You know what @thunderhead, you can only take so much of a face pounding before realising it's time to give up.

At this point, I'm thinking of liquidating everything and buying some off the plan units. Leveraged 5 to 1, of course, with the plan to generate negative cash flows ;)

Well played @thunderhead for the trigger and @Strawman for the clever response.

Is it not strange that the precedent of borrowing from bank of mum and dad (via cash or guarantor) is part of the reason why we are in this scenario where housing is so unaffordable?

I agree with Strawman and his regular rants on housing that the best thing to do for affordability is for the government to do NOTHING. Other than maybe put some more regulation around those companies heavily advertising on Social Media about fronting up housing deposits to allow purchasers have 20% deposit by only fronting up 2% of the cash.

Either way im sure we know where this will end up going....

Disc - currently purchasing a home and going through settlement so my views are contrary to my financial outcome

LOL. We have all been there with the face pounding bit…I am also a homeowner from a few years ago, buying well against my will in an overinflated market that has become even worse since.

Lucky those who even have a well coffered-up bank of Mum and Dad to call upon (I unfortunately am not one of them!). I guess they call that losing the demographic lottery!

Yeh its all a matter of timing these days and being in a position where you have a margin of safety. I did stumble across the Japanese house price charts after listening to an old Motley Fool podcast and its pretty bleak. Imagine buying your house in 1990 and its still not back up to what you paid after 25 years. I can appreciate its a different market and they have different GDP constraints, but i would hardly imagine negative gearing would be attractive to them.

Honestly i think not having the bank of Mum and Dad could be counted as a blessing, as it teaches you the value of money. I have a few family members who have that luxury and all it has taught them is that they can avoid financial responsibility as they know their parents will foot the bill.

It took me a while to come to terms with this exact sentiment...

Although, even if any reflation worked it still doesn't suggest a decent expected return at current prices. Pennies in front of a steam roller for those taking a speccy punt on property right now (ie.non-residential, non-cash flow producing, leveraged). But god only knows!

It really does stick in my craw though. Bottom line is that any Govt. assistance comes at a very real, albeit indirect, cost to society. And those that have profited most from it all avoid any major consequences. grrr

I live in Japan (Tokyo) and have been looking for a home to buy since 2018 (when my son was born). Unfortunately, still renting because the general trend for the consumer housing market is to buy new with the importance of living in a building up to code for earthquakes being at the forefront for most new home buyers. However, what disheartened me the most is that in most cases only the land retains its value (and if you are lucky, may go up if in an area of demand/development) and the house on top of it loses all of its value after 30 years. The construction industry has hit a sweet spot to build houses cheap enough to appeal to the consumer knowing full well that it'll have to be knocked down and rebuilt after a 30-year cycle. This is generally accepted by Japanese society, but I think most buyers don't understand the future wealth consequences of purchasing a very expensive good (the house), which is probably the most expensive purchase an average Japanese person will make, on a parcel of land. POINT: Most Japanese don't regard housing as an asset but rather an expensive good that must be rebuilt after 30 years.

Lest I came across as “old man cursing the Gods of luck”, I have very well come to terms with it.

But if I didn’t think it would be a whole lot easier to go about the business of living having that to call upon than not, I’d be lying :)

This is true @Strawman, but unless something extraordinary happens, the previous generations of homeowners have plucked all the low-hanging fruit leaving all the latecomers and their future progeny high and dry!

Thanks @DVV1974. I appreciate the different perspective from someone on the inside and how its treated as an asset. I would have never thought of housing as an asset that needs to be rebuilt every 30 years. The land does look like its having a slow uptrend when looking at the graph.

Its great to hear that they Japanese building industry has hit its sweet spot, and that society is accepting of how the market operates.

I come from South Australia, where homes typically last around 40-50 years before they get knocked over and split into multiple allotments/high rise towers. More about highest and best use here and not functional obsolescence on your side.

Such a great tweet Strawman. Its so true and ironic that the huge amounts of public money required to re-inflate the market be taking from the future generations whilst also making it harder to enter the market.

@Strawman @thunderhead - Do you think that AI implementation over the coming 20+ years will have downward impact on wages, and in-turn impact housing prices? I can appreciate that jobs will be about interpreting the AI outputs in the future, but wonder if the wage growth in line with inflation is sustainable in the future? Also poses the interesting question about whether people would consider lower wages in the future to avoid being replaced by a machine?

Anyways 30 years is a long time to be paying off a mortgage (especially when repayments are 50% of your household income) and a lot can change between now and then...

I’m somewhat conflicted by this issue. We have done better out of residential property than any other asset class. This is more by luck than design, I am by nature and profession an itinerant. as a consequence we have bought rather than rented in a number of different locations in Australasia. We are also extremely fortunate to both have careers that must list near the top of the tick list for banks to lend to. This has allowed us to access a degree of leverage that we would not have been able to get in any other asset class. I don’t think we ever imagined that housing would have performed as well as it has, and it was never our belief that this was the path to riches. More a forcing function to save rather than spend.

From a societal point of view I completely support the opinion that the situation we are in is not healthy.

It is now a bit of a dilemma to work out what to do with property of a significant capital value but producing a meagre return. The same capital value in reasonably yielding equities would be preferable heading into retirement.

On the one hand the rent produces an inflation proof return which is attractive, and selling would trigger significant capital gains taxes. On the other I can’t help feeling it’s the wrong asset class to be most exposed to looking forward.

Even in an inheritance setting we would be leaving a huge tax bill to our children.

I realise this is a good problem to have, but thought it valid to any discussion on this subject. There are no doubt others that would not consider themselves property speculators that were just fortunate to have been born at the right time (purely from an AU/NZ property POV!????

@SudMav - If the AI is indeed the revolution it is anticipated to be, or lives up to anything like its current hype, I would certainly expect the traditional jobs pool to shrink in aggregate, and the resulting automation and productivity benefits to pressure wages i.e. there will be losers in this structural shift, and possibly large numbers of losers - not all of them can be accommodated by the "new world" jobs AI will create or enable (that's the whole point, right?). That will inevitably pressure house prices - I can't see any other way it plays out really, assuming the first condition comes true.

Let’s not neglect consecutive government failures in terms of their social responsibility when it comes to public housing. The apathy in Australia to plan for this is laid bare in the information below.

In the 40 years between 1981 and 2021 the percentage of all Australian households living in social housing (i.e. state owned and managed public housing or community managed housing) has ranged from 4.9 per cent in 1981 to 3.8 per cent in 2021 (from 2021 ABS Census. With public housing rising from 228k to 351k whilst, house dwellings increasing from 4.7 to 9.3m. (Australian Housing and urban Research Institute)

Whilst, places like Hong Kong and Singapore who have some of the most expensive property in the world have balanced the price rises by providing ~30% public housing (HKG) (gov.hk) and ~70% public housing in Singapore (statistics.com).

Imagine if all those Federal and State Government handouts and benefits were directed towards building public housing, rather than stimulating this property price explosion.

I guess it might depend on the interpretation of providing a “public housing service”.

@Chagsy I completely understand your dilemma (although the start of your passage sounds like these houses have all been PPORs that you have hung onto after moving on rather than deliberately selected rental properties).

A couple of anecdotes (might help, might be worthless):

• We had to sell our PPOR in Albert Park in Victoria because we had structured it incorrectly. When we needed to move to Sydney for work and needed to purchase a new PPOR we wanted to extract the repayments towards our new PPOR and keep the Melbourne property as a rental. Not allowed to do that due to “purpose of loan” rule so had to sell. Good thing was no Cap Gain on sale of PPOR. I think we had capital appreciation similar to having an average Aussie Earner (at the time) living in the home so that was nice. Learning … buy PPOR with an offset loan and never pay it back unless you know its your forever house so you can pull the money out for other purposes later.
• I just sold a small 1BR apartment and copped full CGT as we originally purchased it with money that was stuck in my wife’s defunct operating business but our needs had changed. While the tax bill hurt, I looked at capital return after tax and it was still 4.6% per annum compounded which in a ZIRP time is OK (although nowhere near as good as they returns from the market over a similar time period). I did a lot of sums and low yields and pretty high operating costs just didn’t make it stack up. Sometimes it’s the right thing to rip the band-aid. At least if you are paying taxes it means you’ve made money.
• I was chatting to a fellow in the same apartment block who also recently sold. His plan was to use the Downsizer’s allowance and tip a bunch of the proceeds into his and his Wife’s super (+ use bring-forward non-concessional contributions) as well has have money for a few more max concessional contributions before he formally retires. Quite clearly he’s in a different financial position to me so had a bunch of extra levers but might be something worth investigating (i.e. asset class aside, can you get a bunch of the proceeds into a more tax effective vehicle moving forward … might at least make the one time CGT bill look less scary)
• We’ve set up a Family Trust to hold investments. It might mean that the kids aren’t burdened by a tax bill as you can do discretionary distributions and preserve the asset. Also protects what you’ve worked for (or been fortunate to gain from participating in our crazy property market) from unscrupulous current or future spouses of your kids. It’s also like leaving them with a golden goose which could be better than a one time “stimmie” such as paying their home deposit.
• Finally, my strategy if things go to shit is to be able to downsize / relocate from the PPOR (which is a CGT free event). We are fortunate that we are in Sydney’s Lower North Shore so plenty of crazy equity built up and lots of other nice places in Australia we could relocate to and have money left over. I’m not sure if there is a strategy in your situation where you could downsize by backtracking (presumably your current home has full PPOR CGT exemption and the other properties could re-qualify (or qualify for partial exemption) over time if you started using them again. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence---home/eligibility-for-main-residence-exemption#

Good luck with the decision … sounds like you’ve got a nice problem to have.

DISC: PPOR and some Investment Real Estate HELD IRL (but not in SM)

@Strawman you forgot to add that it was going to be in a mining boom town.

Thanks @NewbieHK for the interesting point and the great data. Shows that there are a number of societies out there that will keep trying to provide affordable housing.

I do have a bit of a counter-position to the commentary you added on building public housing. As a government, Australia (similar to US) loves announcing new projects, but never tend to account for maintenance spending. Over time, these maintenance budgets get squeezed by future governments (as maintenance is not sexy) to use for other vote winning projects. Its very expensive to design and develop new housing, and the ROI from a vote winning perspective is not great.

Australia to avoid increasing ongoing maintenance spending has gone down a path of providing incentives (cash or concessions) to get people on the fringes of public housing to get into the housing market. This removes the upfront and ongoing spending component for establishing new dwelling, while getting people addicted to ownership and hopefully providing future tax benefits when they upsize from their small home later in life. They also give zoning concessions for more dwellings, or provide other incentives to get cheap rentals on the market under schemes like NRAS.

Maybe we can fix the problem by relaxing some of the standards on NRAS, and finding a way to sexy it up by maybe calling government lease payments as ''Solution as a Service" for public housing.

@RhinoInvestor - Your disclosure comment made me laugh out loud. Well played. I am not hopeful that the PPOR discount will be around by the time that I want to retire :(

I agree though that having to pay tax means you have made money at some point in time, and sometimes you need to rip the bandaid off and accept the tax bill if you want to access the capital. I can say this as I will have to pay some tax in the future, as I sold some shares to help reduce the amount of loan I would need to borrow on the new house.

A couple of great points raised in your post @Chagsy and indeed, anyone that came in at the tail end of Baby Boomers or even later, was/is indeed lucky to access to good property gains as an investment. In fact, not only was I fortunate to be born in an era in Australia's economic upturn (and not during any of the world wars), I was just fortunate (lucky) to be born in Australia to hard working & caring parents.

I do however have a slightly different take on why I property and not shares by giving a little background to how I things were, way back when I was young (currently happily retired in my mid-60s).

Unusually for my time, I always remember both of my parents working, which was far from the norm in the 1960's and 1970's, but we had little and lived with our grandparents in a 2-bedroom Inner Brissie cottage (we; being a family of 6, i.e. Mum, Dad and my 3 x brothers) until I was in Grade 5 at school, at which time my parents purchased a small house in the very northern suburbs of Brisbane, miles from anything in those days.....but cheap and I'm assuming somehow affordable on the double wages. All of us were enrolled in the cheapest private school available where the second child was 50% of the first for school fees, the third 50% of the second and the fourth free!! There was always something to eat and somewhere to kick a footy and have fun, as well as a solid education. So once again, I was extremely fortunate to have parents that did literally everything to make our current and future lives as best as they could.

In my early 20's I headed to UK for an extended holiday as a tradie sparky, arriving in 1984. I had worked for the previous 2 years building a coal mine west of Mackay getting good LAHA (no FIFO back then unfortunately) and working hard to save $20K for my OS working holiday. Seriously that was a lot of money back then, but I was keen on staying OS as long as I could to trial different cultures and to see the world. I did some electrical maintenance work for Citibank in London, where we had 2 hours in the middle of the night for any shutdowns, so it didn't impact the rest of the world's data passing through our building!! Anyway, after a few more trips around Europe & Africa I found myself working for Reuters running data cabling to all of the big Stock Broking Houses in East London in preparation for the London Big Bang in 1986, when Brokers could then trade from screens in their offices instead of on the floor of the London SX.

Sorry, but this was a long-winded way of explaining my first exposure to shares and the share market. Nobody I knew had anything to do with the share market in those days and it was strictly for the elite end of town. I was able to purchase some shares when Margaret Thatcher started privatizing most of the monopoly government business around the same time (e.g. British Gas, etc), but it was small scale stuff from Issuer Sponsored IPO's only, I had no idea about how to engage a stockbroker or what that cost.

Fast forward to the late 80's when I started my own electrical business and eventually got into the property market in 1990 by going halves with a brother as interest rates were hovering around 17%. It was a struggle no doubt, but long hours, hard work and (like anything) a loit of luck meant the business went well and housing finally started to go up in value again and interest rates went downwards.

The reason for dabbling in property instead of shares at that time was pretty simple. Share investing was horrendously hard and brokers were horrendously expensive. I still didn't know anyone that was a share owner in the mid-90's and most people simply tried property if they could save enough for a deposit to meet with a bank manager that treated them as a second-class citizen, to be told you were too high a risk. In fact, term deposits were the norm amongst my cohort. I refused to go down this track to earn a bit of interest that was then taxed anyway, so started registering with some broking firms and did the cheapest thing possible and bought any IPO's that incurred no brokerage fees. In those days, a smallest trade could cost a couple of hundred dollars, so IPO's looked great. BTW, when I say share investing was hard, there was no internet to talk of until the late 90's, phone calls and faxes were expensive and company info was by Broker word-of-mouth, monthly newsletters via mail that were extremely biased in nature and the odd broker investment day where they simply sprouted whatever firm they made the most fees from.

My point @Chagsy is I don't think property was a lucky investment back then, it was virtually the only thing people knew they had access to. I remember reading somewhere in a financial newsletter in the early 2000's (when interest rates were ~4.5%) that you should not put your money in the bank, but instead, buy the bank. I followed that mantra for a long time (somewhat successfully) and learnt in those early days the benefits of franking credits. Anyway, investing in shares, etc has come a long way, as has property investments. At least most people have available information on a host of choices these days via the internet and fast devices. Something faxes and phones could never achieve.

In regard to views by the others in this forum, I'll simply say I entirely agree and align with @Strawman and others on politicians tampering with free markets, to the detriment of all. So, meddling with things such as first home buyer grants, etc. only have a poor impact on the market and increase prices exponentially. On the other hand, I have a couple of National Rental Affordability Scheme (NRAS) apartments that I have been renting for 25% discount to qualifying tenants, with the government offering some tax rebates in lieu. These agreements expire at the end of this year (at least in the buildings I'm in) and the Government is not extending this scheme at a time when houses and shelter are at a premium and people are camping in parks. Go figure!! At a time when there is very limited social housing and all both parties are doing is saying they will, build more homes (without more tradies or more infrastructure) in some ridiculous timeframe, surely simply rolling over any existing schemes that only offer small tax offsets is a no brainer!!

Yes, us Baby Boomers were really fortunate/lucky to be in the right place at the right time, but there were still no free rides way back then and a lot of my friends will be still paying of their one PPOR for some years yet. At least they have shelter for now, unlike many others these days.

Amazing to think how accessible stock ownership has become @lowway. Things have changed pretty rapidly in a relatively short space of time.

Enjoyed hearing about your investing journey too.

Ahh the lucky country for those with intergenerational wealth. The rest of Australia - oh well!

Where hard work gets you a peanut.

It seems that real estate agent is definitely working for the buyer. I guess that's good in some ways, but yeah, I share your cynicism and it seems to border on dodgy. Who knows, there might be a legitimate reason.

I feel for you @Seymourbutts, what an agonizingly opaque and one-sided process.

Grrrrr!

That's an interesting point @topowl

Anecdotally it feels that's the case in my area, btw (50% retired). What I notice is that they are all mostly loving kept, but fairly worn old houses. Usually a reasonably old car out the front. I suspect a lot are asset rich, but cash poor. Sitting on houses probably worth ~$2m.

It's a huge amount of equity for the next generation to 'unlock'.

I guess on net it means more supply on the market, when these houses are eventually either rented or sold? But I suspect there's plenty enough demand to soak up any extra inventory -- even at higher prices so long as aggregate credit & income growth remain ok.

I sincerely hope purchasing a home does not mean an end to the property rants on the podcast machine! We want more!!!!

one of the valuers was THE EXACT SAME PERSON who conducted the original valuation only a week earlier.... they actually asked the agent if they could go out again to look at the property a second time

Come on @Strawman ... the property space is a fast moving "market", the value of the property easily changed dramatically over the intervening week ;)

... pull the pin and step away from the blast zone :)

I think John Cleese might appreciate this story.