Housing prices have been going through the roof. The reserve bank recently increased interest rates. Now the housing industry is advising that another rate increase is a bad idea. That’s just a quick list of recent events, but what does it all mean?
What’s behind it all?
Established people are buying investment properties using money borrowed against their current property. Demand is high and they are competing with people who want to buy somewhere to live. The government provides a first home buyers grant to help prospective owners compete in the market. Arguably a positive gesture, but it fails to offset rapid price inflation. Many people can’t get into the housing market and end up renting.
What does it mean in the long run?
Maybe interest rates increase and people default on their loans and have to sacrifice their homes. A bunch of people lose out and spend their money paying off overseas banks, instead of spending their money here. That can’t be good for the economy. Would this really happen? Maybe the government will bail people out if it’s a widespread (vote affecting) problem.
Maybe people actually manage their loans by offsetting them against their real estate assets and a lot of people get rich. Of course this happens for the people buying investment properties, and not for the people buying their first home (who get stung by interest rate increases). One generation owns the majority of the land and subsequent generations are stuck in the rental market. Unless they get land via inheritance. Yay. Nouveau riche and a greater gap between rich and poor.
If the government has to choose between (high percentage of the voting population) baby boomers and (lower percentage of the voting population) later generations… well, someone is going to get screwed. Maybe a better preemptive move than the first home buyers grant would have been to increase taxes on speculative investment properties… but that wouldn’t have been popular with their demographic.
Is it wrong?
Is it ethical for people to own property that they don’t live in at the exclusion of others that need it? Especially when they can exploit the need (for housing) and (collectively) set a rental fee that is the maximum the underprivileged can tolerate?
Well said Nick. I’ve never considered housing investment an ethical issue, but now that you bring it up, I can see your point. I’m particularly distressed because I’ve missed the proverbial boat buying a house in Perth, as the prices now are rediculously overinflated. I will now be forced to rent, at the mercy of rich investors who will demand a high enough rent to pay the interest on their large loans. At this point I’m seriously considering bailing out of Perth and moving to the next potential boom town… I hear Adelaide is nice.
Even if you got into the market a few years ago, you’d probably have taken out a 20 year loan and you still could’ve been bitten by (future) high interest rates.
Without getting too socialist and saying “I don’t see why people should be allowed to *own* land”, maybe most suburban areas should be zoned as “owner occupier” only, and investment properties should be heavily taxed.
I think you should have a look at countries like germany. I’ve heard that it takes multi-generations to pay off houses or people don’t buy they just rent for their entire lives.
I don’t really know if thats correct, and I’m too hungover to look it up. I was told by some guy who was working with me at santa pines, a christmas tree company. But it kinda makes sense in a way. Some “developing” countries seem to follow patterns of more “advanced” countries.
On the brighter side, you shouldn’t feel so bad Nick, the generation above us will have to spend all that money they are earning now, to pay for their retirement as there won’t be enough people paying tax to support them.