Comment by stana | Hacker News Reader

Comment by stana | Hacker News Reader

Thanks to banking deregulation housing has become an investment commodity. In major cities in Australia at the moment half the purchases are for investment rather than owner-occupier. Government incentives like first-home buyer grants (if you can't save for a deposit) have only lifted the prices and helped vendors. Another one is negative-gearing introduced a couple of decades ago allowing tax deduction for investment properties making a loss (after rent), pushing prices higher. Only a few years ago the rules were changed around Australian pension funds (superannuation) allowing leverage. Property purchases from these funds sky-rocketed. All of this while Foreign Investment Review Board (who should be in charge of making sure foreign investors only buy new properties) has not had a single prosecution in last 8 years making you wonder if the rules are being followed at all. It is hard not to make a connection between constantly rising house prices and baby boomer generation dominating the government. It has been recently estimated Australian politicians hold a $300m property portfolio. Talk about conflict of interest..

It's basically inevitable though that in demand property will rise in price, especially with regulation constraining building height/form factor. Home cost in urban areas is much more about location than it's about any real cost to building the residence. Lots of people buy large houses for very little a few miles out of town where land is abundant and demand is more reasonable.

I guess I'm just having trouble really feeling sorry for anyone who decides that living within a select few square miles is worth paying an obscene percentage of their income towards that pursuit. It's a housing market and prices will rise to meet demand until buyers finally split off to other nearby locales.

As to your last line; There's a reason that most people don't want to admit that 2008 was the housing bubble popping and instead insist that homes are "finally returning to their true value".

Well, picking a shorter commute is a reasonable choice to make. Longer commutes don't take time from work, they take time from family, and are associated with higher divorce rates, at least amongst Swedes.

In a city like Melbourne, where I live, there's a lot of development which could still be done to reach a reasonable medium-density of 3-4 story apartment buildings in the suburbs immediately circling the CBD. It is being done, but not to such an extent that housing prices will stop rising. I really wonder what this city will look like in another 20 years, as people are pushed further and further out but the work is still centralised.

My personal opinion is that the need to physically be at your job will only diminish in the future. I honestly believe that VR will eventually offer a lot of potential for virtual office spaces that give you the illusion of being there but let you sit comfortably at home.

Of course I may just be a dreamer and we'll continue to see housing prices skyrocket as we try to cram 10's of millions of people into small geographical areas- I'm certainly not dismissing that possibility.

We were promised paperless offices decades ago and we're still nowhere close. Right now we can barely get video-conferencing done properly. Hence, I doubt VR will help us anytime soon.

I don't think it was a promise, more like a prediction. And it is becoming true, I think. At least in my line of work (engineering, software, telecoms, security) shuffling papers has decreased a lot over the past 15 years.

National legislation sometimes slows this development, e.g. by insisting on having a paper with a signature and possibly even a stamp.

As usual, we tend to overestimate how quickly the changed happens in short-term (hence "the broken promise"), but we also underestimate the social impact this change has (we don't just replace paper with electronic forms, we change the way we work and it changes businesses profoundly.)

I agree with you about virtual offices, but I think social lives will still mean that people want to live near their family or friends. In an office with desk jobs, physical contact is almost never required, and so virtual spaces will be realistic far sooner. When it comes to friends and family where there is far more nuance in our interactions, I think it will take longer.

"There's a reason that most people don't want to admit that 2008 was the housing bubble popping and instead insist that homes are "finally returning to their true value"."

It may have burst in the US, but certainly nowhere else

With the current prices just with a gun pointing to my head, I would agree to buy a house in Australia as investment.

With the money needed to buy a crappy flat, you can buy a luxury house in a lot of places around the world. Prices are crazy.

It is somewhat inevitable, but the problem we see here, I believe, is about the magnitude of this rise. I don't believe housing should be a _completely_ free market : investors should be regulated out of the tense areas (except of course for new developments).

Investment in older buildings in tense areas, combined with wealthy buyers who neither live in nor rent their property, are pushing prices way beyond acceptable ranges. I don't know about London, but in Paris for instance, 20 to 30% of the flats in the center districts are empty.

When young professionals and less fortunate people are struggling to find housing and putting more than 40% of their income into the rent, I believe those 30% of empty flats are unacceptable and the owners should be taxed out of them.

There are plenty of legitimate vehicles for investment, but already-built real estate is definitely not one of them. Such investment is not productive for the economy as a whole and is not much more than generational ransoming.

>I guess I'm just having trouble really feeling sorry for anyone who decides that living within a select few square miles is worth paying an obscene percentage of their income towards that pursuit.

There have been studies showing a negative correlation between long commute times and happiness.

I don't have a family, so I am happy to pay for a relatively small apartment in the city centre. If I lived in the suburbs I would get a lot more house for my money, but then I would have to spend and extra couple of hours every day commuting.

Why would housing not be an investment commodity if banks were more strongly regulated? What specific regulation do you propose that would prevent housing investments?

Communal ownership of all property comrade!

Far too radical an idea for here.

In Australia we have negative gearing. In layman's terms it means you can offset property expenses against your real income.

So if you have a big income with a corresponding big tax burden, you can reduce you extra income to purchase a property and by using the expenses of that investment, reduce you net income and hence reduce you net tax burden.

So rather than paying the tax man, you end up paying the bank, which for you the rich investor, is not bad since the value there is a chance that second, third, forth property that you are now gearing will appreciate in value.

So while the tax receipts of the country go down, your paper wealth goes up, that is until the next GFC.

So the end result is the rich continue to reduce their tax burden, reducing the tax income of the country, hence passing the tax burden onto the middle and lower classes and in the process the rising house prices encourage those same rich to invest in yet another property as their paper wealth continues to climb.

Any one can see that is not good for the country, not good for the community and also not sustainable.

It's easy to create a bubble but at some time the buble has to burst.

Negative gearing is not a banking regulation, it's a tax subsidy.

I suspect the parent was replying to the second part of your question: What specific regulation do you propose that would prevent housing investments?.

The parent's response is (presumably): "remove negative gearing".

That is correct.

The original parent said "housing has become an investment commodity" and that it very true here in Oz.

Thanks to a climate of very low interest rates and "negative gearing" it means only those with high taxable income and a high tax burden can afford to invest in housing and in the process pushing housing prices ever higher.

But this is a bubble and it is unsustainable. If the world economy ever gets over the problems of the 2007 GFC and we finally see any form of real growth, interest rates will have to increase from their near zero position.

When that happens it will cause yet another crisis when that housing bubble is pricked.

By removing that unhealthy gearing tax, the Oz government could at least take some of the heat out of what is an already overheated property market.

Edit: Before someone points out Oz interest rates are actually not zero but rather high, unlike the majority of the developing world. Last Tuesday the overnight cash rate came down to it's lowest level since the 1950's.

And since the Oz economy is not running as well as it should, all predictions are we'll be seeing several more rate cuts in the future.

And with the current tax settings, that means we're in for a booming of house prices. We only have to go back to 2007 to see how over inflated house prices can destroy a world economy.

(I'm Australian)

But this is a bubble and it is unsustainable.

So many people say this, presumably because "it must be true".

I just don't see why that is necessarily so - at least in the medium (20-30 years) term. Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high.

In the short term, yeah, it would be good to see lower growth in housing prices, or even a drop. I'm quite sympathetic to the idea of negative gearing reform.

A 5% drop in real terms is possible, or even likely at some point, and markets like Perth and Darwin will always be more volatile.

But that's very different to the 30-50% drops that "bubble bursting" implies.

> So many people say this, presumably because "it must be true".

Consider this link:

http://www.smh.com.au/business/property/median-asking-price-...

* Across Australian state and territory capitals, the median asking price for detached homes jumped $6,400 over the week to $755,100, the figures show.*

At a rate of 6% the interested alone on that loan is $45,000.00 a year. Move that rate to 7% and that jumps to close to $53,000.00 a year.

How can any family earning average or better than average wages every have enough income to cover those interest re-payments?

> Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high.

I don't disagree with this and I have no doubt the prices are being over inflated by a large numbers of oversees investors.

Hover, part of that problem is the Australian government is not enforcing it's own rules regarding home ownership. If a foreign money buys a home in Australia the owner needs to be a student or a permanent resident.

Currently there is massive level of overseas investment in Australian driving up the prices in the housing sector but most of that investment is actually illegal:

http://news.domain.com.au/domain/real-estate-news/parliament...

Australia also suffers from demography issues in that there are so few cities where you can live.

Unlike the US where there are numerous big cities options, in Australia there are less than a dozen such big city locations to choose from.

That factor alone is also putting upward pressure on housing in those areas.

The question is will interest rate every go up. That is not certain since the world is still suffering with the issues of the last GFC.

But in Australia if those interest rates do ever start to move upward, which would be an indication the country is finally showing something in the form of economic growth, those rising interest rates are going to cause problems with those massive $1 Million+ home owner debts.

He mentioned a list of items, such as

Foreign Investment Review Board (who should be in charge of making sure foreign investors only buy new properties)

which is apparently a rule that's not being enforced. Lots of the western world is seeing housing bid upwards by capital flight from China.

It's not a banking regulation.

No, but a bank (either local or foreign) has a duty of care to ensure that a loan will not be used to finance an investment that potentially violates local or foreign laws placing said loan at higher risk of default.

Not prevent it. But around half the purchases in housing being for investment seems a bit distorted. As far as regulation I would start by encouraging lending to productive parts of the economy (business, innovation, startup, infrastructure, etc.) and limit lending for rent-seeking activities like market speculation.

I think blaming banking deregulation for making housing an investment is a pretty difficult case to make.

Negative gearing, and the flight to safety by overseas investor do have significant impact though.

I suspect many people who think that governments should act to try to cut prices miss the fact how hugely unpopular this would be with the majority of the population.

Many (most?) people have the majority of their savings tied up in a family house and rely on rising prices as retirement savings. That's worked well for the past 60 years or so, and there is no real structural reason why it needs to stop (in Australia anyway).

As long as those same people don't then complain that retirement forces them to leverage against their house to pay for it. But all of them do, because they feel it's their right to retain ownership to pass on through inheritance which of course only worsens the problems of property access.

Its basically transferring wealth for those who don't own to those who do.

My parents house has quadruple in price over the last 20 years, (while wages have gone up maybe 50%). Where does that money come from? The younger generation that have to buy it from them when they sell up of course.

> Where does that money come from?

I think the question is more about where does that demand come from, as it clearly increases faster than supply.

Where does that demand come from? Population growth, particularly immigration, as well as migration of people within nations.

Credit growth as well.

Its basically transferring wealth for those who don't own to those who do.

What is? Banking deregulation? Or the features of the tax system like negative gearing?

They are very different things, and talking about them both as they are the same thing or have the same effect is just plain wrong.

Pumping up house prices as high as possible, and not allowing free markets to exist - by lowering interest rates as soon as a crash should have happened. Banking deregulation contributes by allowing people to take out loans they can't afford, then the tax payers have to bail them out when they go titsup.

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