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Theory that income inequality is actually about housing

Discussion in 'General Property Chat' started by Gockie, 23rd Nov, 2015.

  1. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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  2. Graeme

    Graeme Well-Known Member

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    There's a posting at Interfluidity about housing, inequality, etc. It's an interesting, though not that readable, piece.
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Income inequality may be just one element which has been raised. Constraints on supply (since it has.been identified) but the lack of jobs which don't require location of dwellings close to the town cente has largely been ignored. Also ignored is the effect of the availability of Public Transportation to employment hubs.
     
  4. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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  5. Graeme

    Graeme Well-Known Member

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    In the late nineties it was possible for someone in the late twenties to purchase a property on a single income in London. These days they'd likely be spending more renting a room in a shared house.

    So you've got a situation whereby the outcomes, and hence inequality, is very different over a relatively short period of time. In fact in a number of cases the individual who bought an apartment in the nineties is now renting it to their counterparts in the present day.

    If you want numbers, then it's likely that the apartments would have sold for around £70K or £80K back in the nineties. Mortgage costs would have been around £550 per month, about equivalent to £950 per month in 2015 pounds.

    The apartment's value is now probably around £500K, and rent would be around £350 a week. So split it two ways for a couple. A room in a shared house would be half that.

    As an aside, a shared house I lived in for a few months was purchased for £120K in 1995. Each of the six rooms were let for around £650 a month, and there was probably at least another £1000 for the basement, which had been subdivided into a separate apartment. So it was probably bringing in around £60K a year, plus the same (or more) in capital gains.

    I suspect that you'd see similar outcomes in Sydney, San Francisco, or any other hot market.

    The thing is that my older brother (born in 1970) was of an age to take advantage of cheap prices, whereas my sister (born in 1980) missed out, and has said that she doesn't ever expect to own a house. That's a massive change (and reduction in equality) in less than a generation.
     
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  6. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    I've got a sister born in 1974, I was born in 1976, a third sister born in 1980 and a youngest sister born 1985.
    My older sister bought at a great time for the 2000-2004 boom. They got married in 2000 and I dont remember if the home purchase was before or after the wedding but it was roughly around that time. It worked out well because they also got the first home buyer's grant. The first place is possibly worth near quadruple what they initially paid. (Unfortunately they didn't hold it!)

    Anyway, prices quickly doubled and later she upgraded and they have a nice house in a good suburb. The third sister started school early for her age, finished uni, started working quickly but also worked during uni. I believe she bought her first place in 2004, a solid townhouse in Castle Hill. Managed to pay it off at the age of 30 :eek:, and this was even after locking in interest rates at over 8%. Anyway, they are doing fine, they bought an upgrader (pretty amazing) PPOR on around 2008 and if they chose to be they would even be near mortgage free on a house worth ~1.3/1.4mill. Sold the townhouse for a very good price, the second highest ever for Castle Hill at the time of sale.

    I spent much too long at uni but bought my first place in 2005. It was a bad time to buy... property prices in that area went nowhere for 3 years. Bought a new PPOR in 2008...(held onto the first property in the meantime) and then prices started to boom! :D

    Youngest sister would have finished uni around 2008. But add a couple of years for getting solid steady income, a deposit together, and it was coming to the end of the first home buyer's grant on any property (not just new builds). So to not lose the first home buyer's grant for existing properties she ended up buying an elcheapo house in Wagga which is where she was working. Fast forward a number of years and it will not have made her any significant money if she was to sell today. There's nothing in the way of free equity for her. She would have been much better off with a more solid investment such as a Parramatta Unit... but anyway.... missing the boom would have really sucked... myself and third sister missed the boom from around 2000 but we got the next one.

    So anyway... getting in early at lower prices makes a huge difference. Owning multiple properties all booming is an awesome feeling, watching my properties all go up roughly $1k per week for the past few years... I was laughing :). I know it won't continue though.

    Anyway, it makes it tough for the younger people to compete when there's so much demand for the supply and the investors with their easy equity can just go ahead and snap up properties without saving up deposits....

    With APRA changes its got to favour the first home buyer again, but Sydney prices have become so crazy so unless you want to go far away and can cope with spending a long time commuting, you might just be better off renting or staying with parents or in a shared house...
     
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  7. Graeme

    Graeme Well-Known Member

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    In my case I wanted to buy in 1999 or 2000, but I wasn't earning enough, then got hammered in the Dot.com burst and an unsuccessful business venture. By the time I was in a position to think about buying again, I was in Newcastle (the Geordie one), it was 2005, and cheaper to rent.

    The early noughties boom was fired up by a mixture of the deregulation of the financial industry, and interest rates being slashed to avoid a recession due to the double whammy of the Dot.com bust and 9/11.

    I expecting prices to move back into alignment with wages and rents. Had the GFC played out in the UK as it did in Ireland then I'd have looked like a genius. Unfortunately government policy was to boost asset prices, so I ended up looking like an idiot instead. :confused:

    Going back to the inequality theme, rising property prices increase the level of inequality because they transfer wealth from the have nots to the haves. Actually, more accurately, it'd be from the future earnings of the have nots, as loans are effectively a method of accessing money not yet earned.

    If events conspired to make myself and Steve Keen look smart, and there was a property crash, then I think that it'd really hurt people between 35 and 45 at a rough guess, as they'll be the most leveraged age group due to purchasing family homes.

    Those older will have sufficient equity, having bought when prices were cheap, to be largely unaffected. Those younger won't have got on the ladder, or be in relatively cheap properties.

    It'd also have the effect of redistributing wealth. Youngsters will be able to buy cheap property, which means that there's a transfer from their elders. And Boomers will have a legitimate complaint about being hard done by, as they'd find themselves much poorer due to capital losses. So these things can go both ways.