Tag Archives: housing affordability

How to Value a House

How to Value a Home: Karl on why renters are shunted and the latest on derivatives by Renegadeeconomists on Mixcloud

Renegade Economists podcast 358

As broadcast on 3CR, Wed 17th September, 2014.
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How to Value a House show notes

336 Burnley St, Richmond. High profile, high profits, $900K in 2 years – nice work if you can get it. Obviously been vacant for years. 1971 calendar covered in cobwebs. View the news story. Summed up in this facebook poster:


Have u ever wondered why renters get pushed out of a property when a property goes to auction?

Its essentially an admission that the new rental price demanded to meet the auction price paid will be above and beyond what the current renter has paid in the past.

Take the case of our colleague, Mr X, who has been living innner melbourne house for a decade. He started off paying $1000 p/m. For the last few years that increased to $1300. Remember the formula for valuing a house:

Monthly rent x 12 months x 20 years
$1300 x 12 months x 20 years = $312,000
Mr X has paid about $150 k over the last 10 years, about half what the place was bought for.
Recent sales in the area indicate this run down property will sell for $700K.
$2916 p/m v $1300 p/m = more than double in rents required to justify the expected price.
Investors have the ability to rent at a discount to this $2,916 because of negative gearing. The more investors lose on the property, the less they pay in tax. Nice incentives eh? They also understand they will enjoy a capital gain in years to come, making up for any short term losses. Read Philip Soos on just how much these negative gearing losses add up to.

Conservative commentators talking bubbles:
David Gonski
Peter Costell – running out of luck

Investors half of all housing loans

However, if you exclude refinance of existing loans, then a staggering 50% (rounded up) were for investment purposes. This is an absolute record, and represents a 4% uplift from last month. …. The attraction of lifting house prices and low interest rates make property investment for many compelling.

Derivatives and Australian housing

5232.0.55.001 – Assets and Liabilities of Australian Securitisers, Jun 2014
At 30 June 2014, total assets of Australian securitisers were $131.3b, up $2.5b (2.0%) on 31 March 2014.
That equates to 8% for the year.

Covered bonds

are debt securities backed by cash flows from mortgages or public sector loans. They are similar in many ways to asset-backed securities created in securitization, but covered bond assets remain on the issuer’s consolidated balance sheet (usually with an appropriate capital charge). The covered bonds continue as obligations of the issuer (often a bank); in essence, the investor has recourse against the issuer and the collateral, sometimes known as “dual recourse.”[1] However, there exist other variable types where assets come off balance sheet. As of 2012 volume of outstanding covered bonds worldwide was euro2,813 billion, while largest markets were Germany (€525 bil.), Spain (€440 bil.), Denmark (€366 bil.) and France (€362 bil.).[2]

ABS rank Covered bonds as ‘Other’ according to the relevant statistical department. These were listed at $22bn Mar 08 down to $1.3bn June 2013. The last few months they were not reported as volumes were so low. But then we come across this article.

Rental Backed Mortgages Securities

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New Aussie Mortgage Debt record

New Aussie Mortgage Debt record – but why? Dont crowd out the investors!! by Renegadeeconomists on Mixcloud

Renegade Economists show 357

New Aussie Mortgage Debt record – but why? Philip Soos & Prosper Australia Policy Director David Collyer discuss their Senate Housing Affordability Inquiry presentation amidst the fast moving economic environment. Listen to some easy reforms our leaders could be picking off, the state of the Chinese led iron-ore meltdown and whether the effervescent housing supply shortage is really to blame for those dinner table arguments.

Here is Philip’s article on political investment ownership levels.

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Billionaires Crawling All Over Our Democracy

Billionaires Are Crawling All Over Our Democracy by Renegadeeconomists on Mixcloud

Renegade Economists podcast 355

As broadcast on 3CR Wed August 27th, 2014.
Subscribe to the free weekly podcast here or listen live 5.30pm.

Ferguson court revenues
Washington Post: Many rely on revenue generated from traffic tickets and related fines. According to a study by the St. Louis nonprofit Better Together, Ferguson receives nearly one-quarter of its revenue from court fees; for some surrounding towns it approaches 50 percent.

Rob Oakeshott – They are crawling all over our democracy, and my worry is unless the audience is onto this and starts to respond to it, we are allowing democracy to be privatised.

Paraphrased as: The billionaires are crawling all over our democracy. We are allowing democracy to be privatised.

Tinkler donation for rezoning

ICAC reveals the pursuit of economic rents, the unearned incomes, the windfall gains that is the end result of rent seeking. Tinkler’s $18,000 donation via the Free Enterprise Foundation.

The Boganaire’s play:
180 hectares called ‘Yabornie’, North Richmond, City of Hawkesbury, $18,000 donation
2000 lots
= $180 p/h
2000/180 = 11 homes per hectare
at an average $330,000 land value = $3.63m p/h
broadly speaking, thats a 36,300% return on investment
The proposed re-zoning would give a $653.4m valuation of the land

The Buildev donation was made in Dec 2010, not long after donations by developers was made illegal.

Tinkler donation for rezoning

The Australian Financial Review revealed on Monday that within six months of the $18,000 donation Mr Bassett voted in favour of a Hawkesbury council residential land strategy that listed the controversial North Richmond development as “high priority”.

In June 2012 Mr Bassett voted for the council to ask the state government to fast track rezoning the project under a so-called state “gateway process”.

Mr Williams told the inquiry that in October 2012 Buildev sold its interest in North Richmond for $12 million.

It is instructive how soon after the rezoning fastracking that the site was sold.

Public Housing, long term renting with April Bragg (Housing for the Aged)

According to the 2006 census, Australia’s public housing stock consisted of some 304,000 dwellings out of a total housing stock of more than 7.1 million dwellings.

Vic Public Housing history
1960 – housing commish built 4500 homes for SEC workers in Churchill, Latrobe Valley
90’s – community gardens incorporated into pub housing estates
200’s – neighborhood renewal in highly disadvantaged areas
2010 – Eliz St Common Ground opened (supportive housing development) The development provided 131 affordable units and coordinated support for people who had experienced long-term homelessness or who were at risk of homelessness.

Begging a crime – Proceeds of crime’ seizure beggars belief … 8 cases over 12 months

Apartments sit idle as East West Link tunnel creeps up

Nearly 100 new apartments are sitting empty in one of Melbourne’s most desirable suburbs, nearly a year after the Victorian government bought them for $90 million.

The government bought all but two of the 175 apartments in the Evo Building in Parkville from off-the-plan investors in September last year, after it became clear that tollways leading to the controversial East West Link tunnel would completely surround the site.

Eight months after the apartments were first advertised in January, 99 remain unleased.

The Linking Melbourne Authority contracted Lilydale Real Estate agent Noble Knight, which is leaking the apartments on to the market at a rate of about 12 per month.

The agents were advertising some of the apartments at $570 per week but the most expensive on the market now appeared to be $495.

The vacancy rate in Melbourne’s inner suburbs is just 3 per cent, according to the Real Estate Institute of Victoria.
A government spokeswoman said the gradual release of the apartments was in line with advice from the Valuer General.

Council to Homeless Persons policy manager Sarah Toohey said she would like to see some of the remaining apartments used as social housing.

Check the rents charged by government:

$500 x 52 weeks x 20 years = $520K (potential home owners – thats the formula for valuing a property)
90m/173 apartments = $520,231
so charging about what they paid for them. No controversy there.

We didnt get to cover this interesting article on nursing homes in Coalition ditches another good idea, but I was very interested in the similarities between the nursing home leaseholds discussed by Kohler to Community Land Trusts. If only the public collected the rising land rents, not the nursing home corporation.

The Buyer’s Pyramid


Renegade Economists Show 335

As broadcast on 3CR Wednesday April 16th, 2014

Listen here

An extended podcast with journalist Catherine Cashmore discussing her experience on both sides of the real estate game. Why is it so essential for the public to understand the importance of economic rent?

After insight into the world of real estate agents and buyers advocates, we analyse the state of the current land and housing market. It’s not often the show offers an extended interview, but Catherine was in fine form.

Will the bubble mentality continue? What forces are propping it up? Where are the agents for change to come from?

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Excuse the recording quality on my end.

Photo – James Hetherington

Housing Inquiry Submission

house_mitchell st-8839

Earthsharing’s Senate Housing Submission is now online. 149 submissions have been uploaded so far, with (it seems) more to come. We were particularly pleased to see a number of our members submitting their own policy reform agenda. Survey the submissions from the Parliamentary website.

The submission:

Senate Submission into Housing Affordability

14 Deterrents to Affordability

by Karl Fitzgerald, Project Director, Earthsharing Australia

  1. Investors constitute nearly 40% of housing loans, up from 12% in the mid 80’s. This does not include cash purchases by foreign investors.


  2. Incentives for investors include interest only loans. Some 60% of investor related loans are interest only. This encourages short term capital gain strategies. The savings on a typical 10 year interest only loan are 54% compared to principal and interest.This encourages further distortions from economic fundamentals.

    Inherent in the argument that investors are key to affordability is the fact that land is fixed in supply. Incentives for investors can only act to crowd out genuine FHB’s by pushing prices higher.

    Interest only loans should be limited to small scale developers in the production process.

  3. SMSF capital gains exemptions: the 2010 move to allow capital gains exemptions for SMSF owners in their pension phase (over 55) helped place a floor under Australian property prices – at a time when a correction was underway. Whilst SMSF investment levels are still comparatively small, the signal to the marketplace is undeniable – property speculation is the easiest domain to earn wealth in an age of corporate concentration. With baby boomers already owning 47% of all residential property wealth, this will further enhance inter-generational inequalities.

    Such CGT exemptions should be removed.

  4. A well funded campaign for additional land supply to solve the affordability crisis has failed, especially in Victoria. The Urban Growth Boundary acts to push prices up inside the boundary and down outside it. This suits the development industry in that it benefits from higher land valuations for land zoned residential. It also assists in negotiations with farmers outside the UGB for lower option contracts.

    Despite this, the Victorian government has provided the most extensive land supply re-zonings in our history. The result? In Whittlesea, when land prices were falling at the second fastest rate since 1936 (June quarter of 2012), the AFR reported that developers pulled 58% of the land supply from the market in one quarter alone. Further evidence on supply manipulation can be seen here, here and here.

  5. Part of the problem lies with the accuracy of vacancy figures. Current vacancy statistics analyse only those properties available for rent on the market. However, many properties are bought and sold only for capital gains. This wider subset must be included in vacancy measurements. When capital gains have delivered some $30 – 40,000 p.a and rental incomes only $17,000, there is little motivation to risk having a kitchen damaged.

    For five years Earthsharing Australia has measured vacant properties, using water consumption as a proxy for vacancy. Our findings are generally three times higher than mainstream analysis.

    In 2010 the Chinese State (Grid) Power company mimicked our methodology to find 65.4 million empty homes. Rising land prices encourage over building. Our current analysis gives little forewarning of such dangers. The cost in terms of the Global Financial Crisis was trillions in lost growth.

    I remind that the GFC was precipitated by the March 2006 quarter fall in US land prices that led to credit write-downs by mid 07. The risk of such trends to the global economy has now returned with the Chinese property sector suffering from ghost towns.

  6. The ACCC recently garnered national headlines by targeting supermarkets for anti-competitive behaviour. However, we have been lobbying the ACCC for three years to investigate the challenges posed to affordability by ‘staged releases’ in the real estate sector. Pre-WW1, 200 properties would be sold off at 2.30pm on a saturday afternoon in a land sale. Today some developers boast to investors of 17 years of staged releases in a single development. Each week you can see these major developments drip feeding some 4 properties to the market. Surely this is a market manipulation?

    The ACCC responded to our requests by asking for more evidence. Unfortunately compiling such evidence is very costly. Prior to the 1970s land sales data could be accessed for free. In the US you can still access the data free online. We recently paid $6,000 for just residential sales turnover figures. This is not amenable to any form of checks and balances on the most powerful industry in the nation.

    However, there is much evidence available via print media. One of Melbourne’s most prominent sprawl developments is Atherstone (Melton South). They have zoning for 55,000 properties. However, barely 50 properties have been sold. The development has been mothballed rather than reduce prices to clear stock – as would happen in any other market. There is debate that the mothballing is a tactic to strongarm the State government into building the neighbouring Toolern train station. This will deliver a windfall gain to the developers – an unearned income. This hints at the real motivation for the ‘land supply’ debate – to force government to deliver the golden pen tick via re-zoning.

    Staged releases should be outlawed as a form of market manipulation.

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