Property Investing is not Good for Society

Note – Systemic vs. Personal

What I’m talking about in this article is what we should aim for systemically. These changes need to made at the system level – personal choices won’t solve this, and people can make the legitimate choice to invest in property, even if they believe we should remove this system from out society.

Specifically, I mean buying property with the intention of selling it at a higher value than it was purchased at. So why is it not good? My key thoughts are:

  • To actually get value, you need to beat the rate of inflation. You can either do this by:
    • Having an increase in demand for the property
    • Reducing the supply of property

Increasing Demand

Demand for a house can come from a growth in population in an area, or by an increase in the desirability of services nearby.

Population growth is quite straightforward – if the population of an area grows, more rooms are needed to house these people.

Regarding service growth, consider a university (like where I work). If the student population goes up, so will the staffing numbers. Assuming these are non-remote students and staff, both of these will mean more people need to come to the campus. Most people want to live near where they work and learn, so housing in the area will be more in demand.

Reducing Supply

So how does supply reduce?

One aspect here is that as families age, often their children move away from home, but the older parents stay in the house. This can cause a gradual decrease in supply in an area.

Another way is that as properties age and start to fall apart, they become less desirable, and potentially less habitable – this can reduce the “supply of houses people want.”

Another way supply can be lost is by property owners artificially restricting supply. This can be in the form of short-term rentals, like AirBNB, or just by holding properties without intention of living in them. In Darwin, I haven’t seen much evidence of this going on.

So What’s the Problem?

If housing cost is always going up faster than inflation, then it is becoming (in true cost) more and more expensive. To counter this, either incomes need to increase at the same rate, otherwise over time less people will be able to afford to own a property.

This slowly excludes the general population from the chance at house ownership, but it also brings other problems.

If a house costs a larger percentage of a person’s income, this restricts their life flexibility, and slows the rate at which they can pay off their house. Where does this money go? Primarily to a bank in the form of interest on the mortgage – why is this something we would want in society? Funding banks doesn’t help people.

Expensive housing also takes away from the local economy. If a person is spending a larger percentage of their income on their house, they have less available spending money, meaning less luxury purchases like restaurant food, coffee shops, etc. These keep local businesses operating, and keep the money in the local economy.

What Can be Done About It?

Supply Side

One of the best ways to address this on the supply side is to improve land zoning. Currently the majority of Darwin is zoned as LR (Low-Density Residential). LR in Darwin’s zoning rules allows basically only single-family detached dwellings. For full details, see NT’s Land use zones page. Consider this screenshot of the Darwin Zoning around CDU University:

Note that almost all land is the light-pink colour – this is LR. There is a little of the mid-pink, LMR (Low-Medium Residential) and a little of the light-red (Medium Residential)

What this means is that living space is artificially restricted in almost all the land around CDU. This prevents people from building any more compact living even if they want to. People who want to live as close to their work may be unable to find any available housing, or that housing may be prohibitively expensive.

Demand Side

One way to reduce the demand for housing in an area is to make available new land further away. This is an attractive proposition for government, because it doesn’t involve changing areas, but it causes it’s own issues.

One primary issue is this approach increases city sprawl. Sprawl means building and maintaining more, expensive roads, as well as increasing congestion on the way into the workplaces. These infrastructure costs come out of taxes and city rates, increasing living costs.

Sprawl is also damaging to the environment, as land is taken away from wildlife and farming, and turned into roads and houses. It pushes the bush away from the city further and further.

Building new, low-density areas also spreads out services and makes them hard to reach without a car. Consider my suburb of Muirhead – there are no shops in Muirhead because there aren’t enough people to make it worth it. Instead, I need to travel to Hibiscus in Leanyer, or Casuarina to just get basic groceries. I prefer to cycle to the shops, and many people don’t have the option of driving for health reasons. These people are excluded from many services in Darwin because they are so difficult to get to.

What About People Who Don’t Want Dense Accommodation?

Some people want to live in a detached single-family house. Changing zoning doesn’t force anyone out of their house, it only makes other options available to people. If you live in a house, and your area is re-zoned, you can continue to live in your house with no changes!

However, other people want to be able to choose a different trade-off. Maybe a young family is willing to live in an apartment, with the lower cost allowing them to work a 4-day or 3-day week and have more time to spend with their kids? Maybe by living right by their workplace in a unit a couple can own a single car, saving themselves thousands of dollars a year in second-car costs.

Why should these options be banned?

Conclusion – Forever Increasing Costs Isn’t Sustainable

Is it?

It’s not clear that incomes can go up indefinitely, and housing costs are already outrunning incomes, so we need to address this issue.

Thoughts or feedback? Contact me

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