes you live in high COLA area where renting is more sensible than buying. Do your math, I am not an investment advisor, and your situation may be different from mine.

[2] To avoid charges of hypocrisy: I no longer have a career, so I am happy to settle down, buy and customize the hell out of a house.

You've described the same exact situation that is unfolding in Vancouver, Canada.

This is total BS.

Although I'm tempted to blame narcistic millennials eating their smashed avocado I tend to think every young generation is this selfish.

Australian youth is amoung the richest in the world, it's junk they can't buy houses.

They just can't buy down town in big cities in the super rich sections at age 20.

How people can think selling overpriced things to other countries is bad for the economy is incredibly strange.

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