Kuta Beach

Kuta Beach

Saturday, 29 January 2011

The Problems with High House Prices

The average house in Australia is now around $500,000. It wasn't always this expensive. Back in the old days, houses were cheap, but since then an explosion in house prices has occured, driven by increasing willingness and ability by banks to lend money as well as great enthusiasm by bank customers about the wisdom of investing in real estate.

In Australia, investors who borrow money and then lose money if interest repayments are greater than rental income, can use this loss to reduce their taxable income, thereby reducing their tax burden. This tax advantage has increased demand from investors to borrow money to invest in real estate.

This tax advantage will be difficult to do away with as it is political suicide. An attempt by Labor to abolish negative gearing led to so much controversy that politicians nowadays are likely unwilling to try it again. I believe it is best to assume that negative gearing is here to stay and to find ways to deal with it.

The effect of higher house prices can be positive or negative depending on who you ask. For those who own residential real estate, it is brilliant. For those who do not have real estate and want real estate, it is very bad. I am in the bad group in that I do not own residential real estate. However, unlike many young people in my predicament, I do not have a desire to ever buy residential real estate in Australia. The reason why I don't want to buy real estate in Australia is because it is too expensive. The tax advantage has already been capitalized into prices by driving it up. Therefore, if you buy a house you overpay. Many believe paying a lot for a house is harmless but it is extremely harmful. If you borrow more to pay more for a house, you lose money via interest you pay to the bank. If you use cash to pay for a house that you live in, you lose money because of the opportunity cost since you could have used that money to earn interest. If you overpay for an investment home, overprices housing means that you lose money because the interest repayments you make are not compensated for adequated by rental income. Mainly due to tax advantage being capitalized into house prices, rental yields for the average house in Australia is around 4 per cent, and this does not take into consideration the costs of depreciation and repairs.

The bottom line is as follows: if you buy a house, you're being ripped off. The windfall from the housing boom has already been taken by the baby boomers. Generation Y should not try to mimick the baby boomers as the situation back then is nothing like the situation now. Back in the old days, houses were cheap and if you rented your house out you could collect high rents. Nowadays, houses are expensive and if you rent your house out you will not get much back.

Even if you agree that house prices are too high and refuse to buy a house, that does not stop you from being ripped off. High costs of real estate may even extend to commercial and industrial real estate, resulting in the prices of goods rising. This is particularly evident if you traval and notice that everything in Australia is much more expensive than it is in other countries, not just houses. Therefore, if you don't want to be ripped off, the best thing to do is to reduce your spending.

I recommend you keep your spending low, live with your parents (or rent but split the rent with many roommates), and save up money mainly using the highly tax-advantaged superannuation system as well as taking advantage of high private debt levels by investing in bank shares. I am strongly considering moving out of Australia once my savings are high enough. I will get a new job in a new country and live there instead.

Sunday, 16 January 2011

Health, Wealth, and Wisdom

How can a person be happy? Different people have different answers to this question, but for this post I would like to talk about myself and my journey in life to find happiness. I believe that for me to be happy I should focus on attaining adequate health, wealth, and wisdom.

Health refers to eating right, exercise adequately, and getting good sleep. It also involves seeing your doctor regularly to get checked, as well as avoiding risky activities like binge drinking or unsafe sex. Wealth refers to making money. Wisdom is knowledge about everything, from knowledge of health to knowledge of a spirtual nature.

Often people go overboard trying to get as much health, wealth, and wisdom as possible, and my casual observation leads me to believe that being obsessive about health, wealth, or wisdom can actually make you unhappy rather than happy. For example, some hypochondriacs read every health scare on the internet and go to the doctor thirty times a week; people obsessed with money earn $100,000 per year but believe it is insufficient because their friends are earning double that, so they work 80 hours per week to try to catch up. This is why I stress the word "adequate." I believe that, when it comes to health and wealth, you if you're doing enough, then you are doing enough.

Another way I find happiness is not to worry too much. Being content with your health and wealth is one way you can stop worrying. Instead of worrying about getting heart disease in the future, go out there and do your thirty-minutes-per-day exercise or start eating healthy food. In other words, get busy doing what you need to do and don't sit around and worry.

Thursday, 13 January 2011

Avoid Processed Meat

When you read health advice on the internet, it's difficult to arrive at the truth because, armed with Google, it is very easy to find studies that claim one thing and studies that claim the exact opposite. One way of discriminating between good health advice and bad health advice is to look at the quality of your source, and one way you can discriminate among research universities is to look at the latest university rankings (see Times Top 200 University Rankings 2010-11).

The American Cancer Council, in 2005, claimed that high consumption of red meat was linked to colon cancer. However, although they found a statistical link between consumption of red meat and incidence of colon cancer, they did not know what it was about red meat responsible for this result: "Researchers aren't certain what it is about red meat that might influence cancer risk. The iron and fat it contains may be culprits. For processed meat, the salt, smoke residue, and nitrates and nitrites used as preservatives may play a role." This may mean that although you can reduce statistically reduce your risk of getting colon cancer by avoiding red meat, it may not be the redness of the meat itself that is causing the increased risk of colon cancer but the likelihood that red meat is more likely to be processed and have more iron and fat.

The Harvard School of Public Health, in 2010, claimed that eating processed meats, but not unprocessed red meats, may raise risk of heart disease and diabetes. This is further evidence that processed meats, with added salt and preservatives, have serious adverse health effects.