The details of home buying
Stephen Condylios writes: Re. “Households paying mortgages faster doesn’t mean they’re feeling the pinch” (March 29, item 1). The last two sentences of Glenn Dyer’s article read:
“They have been making these claims for years, while home mortgage holders have been doing the opposite: paying off their loans rather than suffering and going into arrears. It seems many home mortgage holders are smarter than the alarmists think and are really investing more into their houses, rather than less.”
I believe the last sentence is factually incorrect. Taking out a loan to buy property involves two transactions:
- going short in money, and,
- going long in property.
When someone holds these positions (as every mortgagee does), and they are “paying off their loans”, it means they are lessening their short position in money, but it certainly doesn’t mean they are increasing their long position in property (or “investing more into their houses”). To increase their long position in property, it implies that they would be increasing their property holdings, which paying off their loan does not do (only by purchasing more property would they achieve this).
Silence over Indonesia’s past
Allen Brown writes: Re. “Why we need to reconnect with Indonesia“, (Friday, item 3). Phillip Lawrence manages to get through the whole hagiography without once mentioning the past atrocities in Timor Leste, and the ongoing suppression in West New Guinea.
Let’s face it: Indonesia is not so much a nation but a Javanese empire, and god help those subject peoples who try to break away.
Cutting councils
John Richardson writes: Re. “The Urbanist: should the number of councils be cut?” (Friday, item 4) So, “The Urbanist” thinks that reducing council numbers might be a good thing, with a smaller number of larger local government entities theoretically able to generate substantial benefits of scale, by adopting a broader strategic policy focus, while assuming responsibility for larger-scale infrastructure activities.
Mmm … so why stop there?
Notwithstanding the almost universally accepted view that we are among the most over-governed countries in the world, our stubborn parochialism ensures that it would take a miracle to get rid of state governments, so why not “go for gold” and get rid of local government altogether?
To cite the well-known planning expert, Mel Gibson: “If you want to jump, let’s jump!”
Lower rates under Labor?
Glen Frost writes: Re. “Swan’s budget surplus risks pushing us into recession” (Friday, item 17). Moving the federal government budget to surplus will allow RBA to cut interest rates, but will this allow Labor to say interest rates are lower under a Labor government?
Queensland election breakdown
Peter Marer writes: Redland CC is a non-political council now — however, it’s heavily influenced by environmental lobby groups using scare campaigns to slow or stop any sensible renewal or investment. It’s not only LNP players who are agitating for change, there are a raft of concerned citizens sitting on their verandahs with the proverbial baseball bats.
What’s the article link to Peter Marer’s comments and does he have any evidence to back up his claim?
Perhaps the developers want to put in a few more canal estates like Raby Bay but the bloody mangroves are in the way again.
@Stephen Condylios “To increase their long position in property, it implies that they would be increasing their property holdings, which paying off their loan does not do (only by purchasing more property would they achieve this).”
I’m confused. Why doesn’t paying off my mortgage increase my property holding?
If I buy a house for $500K, with a mortgage of $400K, that means I own $100K worth of property. If I pay off half the loan (ignoring fluctuation in property value), then I own $300K worth of property – ie, I have increased my property holding by $200K.
Can you clarify where I have gone wrong in this analysis?
@Kate.
The need to distinguish between paying off one’s mortgage and investing more in property is important because the macroeconomic implications of each are so different. For one, increasing property holdings implies an increase in demand for property (and hence an increase in prices), but paying down debt doesn’t (confusing the two leaves the article open to misinterpretation). At the household level the difference may only be semantic; but at the macro level the difference certainly matters.
In the scenario you mention, you’d initially have a net worth of $100K, property holdings of $500K and debt of $400K. Your property holdings are independent your debt. After you pay off 200K you have increased your net worth by $200K, to $300K. Your property holdings would still be $500K.