The case against home ownership

“The business of the United States used to be business. But somehow with all these Government programs, we turned the business of America into housing”…

The above is just one of the great quotes from yesterday’s debate on Canada’s The Agenda (video below). The debate subject was The case against home ownership, and the panel included: Robert Shiller, one of the world’s leading experts on asset bubbles; Richard Florida, professor at the Rotman School of Management; Jane Saber, professor at Ryerson University; and Phil Soper, president and CEO of Royal Lepage.

Some other quotes from the video include (some courtesy of Ben Rabidoux):

Robert Shiller, on the benefits of home ownership:

“…Switzerland only has about 1/3 home ownership rate….With regards to home ownership rates, I’ve been looking at Switzerland with particular interest because advocates of home ownership claim it encourages good citizenship and a feeling of belonging. Switzerland has all of this, yet it is full of urban renters…”

Robert Shiller, on government efforts to promote home ownership:

“It is definitely not unambiguously good…It wasn’t a good thing (in the US). Home ownership rates are now higher in Canada. The US made major efforts to subsidize home ownership…We made a mistake. We should have left it as a lower level.”

Richard Florida, also on government efforts to promote home ownership:

“I think we are in a resetting process…I think ownership rates could drop below 60% (in the US). We’ll still be a nation of owners, but I think what Shiller said is right. We have to get government out of the business of promoting ownership and let the market work.”

On the fallacy that home ownership makes better financial sense than renting:

Steve Paikin (host)

“What about this argument that all of our parents said to us once upon a time: You don’t want to rent, you want to buy because you don’t want to be throwing your money away….You don’t want to be improving someone else’s equity, you want to be putting the money into your own house…?”

Robert Shiller:

“I think it’s fallacious. If you don’t buy a house, you put it in the stock market or something else, and you are still earning a return on it….(the argument) really is wrong.”

Steve Paikin addressing Jane Saber, a renter:

“As a renter, you’re telling me it’s more advantageous to be putting that money into your landlord’s pocket than your own home?”

Jane Saber responds:

“Absolutely. Crunching the numbers…I would be paying double for a similar dwelling. What benefits do I receive from owning other than to be able to say to my friends, “I own this” ?”

Phil Soper:

“I think the problem is that when people aren’t putting their money into houses, they aren’t putting it into stocks and bonds. They are (spending it).”

Richard Florida:

“I wonder and I worry that we’re too complacent in Canada….In the US, there is a conversation I could not have imagined that is occurring about the “American Dream” (the value of home ownership)…That conversation is not happening here in Canada, and that has me worried.”

On demographic shifts:

Jane Saber:

“We [Canada] have huge demographic shifts going on and we also have median income figures that are frightening… We have an ageing population that is going to be dumping its houses; there’s no question about it. These folks don’t want to shovel the walks and mow the lawns and clean the 4000 square foot homes… they are going to be selling and perhaps buying condominiums or maybe going into seniors homes. There’s going to be too much housing stock on the market…”

Thanks to Ben Rabidoux for the video and quotes.

Unconventional Economist
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  1. Option 1: Pay $3,200 per month on a mortgage – with little prospect of capital gain, and very high interest charges (i.e. only building less then $100 equity with each repayment

    option 2: Pay 1,200 per month on a rental. Don’t have to worry about capital gains, and there are plenty of places around to rent if you are employed professionally on a good wage. The $2,000 you pocket in the difference goes straight to building equity.

    I’ve worked out a simple calculator that shows that with a comparable property – the capital gain would have to be around 10% YoY every year for you to build more equity then you would otherwise from renting.

    The catch is – you need to be disciplined enough to save the difference.

    • “The catch is – you need to be disciplined enough to save the difference.”

      Or you can spend it on fun stuff! Why is it so bad to go on a holiday instead? Sure, you’ll have less cash in the bank or less shares than if you bought a house, but you would have lived your life.

      My wife and I have a sizeable deposit saved, plus some shares, some gold/silver, etc., but I’m not pedantic about saving for a depositor if it means being a scrooge. We might have to hold off for another year before buying a house, or pay a mortgage for an extra year, but that’s not a huge price to pay IMO.


    • I hear you, I am all against paying the crazy Sydney prices and will postpone it as much as I can. Problem is, I think you are dreaming if if you think you can rent in Sydney for 1200, unless you want to live in a cubicle.

  2. The business of the US used to be technological innovation and manufacturing but somehow with the government “reforming” the law that kept checks on banks it became financial innovation and production of credit. Dotcoms, housing, oil, anything that can be speculated on and turned into derivaties.

    • To be fair, the US do still have a massive number of innovative technological companies. Australia is just a hole in the ground in comparison.

      • We have great innovation, but a stupid ‘tall poppy’ syndrome and no-one willing to put up the venture capital to make it happen.

        Many of the best ideas go overseas where they make a lot of money for bolder souls.

        It is a great loss to this country. As I have said before here, if you have 2 BMW’s and a nice house in Asia or the US people think you are successful, here they are more likely to think you are a wanker. go figure.

  3. This blog is rife with random ‘blame government’ statements. Not only is it very tiresome it is also incredibly devoid of any argumentation or solid evidence to support the claims that government is solely to blame for all the wrongs in the world.

    I’m not a government fan, nor am I a government hater. I do however dislike populism and empty statements.

    There are always multiple parties in the mix. Banks chasing profits, investors chasing dividens and capital gains, politicians chasing votes, real estate agents chasing souls (:P), property owners chasing retirement funds.

    Let’s not downgrade this blog by pointing at the usual faceless scapegoat just because it goes down well with the audience.

    just my 2 cts.

    • Agree with this sentiment…..but blaming the guvmint for something is a national sport here in Oz and is usually accompanied by a statements that the guvmint should fix it, but only if its revenue neutral and does not in any way disadvantage whoever is making the statement. Perhaps we need to recognise that in a democracy blaming successive governments for something…e.g. negative gearing can only be construed as blaming ourselves because as voters we have never demanded anything else.

        • Because it would mean accepting a sewage treatment plant in a residential area, no planning for schools, no roads built wide enough for buses even though residents demand services, heritage ignored, the loss of habitat for endangered species and so on. Don’t get me wrong, I’m not saying the government has done a great job, but surely you agree there is some role for government in housing.

          • That’s an extreme position you have taken there Miss P. Since when have I advocated that kind of housing system? Please point me to articles where I have proposed policies that would have lead to those outcomes.

          • I disagree with everything said above, other than the question posed by UE…

            The Government is to blame…and they dont cop anywhere near enough blame. They have murdered housing policy in Australia…and from what I read about the US Subprime Crisis, their misguided intentions to engineer society and manafacture high home ownership rates started the housing bubble.

            Miss P said:

            “Because it would mean accepting a sewage treatment plant in a residential area, no planning for schools, no roads built wide enough for buses even though residents demand services, heritage ignored, the loss of habitat for endangered species and so on.”

            What you are talking about is not something that can only be done by is simple urban planning…that is the problem with people, we think the only way to have collective action is to haev Government…but that then breeds Big Government and then Bigger Government, as there is always some constituency that wants another favour at the expense of others (withness the introduction of negative gearing).

            So every year they (Government) ratchet up their impact on the housing market…so that they nor organining urban development for our benefit (they do it in accordance with who bribes them and who pays for their campaign).

            Government is gonna cop a lot more crap over the next decade. Maybe you havent noticed but they are rioting in Europe, furious in the US, protesting in Japan (first time in ages!) and having full blown revolution in middle east.

            Australia’s Government is also at record lows.

            Its not that the people are suckers and whingers…its that the modern day Government has failed its people.

          • What is meant by Government intervention is the involvement in the subsidizing of houses having an influence on the market making it more competitive. Nothing has been said about the involvement from an urban planning perspective, which is very important.

          • Oz…the way they have drip fed land onto the market is Sydney and Canberra is a disgrace. And the locations are pathetic…and the size of the blocks.

            It is so clear that the Government interests and its citizens are not alligned on housing.

            They want to divy up land into tiny blocks and sell it to us for massive amounts of revenue.

            All so they can pay for TV ads with our money telling them how good a job they are doing.

            Dont even get me started with all of the developer bribes that get paid to Government and councils to allow rezoning for some and not others.

            The whole thing is a crooked mess.

            We would be far better of selling whole sububrs to developers and having them compete for amenities etc…

            Privatise publci transport and allow a gypsy cab industry to flourish.


            Ane people think Government cops a bad wrap around here!??

          • Absolutely I agree that the housing should be free from first home buyer grants, negative gearing incentives and that sort of distortionary intervention, my point was (perhaps to blunt) that surely there is a need for some intervention to enable a certain desirable social and environmental outcome.

        • Apologies Leith, my comment was triggered by the comment above mine and many comments on other posts before that. I just clicked the wrong reply button.

          You always present your argument well. That said, I do not agree with you on this one. I’ll present my argument in another comment. (This on is getting quite narrow).

      • Sorry Russell but in my opinion it’s the government that sets the rules and it is on them if the rules fail us.

        You have a point about the voters being to blame but how many of these shitty policies have essentially been the result of fierce lobbying by the property investment industry, as opposed to being demanded by the people?

        • Totally agree Jason.

          This idea that Democracy makes everything ok is silly…Democracy allows the majority (home owners) of the people to favour policies that hurt the minority(renters)

          That is why we have restrictions on what the Government can do to our rights. There was a time when we put liberty in front of the will of the majority.

          That is why the US consitituion is so important and why I yearn for Australisn to start being more scpetical of Government and more concerned with the protection of their freedoms.

          • From a libertarian point of view, negative gearing and tax deducting capital gains (I believe you can claim depreciation on houses or something?) are absurd. The taxpayer is basically subsidising bad investments.

            From UE back in 2010: “Of greater concern to taxpayers, total net rental income from investment properties has decreased from +$219m in 1999/00 to -$8,628m in 2007/08 (Chart 2). Further, the proportion of property investors declaring losses increased from 54% in 1999/00 to 69% in 2007/08. Assuming that the average marginal tax rate of property investors is 30%, negative gearing cost the Government around $2.6 billion in foregone tax revenue in 2007/08, meaning that average Australians are massively subsidising property investors.”

            Hawkie and Keating tried to get rid of negative gearing in the 80s but were fiercely opposed by the property lobby with the claims that it would cause rents to go up massively. However statistics during the brief period where negative gearing was removed only showed modest increases in Sydney and Perth, stayed flat in Melbourne and Adelaide and rents actually fell in Brisbane. This is all from the UE link above.

            Now let me ask you this. How many Average Joes do you reckon understand what negative gearing is, and how many would’ve voted the government in on that policy alone?

        • In fact this was suggested by the RBA to the Productivity Commission back in 2003!

          “In 2003, the Reserve Bank of Australia RBA cited systemic tax advantage, including negative gearing, as the main reason for housing unaffordability. Point 22 of the RBA’s submission to the Productivity Commission First Home Ownership Inquiry stated: “most sensible area to look for moderation of demand is among investors” as ‘the taxation treatment in Australia is more favourable to investors than is the case in other countries'”

    • … on ‘less government is better’…

      Economic theory in my opinion has one major limitation. It is hopelessly monodisciplinary (the good ol’ cetirus paribus) and tends to elevate models to truths. Reality tends to be different as people have many, often conflicting, interests. This is where government comes in and why government will never be able to deliver. Good compromise means everyone loses something.

      Your argument that less land restriction will lead to lower property prices is probably true and you will get no counter argument from me on that one. However, money isn’t the only factor that’s important to people (cue Maslow’s hierarchy of needs) and recent history has shown people can get quite funny about trees and bush, rocking up in numbers to hug a tree or lie in front of bulldozers. Although not a tree hugger I would personally also hate to see the sprawl continue even when it comes at a cost. Not just because of the loss of flora and fauna, but also because I personally find suburbia incredibly depressing. I prefer the hustle and bustle of denser cities, coupled with the odd weekend away from it all.

      What I do agree on though is that government dropped the ball by enforcing boundaries without providing alternatives. Government could have provided alternatives by promoting the development of satellite cities (multi-CBD) by lowering taxes for business in certain towns/areas, providing business support, creating incentives for people to move, etc. Investment in infrastructure probably wouldn’t have hurt either. This is just another example of the often heard but never seen ‘integrated approach’.

      This touches on some inherent difficulties in government… management of networks. In this case ‘government’ is not the one organisation but a collection of organisations all looking after different interests. The issue with urban sprawl requires these many organisations to work together which is notoriously hard, private sector no different from public.

      I’m not trying to provide an excuse for government and I do agree that government intervention should be avoided in many cases (negative gearing in Oz and the mortgage interest tax-deduction in my homecountry come to mind), but reality simply isn’t as straightforward as people make it out to be.

      • The REAL problem with people’s dislike of “sprawl”, is its “continuity”. It is perfectly possible to provide green “enclaves” that everybody around them can enjoy, and allow development beyond it. Cities should be made up of susburbs and green enclaves. This would allow much more “democratic” enjoyment of “green space”, and would NOT set off bubbles in the price of land within an arbitrary belt, boundary, or plan.

        It is the planners insistence on “continuous” development for the sake of alleged efficiency of urban form, that also creates new constituencies AGAINST new development. Of course relentless “dense sprawl” is ugly, and if someone is lucky enough to have a rare outlook free of more sprawl, of course they will fight for it.

  4. The main reason renting now makes any kind of sense is that govt has gone out of its way to make housing so unaffordable that there is no other option for many. It is rent by default.
    Not that renting is fair. With a lot of housing snapped by investors either chasing capital gains or treated as speculative hoardings (1), the pressure is on renters.
    “The business of the United States used to be business. But somehow with all these Government programs, we turned the business of America into housing”…
    Replace US with Aus, there is no difference:
    PM Rudd (2009) on RMBS issuance post GFC: “The availability of credit is essential for the health of business. . . Total credit in Australia today is $1.9 trillion. Nearly one trillion of that is housing.” (2) In other words, over half of business in Aus is housing.
    Since then the govt has via the AOFM “supported the RMBS market by investing a total of $12.537 billion across 42 transactions”. (3)
    In its on-going relationship with distorting the tax system the govt burned through Treasury revenue to the tune of $8B (in 2007-08) for housing-related taxation expenditures (capital gains discount on investor housing at $6B and Negative gearing for rental housing at $2B) (4). What that figure is today I do not know, no doubt a lot more.
    For a govt, higher prices for either housing or rents is a good thing – extra GST, Stamp Duty, Land Tax etc. Really, profiteering from higher revenues can be the only financial reason for govt support of inflationary policies.
    Demolition of the working class is well under way – congratulations Labor and Libs. It seems the wrecking ball of distortive policies into the aspirations of the next generation is the way to go.

    (1) 2009
    (4) A good house is hard to find 2008

    • I think Labor, the Democrats in the USA, Labour in Britain, etc; have now demonstrated that in their ideological framework, “Planning” per se trumps “outcomes for the poor”.

  5. Switzerland has a very generous pension scheme. Surviving on the Australian pension is hard when you don’t own your own home.

    There is no general case about home ownership because everyone’s situation is different. ‘Rent money is dead money’, however interest payment is also ‘dead money’. If it’ll take you 30 years to pay off the loan, you’re better off renting. The situation is different if you can pay off the mortgage earlier.

    Using my personal situation as an example. I bought my house during the GST introduction and the government was giving money away(a generous $14000 subsidy, mostly going to the seller). After living in it for 2 years, I decided it’s a ‘dead end’. So I moved back in with my parent, rented the place out, and then made every effort to repay the loan. It was paid off after 5 years. With no mortgage, no rent payment, and a discretionary income around 70%, life is pretty carefree.

    Australia needs a ‘stepping stone’ kind of housing at 3x median income (around 200K). This will allows the average Australian to buy a house, pay off the loan, before moving to a bigger, more comfortable house. This used to be possible. Before the currency was floated, the average Australian wage was around 20K a year, and a good house can be bought for 40k. We have changed a lot since then.

    • Good idea on cheap affordable entry homes.
      Unfortunately, Labor and Libs seem to believe Aus should be the epitome of a FIRE economy, where:
      “business plan of bank marketing departments is to capitalize any economic surplus into debt service. Loan officers see any net flow of income as potentially available to be captured as interest payments. Their dream of growth and financial success is to see the entire surplus capitalized into debt service to carry loans.”

    • Australia just needs to remove the legislation that makes speculation on housing so attractive (eg. negative gearing). That would remove most of the artificial demand from the market and leave the legitimate long-term investors alone.

      Although we’re probably way too far along in the cycle for this to happen.

      • In fact this was suggested by the RBA to the Productivity Commission back in 2003!“In 2003, the Reserve Bank of Australia RBA cited systemic tax advantage, including negative gearing, as the main reason for housing unaffordability. Point 22 of the RBA’s submission to the Productivity Commission First Home Ownership Inquiry stated: “most sensible area to look for moderation of demand is among investors” as ‘the taxation treatment in Australia is more favourable to investors than is the case in other countries’”

      • It is not NG that is the problem at all. NG will be dead when the retiring boomers do not need it.
        In Germany, the capital gains on your PPOR is approx 28% if you sell within 10 years.
        A govt can either have laws that support speculation or restrict it.

        • and that is to say nothing of penalising investors who are able to leverage their equity with zero down in order to bid up prices and hold multiple properties.

          Simply making investors stump up a bigger deposit (say 50% LVR) or having progressively higher tax for each subsequent property would also remove the speculative element.

    • “Switzerland has a very generous pension scheme. Surviving on the Australian pension is hard when you don’t own your own home.”

      Well only if the home in unsuitable.

      A retiree with no dependants would be very well suited to a 2br, 1 bathroom, 1 common living area weatherboard home on 180sqm of land.

      The fact they haven’t been brought to market is a sign of market failure. I would argue the market will never bring itself around to meeting this sort of demand, just as there are other products the market will never cater for.

      This is the role for government.

      I would like to see a visionary program for this sort of product alo placed overseas.

      This sort of village placed in East Timor would help their chronic unemployment with aged care and low skill service roles, it would insitute a need for a world class hospital to cater for the elderly and offer tertiarty education institute to draw staff such as nurses from the local populace.

      Chuck in a new, modern airport for flying to Australia to visit relatives, or relatives to come visit and a lot would be added to East Timor.

      Retirees there could obtain a quality of life not availed in Australia for the same nominal income.

      In fact, to pay for much of the above, a lower nominal income can be paid, as well as use of a foreign aid budget with specific targets.

      Retirees could even be tutors to local children with their time.

  6. Jumping jack flash

    I would argue that income used for mortgage repayment isn’t being spent. It has already been spent. The significant percentage of income given to the bank every month isn’t available for spending on anything else in the economy.

    Sure, the vendor gets this, but how much was put into super and vapourised? How much was releveraged? Some will definitely find its way back into spending – it is a huge amount of debt – and it will inflate everything it touches.
    Well, except for TVs. Have you seen how cheap those things are lately?

  7. Great Leith – we agree (actually, apart from the planning/property market nexus, we do agree on most things).

    Ownership at the current time involves 1. speculation on capital gains, and/or 2. renting your money from the bank at 7.5% instead of renting the house itself from a landlord (who is often making a loss) for 4%.

    And even if you don’t save the difference, you’ve had all the extra enjoyment of being able to spend the difference each month/year.

    That was an interesting discussion.

    Of course, unlike other commenters I don’t think that government ‘getting out of the way’ of development will make a difference to prices.

      • I linked to it here

        But it doesn’t seem to be loading right now.

        But there really is no need for a spreadsheet. Simply, when you buy to invest all your costs are tax deductible, while owners pay all their costs in after tax income. That makes all the difference.

        The only way owner occupying is better is if you are lucky enough to time a boom couple of years and sell without capital gains tax. Otherwise, your are better off buying as an investment and renting your own place.

        When I explained our system to my Dutch mate he said “why don’t people just buy houses for each other?”

        For example, I want a place in a particular area, my brother buys it for me. He want a place elsewhere, I buy it for him. We both live in the place we want and treat it like we ‘own’ it, perhaps even having a side contract detailing the arrangement, but get all the tax benefits of being an investor because we actually don’t own (as far as the titles office knows).

        You could save tens of thousands of dollars a year doing this.

        • No, he was genuinely serious – he was asking what stops people doing that, and if nothing, why isn’t it common. Maybe when he moves here we’ll do a deal.

        • Bit of a dill’s solution, but it is one way to buy a property using tax system to advanatage.
          Big winner at the moment is banks. Greater the debt, greater the interest repayments.
          If the whole system falls over, govt will sheet home costs to taxpayers. It is a joke.

    • Cameron, you and I agree on a few things too; I was going to say what you did about “renting from the bank” at a higher cost, but you beat me to it.

      Re the “supply of land” issue; let’s try and argue it another way. Peak Oil people often like to say “we ran out of $20 per barrell oil 20 years ago, we ran out of $40 per barrell oil 10 years ago, etc”. But this did not stop the price of oil being able to be manipulated by suppliers, up to much higher levels under conditions of cyclical volatility due to inelastic demand.

      The governments in Australia, California, Ireland, Spain, NZ, Britain, etc merely act like members of OPEC when it comes to land supply. Why “SHOULD” they release the “reserves” of land at the price that people per acre that people can buy farms (or lifestyle blocks) for, when they can “control” the process to maximise their own “planning gains” and pander to political constituencies in the process?

      There is almost CERTAINLY corruption and pork barrelling going on over urban development processes. Human nature being what it is, it would be stupid to assume otherwise. The fact that “demand” is “still there” at higher prices merely means that “demand” is inelastic, just as it is for petrol – NOT that “supply” is “free and undistorted”. It is this aspect to your argument that is pure nonsense.

      • One other angle. Now that I have read Fred Foldvary’s papers on “The History of Ground Rent Seeking in the USA” and also on Housing Cycles in the USA; I have come to believe that cyclical volatility has been the historical “norm” and that low, stable urban land prices 1940-1990 are the aberration (and the continuance of these in many States of the USA). THIS historical volatility was closely connected to the success of “rent seeking” interests as infrastructure was provided by government.

        What happened after WW2 was like an accidental “economic magic bullet”, not that many people have grasped this point. There was an overwhelming social consensus to “do right” for the generation of men who had fought the war, hence the deliberate minimisation of “planning gain”, the maximisation of economies of scale, and the provision of new urban fringe homes at 2X median income.

        Extremely cheap finance caused no bubble in prices, because the “supply” tap was wide open. Yet there are no arguments anywhere that “overbuilding” or “malinvestment” occurred during this period; and if there were, they would look stupid alongside the kind of malinvestment that occurs under conditions of cyclical PRICE volatility.

        These conditions of housing supply became like a new “norm” for decades. Only the onslaught of environmentalism, NIMBYism, urban planning, and global warming doom from the 1990’s onwards brought a reversion to the historical “norm” of rent-seeking capture of development, and house price cyclical volatility.

        The USA had NO “1929” or “2008” between those dates. Their economy grew magically. Meanwhile, the British had SEVERAL episodes of house price cyclical volatility. I suggest that the USA and indeed the whole world economy would look quite different today had they not had a few decades where the urban development rent seekers were chained up in the pit like Satan in the milennium.

        Of course, today, almost the entire finance and banking sector have tacked themselves on to the top of the urban land market distortion process, as the biggest rent seekers, leeches and blood-suckers of all time.

        • I would also suggest that the economic magic bullet described above still applies in the free land markets of Southern and heartland USA. They will OWN the economic future of the USA and Western Civilisation.

          So much for us being in the time of “the failure of free markets”. The economic future BELONGS to cities and States with FREE LAND MARKETS. Regulation of the finance sector, tinkering with tax laws, whatever – this is all just so much shuffling of deckchairs on the Titanic.

          Czech President Vaclav Klaus says “There is a third way. It is the way to the third world”. Until western nations rediscover and resucitate the golden-egg laying goose of free land markets, the “way” from here, is all downhill; via continual new layers of taxes and regulations, new class warfare scapegoats, the death of “enterprise”, and “Chavismo”. Expect the next “1929” and “2008” to be far closer together; and the next one after that, closer again.

      • Agree, government is addicted to stamp duty.

        Do consider how it could have come to this point… everyone hates paying tax. However, Aussies seem to hate it with a passion. 😛

        • You know, here is an irony. If the government had said 10 years ago; “we are going to make every first home buyer pay a levy of $200,000 towards infrastructure”, what would have happened? Political outcry, no?

          But this kind of EXTRA, “DEAD” money has been meekly handed over to sellers of urban property instead, furnished via a lifetime of debt slavery; without a murmur.

        • “stamp duty”. Funny story, but stamp duty was one of the triggers for the American Revolution. Granted, it was stamp duty on tea, not land that was the final straw for revolutionaries, but that was the “taxation without representation” trigger.
          As I was educated in the USA, my history text books talked of the evils of stamp duty. Not sure if there is a similar tax in the US (i was not of an age to buy property) but States seem to get their money through sales tax rather than stamp duty equivelents. hmmm

  8. As both a renter and a home owner i think i am in a good position to comment on this. Too often the property haters get on this bandwagon of “you’ll do better by renting and putting the difference in stocks”. Its almost as tiresome as the other side of the coin “Rent money is dead money”.

    I bought a house a few years ago purely as a lifestyle choice. And it was an extremely rewarding experience. We did some minor renovations (nothing major, under $10k) that turned it into a place which was perfect for us and really felt like home.

    Circumstances changed and we moved cities, so rented out our place and now have rented again for the last couple of years. We rent a place that we could no way afford to buy, but it is frustrating that we cant put a hole in the wall to hang a picture or spend a few thousand dollars prettying it up a bit. That sense of reward is no longer there. And then there is a frustration of what something like a Carbon Tax does. No longer can i buy energy efficient applicances to reduce by energy bill, I couldn’t take advantage of the State Government Solar Scam. I even pay more for my contents insurance because I am a renter not an owner!

    Too often home ownership is looked at as an investment, but it is a lifestyle choice and should be treated as such.

    • In Europe renters have many more rights than they do in Oz. Most renters will consider the rental property their home.

      For example, in The Netherlands you can do with the property whatever you want, as long as you are willing to restore it in its original state if the landlord asks you to when you vacate.

      Here it feels as if you’re just a mere cashcow. That said, current prices are too high for me to even consider buying.

    • “but it is frustrating that we cant put a hole in the wall to hang a picture”

      How about you talk to your landlord and ask?

      My wife wanted to paint a few walls in our rental property. (Change the colour of the breakfast bar and redo the hallway that had some mark/chips in it). We spoke to our landlord about it and not only did he say yes, but went out and bought all the materials for us to do it.

  9. I do have a problem with the terms used.
    If I walk into a room with 100 Australians and ask, “Put up your hand if you own your home?”, approx 70 people put up their hands. Then I say, “Put down your hand if you have a mortgage” and approx 40 people put down their hands. Perception, regardless of the titles, is a major problem here as a 95% LVR people “feels” they own their home. Over the last few decades the number of people with their hand left up has been dropping. Surely not a goal for an advanced society?
    If I ask 100 Germans, “Put up you hand if you rent”, then approx 66 people put up their hand. I then ask ” Leave you hand up if you invest into the mutual funds that own the housing stocks” and most leave their hand up. Perception of ownership is a very dangerous thing….

    • Very very very GOOD point.

      The guys who you are talking about who are debt free today took out a mortgage for what, 2X their annual income? Took how long to pay it off – 10 years to 20 years? Had how much discretionary income meanwhile….?

      I like the story of the Germans. I suspect workforce mobility is a BIGGIE in the efficiency of their economy. All those highly decentralised zones of employment with people within walking distance of their job; I doubt they are “owners”. Change their job, walk out of one house close to their old job, walk into another one close to their new one. New boss, new landlord. Done and dusted.

      • 1. 28% capital gains tax for your PPOR for any sale under 10 years.
        2. Tenure for renters is lifelong. No 6 month rents there.
        3. Ant-speculation laws leftover from Hitler.

        They certainly do not have massive mortgages, crippling their economy. They have productive debt.

  10. One day we (the general populous, msm and government) will realise that increased property prices are not a good thing. Whether Australia’s housing stock is worth 3tril or 4tril, unless it means increased housing stock or quality it is not better. The only people who benefit are those that bought in 10 years ago and have now sold. If you bought a nice house in 2000 whether it is now worth 400k or 800k it’s still the same roof over your head. The problem is the next generation who are committing so much more of their income to a mortgage. I hope that it doesn’t mean a generation of kids who don’t get ballet lessons, soccer, netball, music etc because mum and dad had such a big mortgage.

      • 2 things (I won’t get into the points that we have previously established that we disagree on).

        1. Once the bubble pops, so long as it doesn’t take too much longer, it won’t affect too many people. Anyone who bought pre-2003, even if they traded recently, will still have a roof over their head, the only difference will be their balance sheet wealth, which won’t change their actual situation much (granted some have used a lot of equity in plasma tvs). It will affect that group that has bought their first home in the past 5-7 years (i.e. my generation) and boomers that have many investment properties.

        I really take issue with the notion that increased property prices are a good thing as the MSM constantly espouses. They are good for a small group that make exorbitant profits through duping people with the notion that property prices always go up. Another small group is seriously harmed if they buy high and above their means, another group that buys high but within their means will take years to rebuild their wealth but suffers mostly with their pride but for many people the price will go up and come down but have little effect on their real position.

        2. In that graph, it is like you put a list of cities I’d like to live in from most at the top to I wouldn’t live there if it was the last place on earth at the bottom. They may have affordable housing, but clearly sometimes that’s not enough. Nevertheless it is an interesting paper, thanks for the link.

        • I’d be reluctant to say that “Once the bubble pops, so long as it doesn’t take too much longer, it won’t affect too many people” – have you seen Ireland, Spain or the US recently?

          I liken Australia to Ireland (where I have spent a lot of time over the last ten years) a few years ago.

          We both have/had:
          * economies heavily dependent on construction (though Ireland more so than us)
          * high immigration
          * low unemployment
          * “an totally unique love of housing that absolutely nobody else in the world shares”
          * relatively low government debt and very high private debt
          * massive house price increases

          Let’s see where we are compared to Ireland in five years’ time.

  11. As a renter of 25 years standing I agree with most arguments for renting – especially in the current climate where capital gain really does seem off the table.

    BUT, and this is a big but, we don’t have any protections in Australia . . . in Switzerland (where my brother-in-law owns a flat) he can only ditch his tenant out if HE, personally wants to live there. The rent is also controlled, and they are allowed to carry out minor (not structural) renovations. Here you get a landlord trying to take $200 out of your bond for putting a fixture in the wall to hang a painting!

    Until renting becomes regulated to supply housing not profit to speculators in this country, it will always be a poor cousin in terms of emotional and security benefits.

  12. Ways I believe to ease the pressure on housing prices in Oz especially Sydney.

    1) Scrap negative gearing on existing housing and only make it applicable to new properties being developed or homes that meet a 6 star green rating.

    -People will argue that rents will go up etc etc but this will cause investors to leave the market and invest in more productive investments leaving more properties on the market hence increasing supply.

    2)Stream line councils. In staid of Sydney having multiple councils have 1 council or a North, South, East and west council. This will reduce administrative costs and stream line the process.

    3)Remove all first home owners grants & reduction in stamp duty freebies. To truly help first home owners make a policy which will let first home owners interest they pay on the first 2 years of their loan tax deductible. They will then need to pay this interest back at the end of the loan. This will ease the cost of paying off the loan in the initial years and will stop first home owners from leveraging to high causing mortgage stress.

    -To qualify maybe set a minimum of a 15% deposit to stop first home owners borrowing too much.

    4)Create new small urban cities 100km from Sydney. The State government should design where new smaller cities should be located and put in place a transport plan linking the city to these small cities. This can then be auctioned off to developers who will have the rights to build what they want as long they build the infrastructure at the same time.

    -This will stop the usual land release without infrastructure implemented approach that is currently going on with the government.
    -The State gov should say this small city needs a school, medium dense housing, some industrial areas and x amount of open space per x amount of dwellings built. The developer will lodge the plans and if they fulfill the criteria with the necessary infrastructure they can go and build an entire city in stages with transport infrastructure being built first.

    These are just some ideas, pick and refine them if you want or even add.

    • “Sprawl” should be “leapfrog” to retain “green space” for all and stop the NIMBYism that happens when all development is planned to be continuous. People should focus on the real problem they have with new development, which is not “sprawl”, it is relentless “continuity”.

      There is no law of infrastructure that dictates that it is more expensive at any one location, EXCEPT that public transport becomes less and less viable the more dispersed a city becomes. But urban dispersion is an integral part of the whole “development into wealthy first world nation status” process – it is just that most people have not realised that yet. We can’t have our cake and eat it – if mass monopoly public transport comes first in our list of political priorities, we have to be prepared to incrementally sacrifice the benefits of economic growth and high incomes that we have taken for granted.

      No nation in the world has managed to match the economic performance of the “cars, roads, and urban sprawl” economies, with urban growth constraint and a high proportion of mass public transport; for long. Japan has hit its glass ceiling. China will too. Europe’s urban planners are subjecting their economies to deaths of 1000 cuts.

      • Dispersed urban economies with low housing prices are actually efficient because people can afford to buy homes close to work. If most jobs are in the CBD, it costs thousands of dollars per km to move closer – much higher cost than the savings on transport.

        This is why commuting times have remained surprisingly stable in so many US cities even with 2 decades of neglect of capacity of “highways to the CBD”. The trend that is emerging (eg in INRIX figures) is that congestion in US cities is not so bad as in many European ones where monocentric planning has been stronger.

        Distance matters more than mode, too. The cities of the former USSR were appallingly inefficient even though everyone lived in apartments and caught trains – because the average commute length was so long. The “planners” just ran rails further and further out into the countryside and built higher and higher apartments alongside them, while all jobs remained in the centre. This model ultimately imploded, and was an integral part of finishing the USSR economically. (Just in case anyone had any illusions that the USSR’s ability to force everyone to live and travel in the approved manner was an “advantage” that was somehow negated by “other economic inefficiencies” like the lack of incentive).

        • “Dispersed urban economies with low housing prices are actually efficient because people can afford to buy homes close to work.”

          Agree with this. Though I think ti is a problem of transaction friction, not public transport modes.

          There is difficulty in comanies in attempting to decentralise and that is due to the critical mass of a relatively static population.

          It would be hard to open a hi-tech pharmaceutical company in the Hills district, knowing it is hard to lure scarce labour that is dispersed all over the city. A person who may live in Sutherland and would qualify for the job would find a great disincentive due to the stamp duties involved.

          If it was nominal, then perhaps they would be likely to up roots and shift across the city more easily.

        • “Dispersed urban economies with low housing prices are actually efficient because people can afford to buy homes close to work.”

          Agree with this. Though I think ti is a problem of transaction friction, not public transport modes.

          There is difficulty in comanies in attempting to decentralise and that is due to the critical mass of a relatively static population.

          It would be hard to open a hi-tech pharmaceutical company in the Hills district, knowing it is hard to lure scarce labour that is dispersed all over the city. A person who may live in Sutherland and would qualify for the job would find a great disincentive due to the stamp duties involved.

          If it was nominal, then perhaps they would be likely to up roots and shift across the city more easily.

          • > It would be hard to open a hi-tech pharmaceutical company in the Hills district

            Off topic but ResMed has a huge campus in Norwest Business park in the Hills.

    • Apologies to the oldies here, but I firmly believe any meaningful reform like abolition of NG, stamp duty & FHB will be possible only when boomers start to die off.

      These freebies are there because the boomer voters demanded it and pollies delivered it.

      We will have to wait until balance of power shifts to the renting voters.

        • Miss P, you wont benefit…

          EG: Hypothetically when you go to an auction & your budget is $500k with the benefits from government you now can afford to spend $525k. But Joe Blow who is bidding against you has the same freebies so in essence the benefits provided by the government only increases prices because everyone (first home buyers) has access to the same freebies so everyone’s purchasing power increases.

          The only people who benefit are the vendors.

          If the FHOG was used to pay down the mortgage and not increase ones purchasing power that would be a benefit for the FHB. Using the FHOG in its current state lets a buyer increase his leverage, therefore more debt, higher house prices etc etc…. you get the point.

          • Not Everyone benefits. I am ineleigble for the FHB because my other half once owned a home, before I met him. Didn’t own it when I met him, had no residual benefits (capital gain) so no adantage there- other than a less stars in the eyes attitude towards buying.
            Haven’t bought yet, because no point throwing myself into market against people with a $25k advantage that they did nothing for.
            Net result- am considering what career options are available overseas and elsewhere

  13. Like the Swiss and German idea of local gov being renumerated on their economic contribution not on land values. Hence the need to be efficent. Also we shouldn’t forget the need to have at least food security in the future. There is something to be said for the Chinese market garden concept. The gardens along West Botany and Bestic Street at Rockdale have been there over a 100 years and provide cheap veges due to transport proximity to Chinatown. The land must be worth an absolute mint.

    • LOL. Werribee South/Point Cook. Prime food bowl. Being overrun with dog box mcmansions.

      yay for planning.

      • My Favourite goof is when they priced up the option of shifting the docks to Westernport Vrs widening the Heads. Came out even, so they left it where it was blowing the single best opportunity for urban renewal of the past 20 yrs. Imagine Footsgray, Newport and Altona without heavy trucks and distibution centers. At least 5 Km2 of land around 4.5 Km from the city center. All surrounded by suburbs where subdivisions of 160m2 is perfectly mainstream.