Hacker News Reader

I met someone once who purchased their place in Manhattan in November 2001. At the time it couldn't be lived in, but they had faith that the city and the affected area would recover, which it has and I think they would have done well. The thing with buying property anywhere is that it always seems like a bad deal, but that's because most people underestimate the propensity of governments to inflate currencies. It doesn't take many years of high inflation for 'real' things like property to quickly rise in value. And, purchasing at the top of bubbles notwithstanding, most of the time the land value underneath the property will stay pretty constant. The house itself must be seen as a depreciating asset, but the land underneath will increase in value as long as the location is both desirable and economically growing (even better if it is above trend of the economy).

The problem with long-term renting is that, while you can theoretically engineer a better return by allocating as much as the principal component of a mortgage payment to one or more investment classes - most people don't. The key benefits to owning a property are (IMO) * inflation hedge * forced savings (the principal component of your mortgage) * security of tenure * ability to modify the property as needs arise (like extending, remodelling, putting in network cables and server racks!) * access to further credit for other investments after equity is accumulated

These things vary country by country but the list is pretty much constant. The most important thing is to not get carried away and only purchase what you can realistically afford, and to allocate as much money to paying down the mortgage in the first 5-10 years.

As for the yield equation - like value stocks, it's where the story is. Most places at some point or another in their economic cycle will end up where the yield is very attractive, and that's the time to buy. And, as a wise old italian investor who could buy and sell me many times over once told me (after I made my first mistake) : never sell your property. Ever. Buy right in the first place and keep forever. If you find yourself hearing everyone say that real estate is a bad investment and see that rents are approaching mortgage payments, then buy as much as you can as quickly as you can.

The last 50 years has been the story of real estate growing in value. This may or may not repeat over the next 50 years, because demographics, national politics and household formation have all changed in that time. But inflation has been with us since the first clever financier decided to use paper money, and will stay with us while that is still the case. If you purchase with your head and don't listen to anyone else, you'll do fine.

Finally - on the lowest economic growth - in Australia, in the USA - in a lot of places - the cheap credit of the '00s has led to an over-investment in residential property. This takes credit and investment away from other parts of the economy where it could be used productively. And it results in banks being dangerouslly over-exposed to residential property as an asset class. I think this needs to be addressed, and pro-ownership govt programs(see FHMC in USA, First Homeowners grants in Aus) need to be dumped, despite the short term pain this would cause. Because the economy isn't going to get going again until all the bad debts and bad investments are cleared up and swept away.

Buying property in Australia at the moment would appear to be highly risky. I was hesitant back in 2002, and it's far worse now. The only thing that has kept prices high is the incredible increase in rent, which I'm still struggling to fathom. In 2004 I was renting a 110^m 2 bedroom apartment on the Brisbane river for $780 a month.

Australia has managed to inflate their housing market further, thanks to government intervention, and it seems that it needs to pop at some point. Long term, these types of capital gains in housing are unprecedented.

Here's a good summary. http://en.wikipedia.org/wiki/Australian_property_bubble

Brisbane is an interesting case. Between about 1992 and 2002, property in the city went basically nowhere value wise. I bought a property in 2001 for 20% less than the owner had paid in 1994. Then, in about 2002/2003, it nearly doubled overnight and has never looked like going back. I foolishly sold a house in 2002 which was listed 2 years later and brought more than double the price I had bought it for. It's again in a long slow slump (compared with inflation) - this is likely to persist for some years. So your experience exactly covers the period of greatest growth in Brisbane.

I agree with you, though, current conditions make it risky. However for the OP now would be a good time to convert some USD into well-located Australian property.

Small nitpic: your example of a house in Perth is out on the end of the bell curve. Perth has seen explosive growth driven by the resources boom, which have driven more people with more money to the west.

> 5 years later? $350k minimum. There was a structural change in the economy that hasn't since reversed and doesn't look like ever reversing.

This was the fallacy that got the US into so much trouble. When real estate rises quickly and consistently, people think it's a guaranteed perpetuity. That's not the case. Any investment can go down in value and almost surely will at some point in time.

Veering off-topic, but how do people in Australia rent apartments? It seems the answer is NOT "craigslist."

Also, from just walking around Melbourne and Hobart, it seems that Australian cities are more ownership oriented than major American cities. I've seen maybe 2 "for rent" signs. Am I just not seeing the rentals?

In America it's common for one company or landlord to manage an entire building. In Australia that's extremely rare. In NYC for example, you have co-op buildings, which is a new concept to me. Australia really has no equivalent. Pretty much all apartments in Australia are "condos" in American nomenclature (it's not a word Australians use).

Real estate agents list properties for rent, typically in their windows, on their website, in the newspaper and/or on one or both of the big property websites (RealEstate.com.au and domain.com.au). That's one thing I like: when looking for a rental you only really need to check those two sites.

It's unusual to put a "for rent" (or "for lease") sign up. "For sale" sure.

You can rent something directly from the owner but it's reasonably unusual. Even if the owner finds a tenant they'll typically use a real estate agent to manage the property (do inspections, organize maintenance, take the rent and so on).

So anyway, the lack of rental signs doesn't mean anything. In my experience you only see them in front of larger buildings on the lower end of the economic scale.

Last time I had to rent in Australia, which was 5 years ago, it was a combination of the newspaper and property managers. I went to each real estate agent in the area I wanted to rent, and they each had a large list of every property available in the area. Some they had keys for, which they gave you in exchange for your ID, so you could go look at them on the spot.

It's a lot more common in Australia for people to use property managers, and a lot less common to have large commercial rental properties. I believe gumtree.com.au and housemates.com.au are both popular now.

It's very similar to craiglist actually, theres many sites that advertise privately rented houses and shared rooms, e.g http://gumtree.com.au

Very few 'For Rent' signs because most Australian cities have a rental shortage, at least in the heart of the city. I have a property in Brisbane that has been vacant for 3 weeks in the last 10 years. It is highly unusual for it to be vacant between tenancies.

The reasons are varied, but increased planning laws and high immigration means that the supply of city properties is not keeping up with demand.

And yes, home ownership is very big in Australia.

Hey mate. Interesting perspective.

without knowing your financial situation, I'd suggest to keep working in the U.S. and invest in housing back in Australia.

Both are great prospects but you might be able to buy 2 houses near the beach in Australia (say Perth / Adelaide) for the price of one in NYC. In a way, it gives you diversification that NYC doesn't. Also buying walking distance from the beach gives you that security that land value will never go down.

I agree about the tax system in Australia. But I like it.

> I'd suggest to keep working in the U.S. and invest in housing back in Australia.

As it happens I do own a house in Australia that is rented out but when you're paid in one currency and your costs are in another you open yourself up to exchange rate risk. So I'm way of overweighting myself in AUD liabilities. It's not a currency I'd be betting against in the next 10 years. Likewise, the USD looks like it'll only get weaker in the short to medium term. Pretty much every government here has a budget in deficit and you may find local and possibly even state governments defaulting in years to come.

The US governments (at every level) seem to have made the same mistake as many individuals: when times are good they simply increase spending to match or exceed revenue. When revenues drop they're in a bad position. The US has this huge Sword of Damacles hanging over its head in the form of Social Security. It's ultimately unsustainable in its present form. Everyone knows it. Nobody wants to do anything about it.

At least in Australia we've been moving towards funding our own retirements for decades. We're not there yet but we're a damn sight better off.

As for buying houses near the beach, not in any capital city I know about (except maybe Brisbane now). Certainly not Perth or Sydney. In Perth you'd have to go 50km+ north of the city to get anything remotely close to the beach for under $500k.

And the idea that property near the beach "will never go down" is exactly the kind of thinking that led to the subprime meltdown.

As for the Australian tax system, mine was't a criticism, merely an observation. Frankly I think any system that encourages people to create homes for others to rent as doing a public good. After all, when someone rents, somebody else by definition has to own that house.

One other difference worth pointing out between the US and Australia is that in Australia interest rates are typically variable. They move mostly in lockstep with the official (Reserve Bank) cash rate. You do get fixed mortgages but they're rarely for more than 5 years.

In the US, mortgages seem to be fixed for the 30 year life of the loan. This actually makes buying in the short to medium term attractive in the US as interest rates can only really go up. 4% fixed for 30 years is a hell of a deal.

> Frankly I think any system that encourages people to create homes for others to rent as doing a public good.

All good and well, but land releases have not kept up with demand. A supply of cheap money from the US, the mining boom and negative gearing have lead to massive increases in housing prices in the past 10 years. It's not sustainable, IMO.

We in Australia brag about sailing through the GFC, but if inflation breaks out, the Reserve Bank will hike up rates mercilessly and a lot of people won't be able to cover the interest on their $3-500k McMansions.

> All good and well, but land releases have not kept up with demand

This point I've heard too often and it's one I vehemently disagree with.

Australians need to get over this quarter acre with a 250sqm house nonsense. What's more the government should stop subsidizing it to the degree that they are. It's not simply a question of land but all the infrastructure that goes along with it: water, power, roads, schools, etc.

There is no God-given right to build out rather than up.

I've heard your argument too. It's been the guiding thought behind slow land release -- that it will lead to higher density. That and the fact that it expands stamp duty receipts.

But that overlooks the fact that overly complex zoning laws, NIMBYist resistance from residents and the odd spot of outright corruption has basically prevented density from increasing.

Density has its costs too. It's cheaper to extend a sewerage and water network in a greenfield project than it is to dig up and replace it in a densely settled area. It's cheaper to maintain small streets than large streets.

FWIW http://www.wired.com/science/planetearth/magazine/16-06/ff_h...

As far as stamp duty goes, IMHO that system needs to be abolished. Property taxes should be applied smoothly rather than transactionally. For one thing, stamp duty reduces the flexibility of the labour market.

Consider: someone owns a house in Sydney worth $1 million. They're offered a job in Perth for, say, $150,000. Now to sell up and buy a new house in Perth they'd need to pay $50,000+ in stamp duty before you even get into agents commissions and whatnot. Why should someone take such a huge initial hit? Unless they didn't have a job where they are or the new job was substantially better, they're best off not moving.

You're right that the carbon footprint is lower, but that doesn't change the fact that the collision of politics and economics has prevent urban density from increasing in Australia. We need both to release land and increase density or will are beggaring ourselves unnecessarily.

As for stamp duty, the states rely on it too much to give it up.

Urban density has been increasing markedly in Australia over the past few decades, at least in Sydney. Not quite as fast as some folks would like (ie everybody with a spare quarter acre that they'd rather put up twenty units on) but density is certainly going up.

In my opinion, though, what Australia really needs to do is to develop the infrastructure outside the major cities to persuade people to move out there. Australia can easily accommodate another ten million people, but not if they all want to live in Sydney and Melbourne. Why can't Broome and Mildura and Wagga Wagga have two hundred thousand people?

Generalising enormously, the capital cities are already perched in the best locations. A successful city needs two major things: ready access to water and ready access to trade. That's why most major cities are on rivers or around major harbours.

Take my home town Darwin, for example. It is not destined to be one of the world's great cities because it is poorly positioned. There's buckets of water but due to the flatness of the country it's hard to dam. The harbour is large but shallow. The approaches from East and West are not friendly to bulk shipping.

Sydney, Melbourne, Adelaide, Brisbane and Perth are already hogging the best spots for large cities.

This type of thinking doesn't explain Houston, Las Vegas, Phoenix - the list goes on. These are large cities by Australian standards but fit very few of your criteria. Las Vegas depends on the Hoover Dam, but certainly not trade or shipping.

Water supply is the major issue in Australian cities, but this can be solved (see Kalgoorlie) if people put their mind to it. I agree that Australia needs to develop the regional areas more.

Houston is actually the 2nd biggest port in the USA and 6th biggest in the world. It's also surrounded by oil and natural gas. Phoenix and Vegas are weird ones, but most large cities in the USA are on a big lake, river or ocean, or some combination of those.

My bad with Houston. I must have been thinking of Dallas.

The factor with Las Vegas and Phoenix are that they are modern growth cities. You don't need a deepwater port to facilitate growth in a modern city, just a good airport, good road/rail links and good communications infrastructure. You could argue that Phoenix is propelled by retirees and golf players and Las Vegas by gambling - but the reason doesn't matter, just the fact that a city can be sustained does.

My understanding is that Vegas is on a major highway and has a natural trade (gambling). Other Nevada gambling towns which are not on that route are less successful. Is that correct?

To cover myself, refer again to my prefatory remark that I was generalising enormously.

Las Vegas has trade and shipping... tourism.

This is more up to councils and state governments, and there is movement in this direction, encouraging high to medium density housing rather than low density.

I don't really understand land releases, surely this could happen faster, it feels like its geared towards maximum profit to only release in small chunks when there are large areas they will eventually be subdividing.

Somewhere like Melbourne though, I think things need to become a little less inner city focused. As in new suburbs are popping up but not a lot of employment is close to them meaning that transportation becomes worse as there are ever increasing numbers of people making long trips to work from the outer suburbs. I've always thought it would make sense to stick another inner city like hub somewhere and put high speed rail or something between them, rather than forever branching out from a central hub.

It suits both government and developer to do small releases. The developer can charge a premium and the government maximises stamp duty.

3-500k won't get much of a McMansion in Australia. It might cover a townhouse.

> Frankly I think any system that encourages people to create homes for others to rent as doing a public good.

I don't see the tax breaks as a good thing as it skews market forces and inflate property prices. They also throw up a moral dilemma: Why should property investors get tax breaks (offset interest payments against personal tax) and not home owners.

What you start to see some single young professionals in Australia doing is buying an investment property to lease out and then renting another property to live in themselves. This is to take advantage of the government-funded tax breaks. So the flow of money goes a little something like: government tax revenue -> property prices. I can't see this helping the public good at all.

Moral Dilemma? It seems a logical way of treating it.

The additional income is treated as taxable income. The additional expense (aka Interest) is treated as a deductible expense.

1. It's deducted against personal income. 2. Nobody is allowed to do it on their own home

So is a company car if you're a sole trader... But I can't write off my normal car.

It's relatively consistent.

Amusingly, there are media stories here in Australia about people working in Australia and buying property in the US. Might have the details wrong, but one woman had sold an investment property (in Darwin maybe?) and bought five apartments (in Florida, I think?) in the US with that money.

Not surprised. The Australian dollar has surged against the US, and Darwin has the most overpriced capital city market in Australia (I live in Darwin, the prices are bonkers).

I'm thinking about doing it. Positively geared properties sound very enticing.

Am I the only Australian that looks at house prices in Detroit and dreams about buying an entire suburb and creating a gated utopia?

I believe Steve McKnight is doing something along that line in the US with some church groups.

> Also buying walking distance from the beach gives you that security that land value will never go down.

Sure, just like all those condos in Miami... There is no economic law that says that properties near the beach can never go down in value!

Your numbers seem to be a little off, unless we are talking about places that are closer to bronx or buildings that are falling apart.

In midtown, that 1BR will run you ~$2,500 to rent and close to $1 million to buy.

Maintenance fees should also be higher, at least $800.

Are you talking a modern condo? If so I believe it. If not, you can find places for cheaper than that. Put it this way last month I rented a 1BR in a Chelsea brownstone for $2,000/month (which is generally more expensive than Midtown).

But think about those numbers for a second. $2500/month is $30,000pa or a 3% gross return, even less once you factor in maintenance. To put that in perspective, 5% gross return seems to be the benchmark in Australia (although in Australia there tends to be a tradeoff between capital growth and annual income).

In London I've seen the gross return be 10% or even higher.

So who would invest $1 million for a <2% gross return? That's nothing but a bet on future capital gains. In other words it's speculative. So the question is: is that sustainable (meaning will rents go up to match) or unsustainable (meaning prices will stagnate or go down)?

On a side note, some may consider it strange that I'm talking about the rent figure as a return. I've certainly spoken to many people who can't look past the speculation but that income is really important as it does relate to the asset price. They simply can't get too far out of whack sustainably.

Commercial or industrial property tends to be judged much more on viewing the property as an asset that generates income (Las Vegas casinos notwithstanding).

I lived in NYC during 2009-2010 and looked at a number of rental 1BRs under $2000 in Chelsea/Flatiron/Murray Hill & that area around Gramercy that isn't really Gramercy.

I wouldn't say the buildings were falling apart but they did have dated architecture, and not dated enough to be classic. (think 70s/80s).

Likewise, I thought it would be a good time to buy, and there are a lot of 1BR < $600K in those same areas. Also, Upper East Side towards the river had similar "deals." Oddly enough, I feel Morningside Heights is overpriced, probably because there were so many TimeOut NYC style articles about how it's great for gentrifiers.

Maintenance fees were indeed always too expensive, but was more around $600.

Your prices do apply, but more to brand new buildings, or buildings in "hot" neighborhoods.

Morningside Heights is also expensive because of Columbia University.

I agree. 2000$ is a _very_ cheap 1 BDR in manhattan, more likely an "alcove" studio. You really have to go 2500$+ to have anything decent.

Are you figures in real terms or nominal terms? If nominal, then sentences like "where once you could build a house for $80k, now anything less than $150-200k is unrealistic" are unsuitable for building an argument upon.

A lot of his point was that there's a difference between real and nominal terms. He was saying real estate is a hedge against inflation; in that context, saying that "the $80K house 10 years ago now costs $150-200K" is perfectly relevant.

Since housing is a proxy for net migration, what are the stats for NYC?