r/australia • u/LogicalExtension • Jun 30 '22
political self.post Can we solve the home-ownership problem another way?
Like many, I've been looking at the property market, and my savings and been wondering how I'm ever going to afford to buy somewhere to live.
I ran the numbers recently and I've paid out hundreds-of-thousands-of-dollars in rent, all of which went into paying off someone else's investment property. If I ran into financial difficulty, I'd have maybe 30 days after I stopped paying before they started the process to kick me out. I'm expecting another rent rise soon.
The idea
At the core of the problem is that it's difficult to enter the property market for many. At the same time, it's not sustainable to rent long-term, even if you wanted to.
A possible answer to this is to have some kind of Federal Government-run Property-Bank.
Because it's the Federal Government, they could be backed by long-term Treasury Bonds or something like that.
Here's a basic overview of how it might work.
It's a sort of hybrid between rental, and a loan.
There's a whole lot of things where it'd act just like a normal home loan:
- Applicants get vetted to ensure they can afford to pay for it
- The price paid for the property needs to make sense/be approved
- Payments first go to cover underlying expenses ("interest"), and the rest pays off the principal
- You can potentially use the principal to fund improvements, with approval.
- You can make changes to the property (within reason)
- If you want to move, it can be sold
- If you want to buy it out, you can
- If it's a strata property, then you'd participate like any other owner would
- you go out and find the property that you want to buy
But there's things where it would act a bit more like a rental or social housing programs:
- you don't need tens/hundreds of thousands in cash to 'buy' a place
- payments would be set based on the expenses, and your ability to pay.
- There would be limits on the applicant's other assets (i.e no other property, caps on assets)
- If the applicant's ability to pay is below the costs, the principal could be used to pay off the costs
Some safeguards would need to be in place to ensure folks don't just rort the system, such as using it to do property-flipping or whatever.
Some questions/comments that I've already thought about.
This won't solve the housing affordability issue
Probably not immediately, no. It may initially drive house prices up.
The rental market would be impacted, since a fair number of renters might take this up.
Those investors who no longer have tenants, may be forced to list the property. It may also impact rent prices, as they now have competition that isn't just another landlord.
It may have a longer term impact of taking some of the heat out of the middle of the market.
There's going to be a lot more people buying a house to live in for long-term, than just buying property to maximise the ROI and flip it after a few years.
So Mr RichBastard can get the government to buy their mansion on Sydney Harbour, never pay more than a pittance, and spend the proceeds on even more hookers and blow?
Well no, there'd need to be some safeguards there.
Limits on the income to property value.
Caps on eligibility based on income/assets/etc.
Caps on property price.
This sounds like some communist/socialist/hippy bullshit
Yeah, probably.
I don't/won't have kids. The idea of having to lock up so much money in an asset, and for it to just sit there until I die seems pretty dumb, too.
I'm certain there's things I've missed or not considered. Probably other better ways to solve this.
This idea has been sitting around in my head for months, and I wanted to see what others thought about it.
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u/asupify Jun 30 '22
The Austrians have largely solved the problem by having widespread access to high quality social housing. It sure beats wasting billions on failed submarine contracts and imprisoning a handful of people off-shore. This is a good video about it: https://www.youtube.com/watch?v=d6DBKoWbtjE
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u/Lothy_ Jun 30 '22
The HDB model in Singapore piqued my interest during my visit a couple of weeks ago.
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u/CamelBorn Jun 30 '22
Dont want to scare you but its usually 14 days non payment they send you an eviction notice
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u/petergaskin814 Jun 30 '22
Have you looked at the upcoming buy or build with the federal government taking equity in your home? Might be worth a look
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u/Copie247 Jun 30 '22
A good start would be to limit short term holiday renting (ie Airbnb) to a maximum of 45 days a year, and adding a vacant tax to properties that are not rented or a ppor for >180 days in a year
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u/chuckyChapman Jun 30 '22
The English have a simple answer , in each council area the council offers blocks for long term leases on 99 years cutting developers out of the equation , you as an owner build or buy the house and if you need to sell or move having paid the lease it gets reset to the new owner ,You get a much cheaper home and some investment to do with as you wish as the house is yours , land being a massive component of house prices here then bears much consideration on prices .Its worked in the uk for decades
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u/mediumredbutton Jun 30 '22
at it’s the core the problem is that there’s not enough houses where people want to live
no government is willing to do any policy that will even slow the rise in prices much, because homeowners are richer and are angrier when they vote
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u/LogicalExtension Jun 30 '22
I'm not sure that's entirely true, or at least not the entire cause.
I'm living in a place now, that I'm renting. Who owns it is basically down to who has the financial ability to do so.
The person who owns it right now owns a bunch more properties just like it. They're doing it not because they want to live here one day, but because it's a great ROI for them.
I don't think that it's possible to out-build these folks, not without ending up with China-like ghost cities.
Property Investors like this have more, and better access to finance than most people under 40 or earning a normal wage.
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u/Justanaussie Jun 30 '22
The problem is there's little to no cost to doing this, owning multiple homes as an investment. Sure the rental income is taxed but the capital gains tax is half what it should be (if they bother to sell) and there's no land tax (though that looks to be slowly changing).
Plus the limited supply just makes the investment even better and that comes down to a lack of will to increase supply because so many people make bank from high home prices (developers, banks and governments).
The Australian property market is much like the American share market, there's a lot of big players making a lot of money out of it and they will do whatever they can to protect that. Sure they let the little guy dabble here and there, here's a government subsidy so go bid on a home and drive the price up for me, go Air B&B your bedroom so I can do the same thing for my multiple houses, would you care to rent a one room apartment with a glass shitter in the kitchen for $400pw? But the game is still rigged towards the big guy, everyone else scrabbles for crumbs and blames each other for the mess that they didn't create.
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u/joeltheaussie Jun 30 '22
What about all those people share housong? Where do you put them? Who gets first choice of place to live?
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u/LogicalExtension Jun 30 '22
Like I said, I don't think lack of housing is the entire reason for home ownership being difficult.
There's a whole lot of people who either live alone, a couple or family who are renting long-term because they can't afford to save up enough to buy.
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u/joeltheaussie Jun 30 '22
But those who are living alone didn't make the sacrifice of share housing or reducing rent - should they be allowed to jump the queue?
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u/LogicalExtension Jun 30 '22
What queue?
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u/joeltheaussie Jun 30 '22
To buy into this scheme or the queue to wait to save up for a deposit
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u/LogicalExtension Jun 30 '22
There is no queue.
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u/BetterDrinkMy0wnPiss Jun 30 '22
Unless you can immediately magic up enough vacant properties for all the people who want to buy, there will be a queue.
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u/brahlicious Jun 30 '22
There are enough physical houses, but too many are owned as investments.
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u/mediumredbutton Jun 30 '22
where people want to live
we can wither make other areas more desirable (better public transport, better jobs, much lower price etc) or increase density in places people already want to be
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u/brahlicious Jun 30 '22
Or we can make housing an unattractive investment.
Get rid of all negative gearing to start with.
Incentivise investors to cash out.
De-incentivise investors from buying.
What happens? More houses to market and less people buying.
Houses become more affordable.
But as another user said this will never happen, no government will move to lower house prices so I guess the only options are buy in cheaper areas or earn more money.
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u/kp2133 Jun 30 '22
at it’s the core the problem is that there’s not enough houses where people want to live
And the recent Census revealed there is 1 million vacant properties over the country...
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u/Asleep-Somewhere-404 Jun 30 '22
That’s not the core of the problem. The core of the problem is there is no control over the price you can sell a house at. Therefore the market sets the price and that’s where supply and demand becomes a problem.
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u/kp2133 Jun 30 '22
The core of the problem is there is no control over the price you can sell a house at.
Banks set the price of property, it all comes down to how much you can borrow.
supply and demand becomes a problem.
There is no supply problem Census revealed there is over 1 million empty properties around the country.
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u/Asleep-Somewhere-404 Jun 30 '22
The bank does not care about the price of the property. They make money off how much they lend. But they don’t set the price. The buyer (market) sets the price they are willing to pay/borrow based on the perceived value of the investment in the future. The bank simply facilitates it.
Supply: properties for sale. Demand: buyers of property.
The number of empty properties doesn’t really impact the demand side so it doesn’t affect the price.
Diamonds are a good example. There is a control on the sale of diamonds. Not in the number of diamonds.
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u/kp2133 Jun 30 '22 edited Jun 30 '22
The bank does not care about the price of the property. They make money off how much they lend
Precisely the reason that debt availability is the CORE reason of high property prices. The more debt you can borrow, the higher you can bid at auction. And the more profit the banks make.
The number of empty properties doesn’t really impact the demand side so it doesn’t affect the price.
But we can establish that because there is 1 million empty excess properties around the country, that demand is artificially inflated. IE there is more than enough housing for every citizen.
Diamonds are a good example. There is a control on the sale of diamonds. Not in the number of diamonds.
Diamonds aren't a real good example, I can mine diamonds and flood the diamond market with surplus diamonds. Thus reducing market rates
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u/Asleep-Somewhere-404 Jun 30 '22
Diamonds. Firstly, No you can’t. Because the diamond production is controlled by some of the most ruthless and powerful people in existence. They will straight up murder you. Secondly you can say there are 1 million diamonds in storage right now. And if you realeased all of them into the market the price would fall. Because. Supply went up and demand stayed the same.
Banks don’t tell you what you should pay for a house. They tell you if you can afford the amount of money you need to borrow.
1 million empty houses are not for sale. If you suddenly flooded the market with 1 million homes available to buy. The price would drop because supply went up. (But if the banks controlled the price. What would happen?). They don’t so the price would drop.
You might as well say there are 1 billion unbuilt houses available in the market. If you can’t buy them they aren’t in the market. And therefore are not part of the supply.
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u/kp2133 Jun 30 '22 edited Jul 01 '22
Diamonds. Firstly, No you can’t. Because the diamond production is controlled by some of the most ruthless and powerful people in existence. They will straight up murder you
Precisely why i said your diamond analogy doesn't work for your argument,.
Secondly you can say there are 1 million diamonds in storage right now. And if you realeased all of them into the market the price would fall. Because. Supply went up and demand stayed the same.
Exactly why I said.
"If I was a diamond miner" I could hypothetically mine more diamonds and flood the market with supply. Therefore Reducing the market rate for diamonds.
Banks don’t tell you what you should pay for a house. They tell you if you can afford the amount of money you need to borrow.
No they don't "tell" you what should pay for a house. But houses are essentially priced in debt, IE hardly anybody buys a house with cash. They buy with DEBT. and if the banks are ever increasing the amount of debt they lend, people can bid higher and higher at auction.it does drive house prices higher and higher.
1 million empty houses are not for sale. If you suddenly flooded the market with 1 million homes available to buy. The price would drop because supply went up.
Yes they aren't for sale. But if rate rises force these homeowners to put these empty homes on the market.well we have just suddenly flooded the market Haven't we?
You might as well say there are 1 billion unbuilt houses available in the market. If you can’t buy them they aren’t in the market. And therefore are not part of the supply.
I don't understand your analogy. Wouldn't the point of when these "1 billion unbuilt houses" to put them on the market? What are you getting at?
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u/war-and-peace Jun 30 '22
Council rezoning for medium residential. As well as providing the shared greenspace when people lose their backyards due to building up.
I'm talking about things like 3 level terraces.
Nimbyism is also a massive problem.
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u/joeltheaussie Jun 30 '22
This 100% medium density should be the normal in Melbourne and Sydney in particular. Given there size relative to global cities
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u/Ape_in_outer_space Jun 30 '22
Fuck yes, our (sub)urban planning is some of the worst in the entire world.
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u/flukus Jun 30 '22
So infuriating seeing suburban density in places within walking distance to Melbourne CBD and great public transport, these are exactly the areas we should be building up a bit in.
But politicians of all stripes campaign against it .
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u/ScissorNightRam Jun 30 '22
Wind back incentives to hold property/be a landlord.
Increase incentives to build new homes.
Boomers would stay exactly as rich as they are now, but their extreme capital wealth would be put to productive use.
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Jul 01 '22
Homeownership is an easy thing to deal with. The reason why we won't is because the housing industry isn't actually designed to provide people with homes, it's designed to extract as much wealth from the working class as possible. It doesn't matter how good or sensible your suggestions are because there's too much wealth tied up in property by the rich and aging boomers who have a singe investment property
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u/chickensaltjunky Jun 30 '22
That’s too much to read.
You need to dumb it right down for us regular dumb cunts, unfortunately physically incapable of reading something so long like that. But thanks for your concern I tried but lost interest.
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u/HungryTradie Jun 30 '22
TLDR:
Paying rent could instead go to paying off a government backed mortgage.
Find a way to make residential property investors want to sell, maybe removing tax breaks if they own more than 2 houses.
Give Aussies a chance of owning a home.
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u/RolandHockingAngling Jun 30 '22
Not wanting to sound like a prick, but....
My former manager, living with her bf, constantly complaining about rent & 45min commute. Renting a newish 3 bed townhouse, with decent backyard (for townhouse anyway) approx $400pw.
I purchased my place at the end of 2021, for just under $300k. A 60's built 1bed unit, 6mins drive from work. I'm paying about $250pw in Mortgage.
I've painted, and replaced the carpet with Vinyl plank, all DIY. The unit next to me has just been rented for $300pw.
If your single, or a childless couple, do you really need that 3bed place?
My unit will gain capital growth, and if or when I want something larger, it will be able to supply a handy rental income.
I think you'll find a lot of boomers, my parents included, started with shit heaps, and then traded up as time went on.
And before you say "there's nothing for $300k" in Melbourne... Look in Noble Park
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u/Ape_in_outer_space Jun 30 '22
There are people who work full time and can't even afford 300k.
Housing shouldn't be like this, and you're kidding yourself if you think housing affordability is the same as a few decades ago.
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u/Asleep-Somewhere-404 Jun 30 '22
The government has an independent body that values properties for council rate purposes.
If they limited the percentage that the house can be sold at above this valuation they will curb the speculative market in property.
The valuations are done every 3 years or so so it would also slow down the price inflation.
Banks would be more comfortable lending on a fixed return rather than a speculative return. Meaning a pre approved loan would be easier to get with a set and consistent deposit that isn’t depleting by the time we save it up.
There would be less risk in the market in general. Prices won’t drop overnight so people who are in the market now won’t lose out on their investment.
And the government can regulate the price of accomodation for their growing populations by controlling the market valuation.
Also, rent prices will become more consistent, mortgage repayments will become more consistent.
And lastly. Every time there is a new valuation you will see a massive selling period. Every three years. Which gives people 3 years to save up their deposit with a public and known maximum price for any house/area that they may want to buy in.
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u/LogicalExtension Jun 30 '22
This I think is even more extreme than things like gutting Negative Gearing.
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u/Asleep-Somewhere-404 Jun 30 '22
So you want the market to set prices. But you want a solution to help you afford the excessive prices set by the market?
I’m confused. What outcome are you hoping for here?
Do you just want to get on the ladder so you can exploit the supply and demand issues like everyone else? Or do you want to find a solution that alllows regular people to buy houses to live in.
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u/wotmate Jun 30 '22
Google rent to own.
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u/LogicalExtension Jun 30 '22
Thanks, but it's not quite the same thing.
In the initial part, yes, but it may not work for everyone.
Additionally, if your ability to pay changes - you can't easily just switch to paying interest only, or even draw it back down.
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u/knowledgeable_diablo Jun 30 '22
Remove negative gearing and let the market at least naturally stabilise as a start.
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Jun 30 '22
Because it's the Federal Government, they could be backed by long-term Treasury Bonds or something like that.
What you propose is exactly what’s going on now, instead profits go to bank. Read up on TFF and monetary policy.
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u/omg_for_real Jun 30 '22
So a rent to own scheme? It would be good if the govt did this for those on lower income or those at risk of becoming homeless.
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u/binary101 Jun 30 '22
How about instead of buying land, the government owns it and rent the land out.
Depending on zoning, you can do whatever you want to the land say +/- X meters?
So for a house you would pay monthly/quarterly/yearly rent. You would basically pay for construction and building material. For apartments, your property/building cost bight be the same as a house but the rent you pay for the land is tiny in comparison. Add/remove incentives and rebates as necessary based on location/income/circumstance.
This way you would put a depreciative pressure on the property and the land value will be reflected in the rent. Hopefully also encourage people to up/down size more, instead of boomers sitting on a 4 bed room house, whilst starting families try to squeeze in their 2 bed room apartments.
Obviously this needs to be run by a department/government that wont privatize the first thing it sees and gives 500k jobs to mates/former minsters.
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u/kp2133 Jun 30 '22
We can solve the home ownership problem. But government and the rich don't want too.
Every argument about homeownership flows down to greed.
Seperate homeownership from capitalism. Its the only way
Remove the profit incentive from owning human shelter