Housing and the inequality divide

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By Catherine Cashmore, a market analyst and journalist with extensive experience in all aspects relating to property acquisition. Follow Catherine on Twitter or via here Blog.

To a limited extent inequality and the ‘rich/poor’ gap is tolerated within society because economists have historically seen it as a necessary platform to stimulate ‘economic progress’ or even activate a sense of competitiveness within individuals in order to elevate themselves up the social ladder.

Certainly in the housing market this is evident. Who hasn’t aspired to their ‘dream’ home – or visualized some improvement similar to that of their neighbours?

It’s what the success of programs such as ‘Grand Designs’ thrive upon – the emotional aspect of ‘wanting’ bigger and better – and a proportion of home owners will stretch their budget in order to achieve their desired property of choice, taking on a larger mortgage to do so.

However, whilst a degree of inequality may be tolerated as an inevitable consequence of the benefits offered in a capitalist society, a widening gap can become disabling to ‘progress,’ or even dangerous, if items of basic need are perceived to be increasingly out of reach.

In their 2012 ‘Global Risks’ annual report, the Word Economic Forum put it like this:

“…when ambitious and industrious young people start to feel that, no matter how hard they work, their prospects are constrained, then feelings of powerlessness, disconnectedness and disengagement can take root. The social unrest that occurred in 2011, from the United States to the Middle East, demonstrated how governments everywhere need to address the causes of discontent before it becomes a violent, destabilizing force.”

The comments build on other research undertaken by Andrew Berg and Jonathon Ostry, two senior staff in the IMF’s Research Department, who found that once a country had entered a period of economic growth, the more equal the distribution of wealth over the ensuing period, the longer it lasted. They conclude “…sustainable economic reform is possible only when its benefits are widely shared.”

Inequality in Housing

The consequences of inequality in the housing market are painful and slow. The trend is increasingly evidenced over a lengthy period of years – not in the volatility of month-to-month first homebuyer statistics – always marginalizing those at the bottom of the income stream, whilst advantaging those at the top.

Effects include:

The list, which names only a few of the prevailing concerns, creates a growing body of evidence that we have more than an affordability issue in Australia, which focuses overwhelmingly on first home buyer figures.

We have a growing structural problem, which, if allowed to continue, with have a societal impact, chipping away at the future growth and stability of the property market, affecting the majority – not just a ‘few.’

Why?

The reason this has occurred is down to our property cycle – or perhaps better-termed a ‘land cycle’ – which has been further accentuated by poor housing policy – restrictive planning conditions and generous tax incentives, which are ultimately destructive.

Rising prices, and the expectation of such are initially seen as a ‘good’ thing, because they drive the economy, increasing consumption (the ‘wealth’ effect,) stimulating economic growth, infrastructure investment, construction activity and demand for ‘durables.’

This in turn flows through to wages – which advantage the workers at the top of the income stream, rather than the labourers at the bottom. (See Andrew Leigh’s, The Story of Inequality in Australia (2013,) which points out, since the mid-1970s, earnings after inflation for the bottom tenth of the population has grown 15%, in comparison to 59% for the top tenth.)

The gains are subsequently capitalised into rising land values, as investors, buoyed on by inflationary expectations, easier lending conditions, and ‘fear of missing out,’ lead a bull market of speculative activity (such as we’re seeing in Sydney) – until reality eventually steps in, and the trend inevitably turns.

In other areas of the economy that suffer from inflation, some form of substitution can typically occur, however land – and the infrastructure that gives it its value – is fixed in supply, an absolute necessity to all business and personal needs, therefore as land values rise, there is an inevitable strain on productivity, affecting job growth, private debt, small business, and unemployment (such as we’re seeing in Australia presently.)

Whilst monetary policy and the interest rate ‘lever’ are employed to moderate the damaging effects of a property cycle – at every step of the process, real estate has been used as collateral for further economic investment, a revenue generating machine for government, and ‘wealth’ fund for retirement, therefore whilst the aim is to prevent a ‘hard’ landing, the motivation is always bent on protecting existing values, rather than letting them fall.

Hence why demand side subsidies are favoured as a ‘band-aid’ to affordability, rather than cure.

The result

Without direct political intervention to rectify the damage, the greater and more destabilising the divide becomes, not only placing pressure on the welfare system, but evidenced ‘vocally,’ as rising numbers enter the housing market later, pay far more over the lifetime of their loan, and risk reaching retirement still servicing household debt – as is the case in Australia.

This was noted back in 2012 in a CPA study entitled ‘Household Savings and Retirement – where has all my super gone?’ And most recently by executive chairman of ‘Yellow Brick Road,’ Mark Bouris, who ‘concerned’ about lump sum superannuation payments being used to pay off mortgages, made a submission to Joe Hockey’s parliamentary financial inquiry, suggesting we can ‘solve’ the above impacts, with additional tax breaks to allow people to pay down their housing debt faster.

Needless to say, it doesn’t take much of an economist to understand that subsidies – no matter attractive they may seem – are ultimately capitalised into prices, thereby raising the entry costs for first home ownership further, and increasing the pain for the next generation of aspiring buyers.

But then considering the line of business Mr Bouris represents, I suspect this is isn’t about ‘solving’ the crisis, so much as supporting it.

The self perpetuating cycle..

To some extent, it’s a self perpetuating cycle – after 30 years of mortgage repayments dedicated to paying off their principle place of residence, vendor’s obviously don’t want to see the price of their biggest asset drop.

Investors are similarly motivated, an AHURI study released in December 2013, identified the typical investor, as one who expects their property to ‘double every ten years’ as a strategy to finance retirement.

Incidentally, the same study also noted that three-quarters of the investors surveyed, do not see negative gearing as a reason to purchase – but merely as ‘an added bonus’ – thereby weighing against the myth of an ‘investor lead exodus’ should the policy be scrapped.

However a system that tries to both feed speculation, whist creating unaffordability through supply constraints, is ultimately set to fail, as low-income households are continually forced to the outskirts, whilst the higher income individuals get to purchase the front row seats.

Social polarisation…

This results in social polarisation, which is clearly visible on the Melbourne map below, taken from the REIV, which illustrates the median house price by suburb, relative to the metro median.

The colours coded with the darkest blue indicate house prices more than double the metro median, and orange, house prices that are more than 25% below the metro median. (The white spaces are areas for which there is insufficient data.)

ScreenHunter_1250 Feb. 14 08.59

This aligns very closely to a map constructed using data from the ABS, which ranks geographic areas in terms of their relative socio-economic advantage and disadvantage, highlighting diversities such as incomes, education levels, occupations, rent and mortgage payments, family structure and unemployment.

Once again, the beetroot red and bright orange ‘fringe’ suburbs, sit well away from the affluent dark blue vicinities, which contain the top schools, medical facilities, shopping strips, high paying jobs, train and tram networks, childcare centres, social amenities, and so forth – all of which our tax payer dollars collectively fund – yet under the current structure, only the local home owners get to advantage.

ScreenHunter_1251 Feb. 14 09.00

This would include not just the various social benefits offered, but the additional on-flow of capital gains each property attracts from a squeeze of consistent market demand.

To emphasise, top performing government schools in Australia, do not reserve places for those showing merit, rather the families both willing and able to support the 20-50% premium, charged for accommodation in a desirable school’s catchment zone. ‘Fair go Australia.’

In case you need further convincing, you can chart how the trend has evolved using the image below, which is taken from a previous AUHRI investigation, showing how the percentage of affordable dwellings available for low to moderate-income purchasers, has changed in Melbourne, between the years of 1981 and 2006.

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The darker areas are the ‘most’ affordable, whilst the white patches are the least.

What of the ‘price’ ripple effect?

Even heading 45km or so away from the CBD, low-income purchasers can only acquire affordable accommodation – in the range of $200,000 – $400,000 – if the lot size is much smaller than 600 square metres, which is still deemed ‘standard’ in many middle suburban regions of Melbourne.

Further more, any hope of ‘backyard cricket’ is unlikely, as the new developments are littered with homes that have a footprint, which extends to the boarders of each block.

The graph below highlights why this is so – it was put together by a colleague, Steven Armstrong – using valuer general statistics, and it charts the extraordinary rise in land values per square metre in Hume City – an outer metropolitan growth zone in north-western Melbourne – between the years 1983 to 2012.

ScreenHunter_1253 Feb. 14 09.04

The remarkable escalation in prices had nothing to do with homeowners wanting the castle, when a modest suburban home would do. Rather the issues I outlined last week in regard to planning restrictions (false scarcity), tax and infrastructure overlays, land speculation (the underlying cause of ‘all’ bubbles), that are exasperated further by ineffective supply side policy.

It’s important to make this point, because whilst most people assume the ‘price/ripple’ effect works outwards – under the current system, the causation works both ways.

It’s the marginal price of land at the fringes of our capital cities, that sets the ‘base’ value for the better-located plots further in.

In other words – it’s not supply that ‘solves’ affordability for low-income purchasers, but the cost at which that supply can be delivered to the ‘homebuyer’ (not speculator) market.

Property Overvalued? A bubble? A concern?

In light of the information above, when I was recently asked to make comment on whether Australian real estate was overvalued or not, I sensed the intention was to take the traditional view, and instead of charting ‘why we’re here’ – assess whether job growth, population expansion, demand for credit, housing turnover, wage growth, interest rates, mid term supply and so forth, were supportive of a future sustained increase.

However, whilst the above data will give a mid-term indication over whether current process are ‘serviceable’ at existing rates, or if market turnover can maintain pace, it gives little indication as to the long-term effects I’ve highlighted above, which in my mind, present a far greater destabilizing force, as we bear witness to a slow generational shift, eating at the edges of home ownership in the months and years ahead.

I’ll leave the reader to come to their own predictions on market movements as we traverse through 2014. Albeit, in light of the Government’s response to previous housing ‘affordability’ inquiries, I think the above concerns will merely worsen rather than improve – and at some point, we’ll all feel the impact.

Comments

  1. davidjwalshMEMBER

    Excellent Catherine and thank you for such a concise and useful article.

    This article is why MB should be compulsory reading for every politician (and many other groups) in Oz

  2. KeenEyeKenMEMBER

    Fantastic article.. thank you.

    Unfortunately I can relate to much of what’s written. Hopefully the incumbent boomer generation can see the ills of their ways before they hand over the reigns of power to their unsympathetic offspring. Somehow I dont think the kids will care too much about mum and dad’s aged care quality when they’re rotting away in outer suburban ghettos, while their parents sit on 3 investment properties

    • Oh please, some objectivity…this hoary old chestnut keeps coming up over and over. Can anyone put hard evidence in print?
      How many BB’s actually have 3 (let alone 1) IP? What percentage of BB’s actually own IP’s? I’d hazard a guess to say they in the minority!

      I don’t and never will, not because I can’t but because I see it as WRONG….I’d hazard a guess that many many more BB’s think the same way.

      Broad statements of ‘widely held truths’ can be grossly inaccurate and cause a rift when there should be a coming together of all generations to vocally denounce the ‘get rich quick’ ‘wealth creation’ merchants and their customers.

      sorry, my pet rant!!

      ps Well done Catherine

      • I think you’ll find there is a relationship that boomers hold the greatest proportion of investment properties out of all demographics, simply because they have had the most time to accumulate wealth, not because they’re necessarily greedier or anything. Also it goes without saying that there’s probably not a normal distribution of IPs between boomers. Most boomers will only own their own home (which still gives them more security than the young these days), with smaller and smaller proportions owning 1, 2, 3, etc. investment properties.

      • Jason,

        I have no dispute with anything you’ve said. My issue is with the blanket damnation ( by inference ) of the whole ‘boomer’ cohort as evil property hoarders AND the lack of statistical evidence that this is the case.

        BB may own a greater proportion of IP’s but it is false logic to assume that the majority ( or anything remotely approaching it ) own IPs. My guess is way < 50%.

        I see too much rhetoric damning this generation or that for something or other. This doesn't help. We're squabbling amongst ourselves while the FIRE sector spivs get off scot free!

  3. It’s yet another great article on the housing mess.

    There is every reason to de-financialise housing, but it appears that people won’t realise until its too late how this type of inequality seeps into the core of our society and rots us from within.

    The answers are there, but the greed and selfishness is immense, as it always is.

    Passive speculators in established property add nothing to the community, they are pure rent-seekers that beggar their neighbours, and seek a gain at the community expense.

    It’s well and truly time to castigate the rent seekers and try and fix the problem.

    • Yeah the BB generation forget that it’s the generation they are screwing over that is going to be looking after them when they are older, hope they don’t expect to be well looked after by a debt burdened worker living in a tiny shitbox, that blames the BB for their situation.

      • Euthanasia

        If you’re over 75, not self funded and haven’t had the decency to drop off the perch in a timely manner lol

  4. Excellent analysis, this is all the stuff that people need to wake up about in housing.

    There is an interesting general conclusion in a paper by Gibbons, Overman and Resende, “Real Income Disparities in Great Britain”, that suggests that the less affordable housing is, the more than income disparities get multiplied into even greater life outcome disparities.

    This makes sense: the kind of decent housing that 90% of people take for granted in an affordable US city is really only available to the top 10% in UK cities, and the bottom quartile in the US city will have far superior housing standards.

  5. Thanks Catherine for another great article.

    Do you think politicians have any conscience for what they are doing? Do any of them feel any guilt?
    When you consider the amount of people in Australia who are homeless, do they feel any guilt on their part for that. Consider this. A lot of homeless people still work to feed their families and pay the bills, yet the government still take money from them (income tax) and give that money to investors to help them buy 2nd, 3rd, and 4th homes (negative gearing), (in a round about way).
    Consecutive Federal and State politicians should be hanging their heads in shame. How can we alert the general public to this, and convey to the politicians the shame and guilt they should be feeling?

    Perhaps Catherine you could convey these points in your eloquent style should you put in a submission to the Senate Inquiry on Housing Affordability.

    • Do you think politicians have any conscience for what they are doing? Do any of them feel any guilt?

      I imagine they toss any ideas of genuine reform into the too-hard basket and then go on with the rest of their lives.

      The kind of leadership that can bring the electorate along (albeit kicking and screaming) on long-term vision reform simply doesn’t exist anymore…

  6. A really good article. Instead of being a basic commodity that puts a roof over people’s head (and is priced accordingly) governments have promoted property, through both spin and terrible policies, as a mechanism to delude people into believing they’re much wealthier than they actually are. People borrow and spend, often beyond what is otherwise sensible, because they believe they’re sitting in a gold mine. In this context it’s in government’s interest to keep house prices high. To be fair, we’re seen what happens to Western economies where this illusion breaks down. As for those of us with low paying jobs, too bad! Apparently some believe we don’t even deserve a minimum wage so we can afford rent and food!

  7. Where is Bill Shorten, Tanya Pilberseck, Penny Wong on these issues?

    Arent they the party here to represent the battlers in our society – or do factory workers wage entitlements matter, but their ability to access affordable housing not matter.

    How anyone can read Macrobusiness, yet still think Labor have anything to offer in this nation is beyond me.

    Besides Latham, no one has ever dared take on the housing-politico complex. With Latham’s demise, we saw the death of the ALP. Now they are just a bunch of washed-up union hacks vying for a seat at the table

    • ALP or LIB is not the real dilemma. The real dilemma is whether we want to keep the existing undemocratic political system (legal cartel based duopoly) or not. ALP and LIB are just end results of weakening democracy.

      • Yeah I agree speculatory, the problem is created by our political system that has engrained such a duopoly.

        But I think ideologically, the left should be ashamed at how they have let housing become the main source of inequality in Oz.

        Just like I blame the Libs for allowing corporate welfare and other handouts to become so entrenched.

        Both of these developments are totally against what these ideologies believe in…and instead are the result of effective rent-seeking

    • It’s the too-hard basket mate. Why rock the boat when you can maintain the status quo and take home your brilliant pay and pension package. Maybe retire on a cushy board position or two, or if you’re lucky an ambassadorship/consularship to Europe or the US?

      True leaders are hard to find, especially in our political class. There are some that might have focuses in certain foelds close to their hearts, but the real rot at the center will continue to be ignored.

    • +1 the Labor party abandoned workers for rentseekers long ago.

      The Laberal party as it is better known is the rentseekers party using slick marketing and feeding off once reputable brands to sustain a politico housing complex and a corporate duopoly big-union complex that is all about rent and nothing to do with meaningful production

      The sooner people wake up to these hollow party patsies and put some more strong intellectual independents in the Parliament the better.

  8. When I read articles like this, which are appearing almost daily. I feel more and more justified in my thinking to pack up and leave Australia. I have two degrees, and earn well above average income. I can’t afford a house unless I move 45kms from Melbourne. The Government seems more interested in looking after this generation of retirees rather than the next generation of people who will be contributing to this Country. If we’re not careful we might lose a generation.

    • Already happening as the majority ignore our historical high emigration of 25 to 35 year old professionals.

    • Yes, this rings true for me too. I’m a programmer so can easily work from any place overseas that has half-decent broadband. I’ve been sitting on the sidelines since the GFC postponing entering the property rat-race, fully expecting a correction that hasn’t materialised. I can buy a house outright – the cash is saved – I just am not convinced that it’s the best way to use my money. Things are relative, regardless of what George Bush v.2 used to say. I can buy 10 apartments in Chiang Mai for the price of one apartment here. If I’m paid in AUD and spending in Thai Baht, from a purely cost-benefit analysis I can’t justify the expense of living in Australia.

      In fact one of my ex-colleagues arrived last year with his wife from Poland to take a $90K job in Qld, and was so shocked at how little of his pay packet was left after expenses & tax ($70/week) that he packed up and returned to Poland. Back to a job that pays on face-value half the salary, but at least at the end of each week he has 1/3 of it left as disposable income to live life properly. So each month he and his wife cross the border and visit another Euro country – quick holidays. Nice. He also mentioned how money-obsessed Australians seemed to be. I explained to him he would be more money-obsessed if he had to put up with such high cost of living (primarily housing, let’s face it).

    • I was a lawyer for 10 years before I got so sick of it that I quit and eventually went back to uni to study engineering. This country will have subsidized 3 degrees for me by the time I’m finished. And I will be looking to move overseas when I graduate next year. Because I will not hang around to work solely to pay interest to some dumbfu*k mortgage pusher and their shareholders.

      • I recommend that to everyone. jason has it right, Chiang mai is a good place.

        When you leave, you can always say “I’m leaving a little bit of me behind”… your HECS debt.

        Most boomers in the deveoped world are a disgrace, ours are worlds best practice.

      • Catherine
        As we have discussed before, the above are good examples of why young professional leave OZ.

      • I served 4 years in army here, saved as much as i could, left in 2011 almost about to finish a degree in Bio/Genetics. Was a Financial planner for AMP (basically a salesman and nothing financial about it) I’m travelling to Europe in May to where my parents were born, definitely considering my options for permanent residency. My savings here cannot get me 1/4 of a dump 40km out from Melb city. In Europe it will be enough for a beautiful apartment with change.
        This whole fantasy of owning a home at the expense of someones life/health is absurd.
        “I’m as mad as hell and I’m not gonna take it anymore”

    • “The Government seems more interested in looking after this generation of retirees…”

      They’re also more interested in making sure more and more foreign investors buy up Australia as quickly as possible, making it ever harder for would-be homebuyers to get into the market.

  9. The gap will only widen as the system is set up to benefit those that already have the means (negative gearing)

    NG has assisted speculators to minimises losses in the early years and has increased demand in certain suburbs

    The outer suburbs are still cheap and is we look at it reasonably we can say that an average working couple can afford a home, the dream definitely hasn;t died

    What you also need to understand is that supply of land/property in the inner suburbs is finite, with a growing population and wealthy migrants there will be much more demand for these suburbs in the future with or without changes to NG or increasing or removing the UGB

    • Neville Gearless

      “The outer suburbs are still cheap and is we look at it reasonably we can say that an average working couple can afford a home, the dream definitely hasn;t died”

      That is what is missing. Cheap. Up till 2000 there were houses around Perth 1-1/2 times median wage. I remember checking out $33k houses in Perth back when I was earning a modest $20k in 1985. (..and Perth was always slightly more expensive than Melbourne.)
      Your point seems to be those cheap houses are now affordable by a working “couples”. Not the same thing. Still a whopping 5 to 6 times median.
      In the present, I consider this the top or near to the top of market. Not buying now.

      • True, I hear you

        There were homes in the outer suburbs of Melbourne available for $110k in the late 90’s, Doveton, not desirable but it was a place to live. Now they are high 200s.

        Affordable is based upon perception, yes homes in the outer suburbs of Melbourne might be around 5-6 times average income, but you need to factor in record low interest lates.

        A $300k mortgage is easy for a working couple to service at 5%, that is only $15k in interest, surely they could manage $300 a week

      • Neville Gearless

        Affordable is not a perception, it can be measured with numbers.
        A 100K loan @10% can be serviced at $998/month.

        A 250K loan @5% is $1720/month.

        Interest rates don’t make much difference, if you want to reduce your loan or increase equity. The above example is 1998 to 2004 prices of the same home.
        Even at $300pw – interest only loan (ew), its not going to be worth it if it all crashes. and crashes are inevitable, happens every time.

      • Interest rates make a huge difference in talking about the affordability of servicing a loan. At 5% it is quite easy for a working couple to service a loan for $300k even if they are only taking home only $1500 a week between them, it would be nonsense to say that if only 20% of after tax incomes is required of even a well below average income couple to meet repayments is somehow “unaffordable”

        And the remainder of you asking why aren’t Shorten and the others doing something about this.. about what folks

        One of the things most of us realise early on is that money makes money, those this money pay their credit card balances in full, pay less interest of home loans over time (as they have a greater deposit) or buy investment to NG and reduce taxable income

        Those without the money borrow more, owe more, pay more interest

        How you manage your finances is up to you, not Shorten or Plibersek

      • Neville Gearless

        I just did the sums for you OMG. Interest rates do not have the impact on repayment amounts people think. Half the rate reduces payments only a little, but price increases have wiped out the saving several times over and actually doubled repayments.
        IR make an impact if we are discussing interest only loans, which is an animal that serves only property investors. In fact it was a product created for investors. OO want eventual ownership which interest only loans don’t deliver.
        Which is another entry price advantage to investors, unless they are forcing OO’s to interest only loans too. Another disaster.
        You keep on talking about working couples could afford an overpriced home if they wanted to.

        I could afford to pay 10x the asking price for that wreck of car down the street. So what? The point is, homes have never been more Unaffordable.

      • A $300k mortgage is easy for a working couple to service at 5%, that is only $15k in interest, surely they could manage $300 a week

        That’s not how affordability works.

        You still have to pay the capital back.

    • Some mum & dad “investors” don’t even have the means. I know a semi-retired couple, both teachers who still work part-time on modest incomes. Back in the “naughties” the wife, a fan of property spruiking seminars, accumulated 9 investment properties via low-doc interest-only mortgages. All negatively geared of course. They never earned enough day-to-day cash to pay the interest, so each year they’d tally up what the following year’s mortgage interest payments would/might be, and then borrow that extra amount, growing their outstanding debt. The whole thing was a Ponzi and relied on capital growth to recoup the “investment”. But this is what this lovely lady was taught by the property seminar spruikers, and boy did she have faith in them. Her mathematically-literate, more financially conservative husband would counsel and question these investments which led to arguments and ultimately divorce. Then they had to unwind these wonderful investments, many bought at peak prices. Both lovely people, just misinformed and a bit too trusting of third-party investment “advice”. Now they face financial ruin in their mid-70s. Really sad. Buyer beware.

  10. Free_Market_Delusion

    This more of philosophical look at things but reality is the middle class have an awful lot tied up in property and will fight/vote tooth and nail to maintain that as they have the most to lose

    If things do change the middle class has the most to lose.

  11. It’s pleasing to see many Asian and some African countries coming out of poverty, and good for them, that’s what we want.

    However in the West where we all live there is a growing problem of inequality where the proportional number of wealthy is getting smaller whilst their wealth is growing ever bigger.

    At the other end of the spectrum the voting majority are losing the battle, and they are becoming less wealthy via falling real incomes.

    I think that this is a significant problem in the west that will take a long time to correct.

    • Peter
      You are part of the problem, not the solution as you peddle unproductive debt.
      It may not take a long time to correct at all, if the majority vote for anti-speculative property changes and people like you, get the major guilts and change skin…

      • Really – exactly what am I working on at the moment?

        Haven’t got a clue have you.

        I truly feel sorry for people who need to demonise other people to escape their own glare and pretend that they are really the good guy.

        I think that there is a name for that.

        Go back to harrassing your Nanna, I’m just not interested.

      • My apologies Peter. I thought you were still a mortgage broker. If you are changing skin, then good on you.

        What are you working on?

  12. Great stuff from Catherine as usual. I am young, ambitious and industrious and soon to become violent with Chigurh aplomb as my prospects continue to be constrained and my feelings of powerlessness begin to take root.

  13. interesting but also needs to be tied in with inherited wealth, particularly of small family top half of population.

    Home ownership is easy if you are expecting to inherit half a house (ie 2 child family with adequate super/investments.

    The huge problem is faced by those on median incomes or lower with parents who can’t help them and who won’t leave anything significant, or where it has to be shared among a comparatively large number of people.

    It also needs to linked to heritable traits of intelligence and the social skills normally developed by those whose parents have social skills.

    The bottom 20% are not in the race.

    By the way NSW land tax of 1.6% for amount above threshhold of $412K is quite a wealth tax in days of 2.5 to 3% net returns.

    It mitigates against having an investment house as opposed to an investment unit. So low income families end up with 2 or 3 kids in a rented 2 bedroom apartment with few facilities in the same street block eg a pocket park with play equipment.

    • How on earth can you possibly tie in inherited wealth (whether realised or unrealised) as a metric of affordability?

      • Easy if you believe in the unproductive use of capital to come out with many reasons and excuses why the ponzi must and will continue.
        In this case of inheritance, I think it is way off the mark as record numbers of boomers head into retirement in debt, have not prepared well (mainly due to comp super being introduced 20 years to late) and will live much longer than they planned.

  14. DarkMatterMEMBER

    Survival of the Fattest. Economic Darwinism run amok!

    As I understand it, the main purpose of economics has supposedly been to effectively manage the use of resources to foster progress and increase our wealth.

    Over the last millenia or so this seems to have worked. The free market in some form has given us an Industrial Revolution, transport, electricity, nuclear energy, television, computers and the internet. Most of us don’t starve anymore – not in Australia (Oi! Oi! Oi!) anyway.

    Nevertheless, Darwin’s relentless machine rolls on, flogging the poor, distributing the rewards to the best and brightest and honing our efficiency at producing … what? Fat people! In Aussie (Oi! Oi! Oi!) our free market is churning out pork chops with big snouts! Very efficiently too I might add!

    Rather than making technological marvels or inventing the quantum computer, we make obnoxious elites with huge Property Portfolios. Gina the Hutt, Clive Palmer, Aussie John, Joe Hockey, Chubby Smith from ANZ, Gail (she’s porky – for a velociraptor). Check out the Eastern Suburbs some time – squadrons of these little oinkers are popping up like mushrooms in a cow pat. These great blobs of wealth and privilege are our gift to the future of humanity. Natural selection and the Free Market taken to their absurd conclusion.

  15. Can anyone find the AHURI report Cashmore references? The only late 2013 reports I see on the AHURI site that might be relevant are about downsizing and home equity withdrawal. Both are interesting, but I didn’t come across any mention of property investor attitudes on capital appreciation or negative gearing.