Property Investors as modern day parasites?

On November 22, 2013, in Commentary, by natalt

FIRST-home buyers have gone missing in the latest housing market upswing, despite low interest rates, reports news.com.au. The figures in the article are shocking. First home buyers make up only 1/8th of all home buyers, the lowest figures, ever. The reason? Competition with investors, both domestic, and foreign and other property investors seeking to be modern day parasites. Australians looking for a HOME are having to compete with rent seeking opportunists, and fly-in, fly-out Chinese investors, who, according to anecdotal reports, are flouting our regulations regarding foreign buyers of residential property. Many are reporting that auctions now, particularly in Melbourne’s east are seeing Chinese investors snap up our homes, often paying ridiculously high prices, prices honest working Australians cannot afford. To make matters worse, this activity is driving up prices. Mainstream news media still continue to describe our property market as ‘affordable’. What a joke.

The problem is many fold, but the primary causes of this problem are

  • Negative Gearing: Tax payers, i.e., working Australians trying to buy a home, are subsidising investors by allowing them to claim tax breaks on loss making property ventures. This insane piece of regulation, somewhat unique to Australia, encourages spivs to enter the market as investors with the tax payer covering their back. What does the tax payer get in return? Nothing. This system encourages investment at the expense of those who wish to become owner-occupiers.Some suggest that negative gearing makes property affordable. This is often told to investors, to perhaps make ‘mum and dad’ investors feel better about their investment and placate their concerns about home ownership being out of reach for their children. This is easily debunked with the simple fact that almost all other countries do not have this scheme, and most other countries have more affordable housing. Rent has been shown to be correlated with house prices. If negative gearing increases house prices, then rent goes up. Rent can’t go up beyond what the market will bear anyway, so again, people saying it makes renting houses affordable are again wrong. With our without negative gearing, landlords must meet the market. Negative gearing just allows them greater capital gains without having to price themselves out of the rental market.It is also difficult to believe landlords voluntarily charge less rent than they could otherwise get.Lastly, it is not the construction costs which is the issue, but land. We can build the houses without landlords doing us the ‘favour’ of buying the land and building themselves. What they are doing, is maximising their income from holding land.
    If investors weren’t subsidised by taxpayers to build and rent new dwellings, then developers would have to drop land prices, which they can easily do as property prices are, according to every reputable analyst, overpriced. Negative gearing only makes sense when there is no room for prices to fall, but there is much room for prices to fall. Speculators, developers and investors simply don’t want the prices to fall, and negative gearing allows them not to by distorting the market.

 

  • High population growth: Australia’s population growth is among the highest in the world, comparable to Africa and other third world nations. Mostly driven by immigration, this massive influx of unneeded people creates demand on our housing market. Specuvestors and developers love this, as it allows them to build cheap shoddy apartments en masse and sell them to unwitting ‘recent arrivals’. Developers like Harry Triguboff openly call for mass immigration, presumably to purchase their tiny, overpriced apartments and make money subdividing the Australian dream.
  • Loose lending standards. The influx of cheap credit kicked off the housing boom, with people taking advantage of low interest rates in the early 2000’s and loose lending standards to BID, BID, BID! Even now, the Reserve Bank is lowering interest rates again and again, to ensure that Australians can ‘afford’ even increasing levels of debt to keep the housing ponzi scheme going. The big banks have repeatedly shown that they complicit in keeping the bubble going, primarily by denying a bubble exists.
  • Auctions. Australia is rather unique that auctions are commonplace for selling ordinary residential properties. Around the world, private sales are the norm, and auctions generally for exceptional properties. In Australia, auctions are common place, and auctions drive up prices. Auctions are highly emotional and competitive, and therefore lead to poor decision making and evaluation.
  • Market Interference. The government and federal reserve are doing everything in their power to keep prices high, from keeping interest rates low to allow young Australians to get into deeper levels of debt, to relaxing foreign investment laws and increasing immigration to create demand.
  • Australia’s love affair with property and ‘easy money’. Exemplified by shows like “Hot Property” and “The Block”.

The title of this article is perhaps unfair. An investor makes an investment into something. Classic examples are investments into start ups, capital to get new discoveries commercialised, or investment into a business which may go big. Such relationships are symbiotic, the investor enables their investment to develop and grow, thereby taking a commensurate share in the profits and gain in wealth which result. That doesn’t describe many who invest in property. It certainty doesn’t describe the real estate industry, or those who buy properties to leave empty, in the hope of future capital gains, or foreign investors. Speculation is what is driving the property market now, and most of these speculators, by definition, are parasites.

Parasites operate by drawing life force from their host, without anything in return. This is an apt description for those who buy and hoard property, extract every cent of rent possible, then sell at an inflated price without doing anything to improve the value. The end result? The speculator makes money without having to produce anything of value, and the Australian worker buying the property has to work longer and harder to pay the increased debt to cover the inflated value.

 

Right now, thousands of Australians are working in productive jobs to pay off crushing debts, to rewards “investors” whose only contribution to the nation through their investment activity is to sit on their arse and rake in money. These speculators are deluded in thinking they are doing us a favour. The Real Estate industry, the media and property investment spivs have formulated all sorts of inane, mostly false and often laughable justifications. This gives the specuvestors some kind of moral righteousness, as if they are doing Australia a service, a favour. But the simple fact is, if they were, housing would be affordable and rents low.

 

Such rent-seeking is essentially people with the wherewithal to do so, skimming wealth off productive people. In times of prosperity, this isn’t such a burden and people are able to prosper despite this. Today, in a post GFC world, with population pressures, high prices, outsourcing of employment and high house prices this activity places a huge imposition on us. Young Australian couples are now finding having to delay starting a family, in order to find the means to pay inflated home prices to provide wealth for foreign investors and provide high returns for Baby Boomers Self Managed Super Funds. Our nation simply cannot continue to bleed itself to provide returns for lazy, passive investments.

 

We must return our economy to a productive economy. An economy where income is drawn from producing physical and intellectual wealth which is useful to people, instead of speculating and drawing wealth from the productive. An economy which rewards the worker and recognises the workers and business entrepreneurs as the true wealth generators and economic engine of the nation, not those who find clever ways to divert the flow of money to themselves and are able to ‘game’ the system. Our economy is weak precisely because we’ve lost focus of what an economy really is, a means for people to turn inputs (resources, labour, knowledge) into desired outputs (goods and services) as efficiently as possible. However, so long as we have in power those who wish to draw massive incomes for no work (as is human nature to want to do), we’ll have economists and the media justifying such a system on their behalf and putting forward propaganda to convince the masses that such a system is necessary and just. We, the workers, the productive people who build the wealth of the nation must challenge that and demand fair payment for our efforts. More for the wealth creators, less for the unproductive speculators and lazy investors. More for those who build houses and less for those who do nothing but use housing purchases to gamble for capital gains and extract rents.

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6 Responses to Property Investors as modern day parasites?

  1. kr says:

    That was a great read. And I can agree with it all.

  2. michael chehoff says:

    Terrific article summing up all the points no politician will earnestly discuss. This is a national scandal……root cause is unrestricted population growth with the shaping of public mindset that it’s inevitable and must not be challanged!

  3. michael chehoff says:

    Saids it all really.

  4. Jai says:

    Amazing Article. The one thing about the topsy-turvey things in Australia or for that matter in most of the countries that were British Colonies is the fact that the rules were and in many cases are still being made by those that have the money and power. The rules are made for governing the poor and favouring the rich giving them Tax breaks, etc. This is exacerbated by the current political situation where businesses mainly the small businesses, the tradies or the little guys that chose NOT to stand in the Centerlink lines are being put onto the fire and being pushed towards the Centerlink lines. Simultaneously, they are also wanting to stop the welfare as it is being misused by a majority.

    We Australians are a strange breed (mentally), we scoff at the person in the Centerlink lines but would be the standing in the lines of Government Grants. Does the scale of the money justify anything?

  5. Jason says:

    Wow that was the biggest load of crap I’ve read this year. Imagine an Australia where the only rental accommodation available was that provided by government because private landlords had no incentive to provide accommodation for those who couldn’t provide it for themselves. I’m no fan of negative gearing, but I am intelligent enough to realize that if there is no incentive for private investors to provide affordable properties for rental, there will be a housing crisis in this country. Perhaps also keep in mind that the massive majority of private rental housing in this country is held by mum and dad investors, so if there is a free kick here its mostly being enjoyed by the little guy anyway.

  6. mkennedy says:

    Jason,

    Negative Gearing is unsustainable and should go. There is no good reason for it, other than vote buying and a form of middle class welfare.

    1: NG costs Australia billions per year, money we cannot afford to spend.

    2: NG does not exist in almost every other country, yet many other countries have affordable rents without this scheme. The argument that NG is somehow “necessary” to provide rental properties is instantly shown incorrect when one realises that most other countries seem to provide rental properties with long term leases without it. Even so, many investors ‘land bank’, and hold land and homes empty.

    3: NG can be claimed on established properties. How is outbidding a potential owner occupier, only to rent it out and claim the loss at the taxpayers expense “providing rental accommodation”? This is laughable yet is exactly what is happening. Supporters of NG claim it provides rental accommodation, yet investors are buying up established properties, this doesn’t increase over all housing stock. Did it occur to you that if it were not for NG, many renters would be owner-occupiers instead? Many renters would be owners if not for the insanely high prices.

    4: NG allows people to bid up house prices, as the fact that the rental returns don’t warrant the price don’t matter as much. If the house was really worth what the investor paid, then they SHOULD be able to rent it out at a rate which is it positively geared. NG is tax payers funds used to distort the market to allow house prices to remain artificially elevated. It allows investors to outbid a renter who wants to buy.

    5: Removal of NG would likely result in a drop in house prices, which would lower rental demand as many renters would opt to buy.

    6: Our insane immigration levels push demand, but these levels don’t benefit Australia on the whole.

    7: The argument is that investors are required to fund new dwellings, but the vast majority of cost is in LAND, not in construction. The cost of construction is not prohibitively high, it is the cost of land. NG therefore is solving a barely existing problem, cost of construction. The land:home price ratio in Australia is quite high.

    8: Many investors are not the “mum and dad investors” (the homespun innocent battler image you are trying to invoke) that you talk about. Even if they benefit, it is at the expense of us, the taxpayers. Taxpayers should not be held liable for other peoples investment choices. We are not obligated to ensure that a minority of ‘mum and dad’ investors make profits.

    9: The housing crisis is not one of supply (another furphy to justify investor class welfare), but due to easy credit from the banking system, systems and laws skewed to benefit investors (NG), unnecessarily high immigration (partly to skew the RE market) and government complicity in keeping land prices high (limited land release).

    Negative Gearing is a blight, and is little more than expensive vote buying and welfare for those that don’t need it. We cannot allow our housing market to remain out of reach for working Australians,

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