"Sell me *this* Landlord."

 

I'm going to start my story in China. I think with an end of day accounting, there's little that Xi Jinping and I would agree upon, I might even describe Xi as a moral monster. But we don't agree on nothing. Where he and I have common ground, I suspect, is that we don't want people investing in real estate and crypto. 

Way back in 2008, not knowing what to do with my remaining time in Beijing, I did what I discovered I do whenever I am somewhere for no particular reason and that is to find a tall building with a viewing deck. In Beijing I found the CCTV tower, not "Closed Circuit" but "Chinese Communist" and you could walk around its viewing deck and it would have photos of what used to be in the direction you were looking. One of them had this photo and plaque:

"It was the origin of the idiom: grasp at feathers when gooses [sic] fly by. (It stands for taking advantage of others whenever there is a chance.)"

Over two decades or so, I got tired of trying to explain what is wrong with property "investment" and in the last 5 years I've tried to flip that burden of having people explain to me what is right about property "investment", and I do that flip with the proposition: "Sell me a landlord."

So ubiquitous is the practice and received wisdom of "investing in bricks and mortar" that my experience is that most people find the question unintelligible. Few people on the face of it, get what I am even asking them to do.

What I'm asking is to imagine I have a choice. I'm moving from Palookaville to the Big Smoke for a new job I anticipate holding for at least 20 years, and I have money, a big pile of cash and a line of credit. I as a consumer have two choices a) I could buy a house to live in for the next chapter of my life. Or b) I could rent a house owned by somebody else. I'm asking you to persuade me to take option b.

My experience is that most people have only ever examined the question: "is investing in property good for me?" and almost nobody has ever looked at "is investing in property good for anyone else?" and I generally experience that people struggle with cognitive dissonance like a kayaker struggling with a Hippopotamus and eventually blurt out something like "Because I smart you dumb!" 

Which can otherwise be worded as "grasp at feathers when geese fly by."

Australia is in Trouble

This year I've watched as the AUD has been nerfed almost to parity with the Mexican Peso. Which is surprising to me because Australia has been raising its interest rates, pretty much all year. Usually, a rise in interest rates makes buying that currency more attractive, and lowering those rates makes the currency less attractive. 

There's an explanation, which is that big economies like the USA have raised interest rates even higher, with the US central bank interest rate at 4.75% and Mexico's central bank interest rate is at 11.25%. Sydney Morning Herald/The Age journalist Shane Wright wrote something I'm not going to read, like the vast majority of SMH/Age articles under the headline "RBA plays ‘recession roulette’ as it steps up inflation fight" this is the knight fork many economies I suspect are facing post pandemic.

Here is a way too simple explanation of the dilemma economies like Australia face. The first thing is the go-to response for combatting rising inflation and cost of living is to chill the economy by raising interest rates. 

Wage rises have been practically non existent since around mid-1970s, 80s at the latest. With employers routinely giving workers 2% pay increases annually while inflation runs at 2.2% a lot of people would have seen themselves going slowly backwards over decades. Slightly less than a lot of people didn't experience this backward slide because they began speculating on property.

Investment is when you by a share in a spoon factory that manufactures and makes spoons at profit. You buy into the factory for say $100, and gradually over time the money made from selling spoons at profit pays you back your initial investment and then some. 

Speculation is when you buy a piece of art and then hope an air conditioner falls on the artist so they can't make any more art and then someone who really wants some of that specific artist's art like their mum comes and buys the piece back at a profit to you. The most common object of speculation is property. It might help to think of it as "reverse mining", people borrow money from their future selves and pump it into the ground instead of extracting it, in the hope that someone else will buy your goldmine for you for more than you pumped into the ground.

A very, very large part of Australia's economy, is borrowing as much money as you possibly can to buy a piece of land and for the most part reliably sell it to someone who is willing to borrow even more money than you did a couple of years later.

It's true that many people speculate on stocks, doing complicated mathematics in order to forget that they are buying pieces of actual real world businesses. One key difference between shares and property, is that you don't need to live in a share of a business, so if you sell a share you don't simultaneously become rich and homeless. In fact there isn't a single share that millions of poor S.O.B.s are forced to buy or rent in order to not die from exposure.

I can't remember when Australians, particularly in the two most populous cities Sydney and Melbourne, began to tug their shirt collars over housing becoming unaffordable. Australia's housing market didn't crash (or rationalize) during the 2008 global financial crisis. So for about two decades, Australia has periodically discussed how to make housing affordable without house prices going down.

You can't have house prices go down, because that would force the general public to confront the fact that they've been largely going fucking nowhere since the mid 1970s.

A big part of the problem, is that morons tend to think that any system that allows any old moron to get rich is the fucking tits, whereas smart people can identify that any system that allows any old moron to get rich is a broken system. Alas, predictably there are always way more morons than smart people.

The thing is, that the longer you allow this moron game to get going, the more devastating it is to stop.

So you kick the can up the road. You just try and keep the game going so the devastating consequences don't happen on your watch. That is viable, if you only have wolves at the door, and no fire in the kitchen, but not when you have a fire like inflation in the kitchen. 

Below is basically the Australian economy since the 1989~91 recession thru to present day:

I don't know why the "throwing balloons" game needs to be mixed with Dance Dance Revolution, nor why this is what my doppelganger chooses to do with his life, I'm just glad he's indoors because I think if you ever come face to face with your doppelganger you die.

Why Me - The Window and the Mirror

When bad stuff happens to people, somewhere in the grieving process they might ponder as to why the bad stuff is happening to them. Sometimes this is straight forward, you are going to jail because you robbed a liquor store. Sometimes it is hard, like why you got an illness that has a quite horrible treatment process and some prospect of death for no apparent reason.

In the difficult cases, it is my position that often people will compare themselves to everyone else, contemplating how not special they are. Maybe even wonder why the worst people they know appear to have better luck. 

Author Jim Collins in his book 'good to great' invoked a metaphor to describe good managers called 'the window and the mirror' this was more about attributing credit, but he noticed the good managers had a tendency to professional humility. That is to say, when things went wrong, they looked in the mirror and when things went right they looked out the window. 

Poor performance they were to blame, good performance their people were to be thanked. The major limitation of "The Window and the Mirror" is that poor performing narcissistic managers also tend to look in the window and the mirror, just everything that is good is owing to their genius and everything bad is because their people let them down.

Most people have the fragile ego and accompanying positive illusions of a poorly performing manager. An explanation in and of itself as to why more people opt to invest in property, than run a successful business.

The framing of "Sell me this Landlord" is specifically to provoke a "why me?" kind of reflection, when people feel entitled to good things happening to them, good things like "passive income".

Because good fortune and success, results in most people un-skeptically accepting the preposition that they are truly special. That they are savvy, street smart or whatever else they tend to tell themselves. Rarely do they reflect upon how utterly average they are, as they might with a diagnosis of MS, cancer or early onset Parkinson's. Nor take time to contemplate how people they look up to, or aspire to be in some respect aren't as fortunate as them.

Xi don't care, Xi don't give a shit.

An advantage of a totalitarian regime, is that you don't much have to give a shit about the people you rule over. Yes you may live in perpetual fear of a popular uprising, but you don't live in perpetual fear of people going "boo hoo, I spent my life making malinvestments into the unproductive part of the economy and now you want to undo that, I'm going to vote for someone else!" and subsequently you don't have to play a farcical game of trying to make property affordable without reducing the price.

Xi is in such a position, and basically drew 3 red lines to try and arrest the Chinese obsession with property speculation. However, as everyone knows, Xi is more Pooh-bear than Honey Badger and while he can push the vast number of people he dominates around somewhat he has limits.

These limits don't deny he or his government the luxury of calling property investment what it is - malinvestment in an unproductive part of the economy.

By unflattering contrast, Australia cannot get rid of fucking negative gearing. Many people don't understand what negative gearing is. Comedian and recovering cocaine and prescription medication addict John Mulvaney provided a perfect example in his Netflix special Baby J, where he used his credit card to purchase a $12,000 Rolex in order to convert it to $6,000 cash so he can buy drugs. 

Negative gearing is where the government turns up and says "good job on just flushing 6k down the toilet, we'll allow you to deduct that from your taxable income."

This would be less problematic if the Australian government allowed drug addicts to deduct the losses they took on motivated sales from their taxable income because the vast majority of non-functioning drug addicts (the kind, that like a friend of mine, sold books on ebay for 50c just to take the shipping money and spend it on heroine) do not tend to benefit much from reducing their taxable income.

Whereas, the government congratulating the fucking geniuses that buy a cash flow negative property (a house whose income via rents do not exceed the mortgage repayments) allows them to deduct the monthly losses from their taxable income.

What this means in practice, is that your landlord might also be a dentist and for ease of calculation let's say he makes $120,000 per year, or $10,000 a month. We'll assume he's in the highest tax bracket and for simplicities sake, we'll say he pays $4,000 a month in taxes. Taxes that are spent on maintaining roads, sanitary drinking water, law and order, education, healthcare etc. 

Except that you in the house you rent from him, pay these days about 60% of your income after tax to him in rent, drinking the rest because your life is so depressing. You pay the landlord about $2000 per month.

The thing is, your landlord had to borrow a lot of money to purchase the home you live in, so much so, that he repays $6,000 per month on his mortgage, $2,000 of which you effectively pay for him, meaning $4,000 of his $6,000 a month after taxes goes to repaying a bank.

The Australian government looks at this situation and says 'there's something wrong here...we are charging the rich guy who owns too much housing too much tax! You can deduct the $4,000 you pay to the bank that you lose on your investment property from your taxable income!'

To which the tenants excitedly exclaim "and us too! The $2,000 we pay to him to help pay off his "investment" we can deduct that too!" and the Australian government says "are you fucking kidding me? There's a reason we don't teach everyone economics in school. Someone has to finance roads, sanitary drinking water, law and order, education, healthcare etc."

Reverse Engineering the Thought Process I Don't Have

When asked to sell someone the valuable service of a landlord, I imagine the framing of the question would throw most people. They will confuse my challenge with the question "should I buy or should I rent?" and likely ponder why I'm asking a question everyone knows the answer to.

This would give someone pause, and consider that generally it is more expensive to own a home in a slightly less desirable suburb, (cash flow wise, a 3 bedroom median priced house in the suburb of Reservoir as at Feb, 2023 with the average interest rate of 5.13% entails a repayment of $4,155 per month) than to rent a home in a more desirable suburb. (A 3 bedroom house in South Melbourne costs a median monthly rent of $3,900)

If you are unfamiliar with Melbourne and thinking "that's not too different" there is a big difference between South Melbourne and Reservoir, if a landlord helpfully offered to buy the house you are living in, they would be paying in the vicinity of $11,262 a month.

That is big money, fortunately it is subsidized by the people who get to enjoy the quality of life improvements the landlord paid a premium for, and the rest you can deduct from your tax obligations to finance health, education, law and order, infrastructure, national defence, the perverted arts etc.

At which point, confusion should set in, because the best selling point of a landlord is that they subsidize your living, but the underlying asset should improve in value. So even if you can supercharge your savings by renting, the landlord is basically doing the same, just instead of depositing it in a bank they are paying down debts and accumulating equity that will come back as cash when they sell off their superfluous housing. 

Furthermore, when they flip the property, the new owners may want the property to live in, in which case you'd have to move, not just get out of the fucking house every time the realtor is showing the property, making sure you don't leave shit stains on the ceramic. 

So the first thing you blurt out isn't going to be "it's cheaper to rent than own!" rather "you wouldn't do it, because you lose access to capital gains..."

Forcing me to repeat and specify, that the task is not to advise me that I should buy and not rent. It is to sell me the valuable societal function of landlords.

A common response I get is "they provide housing." This is confusing the property construction industry with property investment. It's not like property developers have a glowing reputation, but they develop property for sale to both people who want housing for housing and people who want housing as an investment.

By definition, a landlord owns housing excessive to their own needs. That's how they have spare housing to rent. The only sense in which landlords provide housing is by permitting someone to rent it. They are under no obligation to do so. This is an area I know a bit about as a former author of Prosper Australia's Speculative Vacancy Report for me the most frustrating thing about Australia's pantomime discussions of "Housing Affordability" is not that the solution must always be increasing supply by cutting red tape, but the premise that the Australian housing market is efficient. It is not.

We are rapidly approaching the limits of my imagination as to how someone could sell me a landlord, because in my general experience, tenants do not appreciate their landlords, and landlords do not appreciate their tenants. Tenants are generally regarded as a liability, stinking up your asset, wearing and tearing it while simultaneously needing things.

The remaining selling points for landlords, are that they assume the costs of property maintenance, if there's a broken pipe that ruins walls and carpet, they pick up the bill. If termites eat the entire frame and it has to be demolished, the landlord is stuck with the bill.

The problem being that any repairs that do not destroy the housing, it is generally a better deal if the tenant just paid the bill and no rent. It is rare to have to fork out $46,800 in home maintenance bills any given year. Anything that destroys the house, yes, is a pain. But many landlords destroy the houses they buy in order to subdivide and flip smaller shittier housing for a profit.

There are even landlords that pay unscrupulous individuals to destroy heritage listed properties in the night. That's because with house and land packages, very little of the value paid for by property investors is the house. The vast majority is the land, and the value is not really generated by the land but all the land around the land. This is even the case in the Metaverse, though the Metaverse is shit.

It isn't generally the pH level of the soil that makes a location desirable. A piece of land overlooking the beach and a 5 minute light rail ride to restaurants and entertainment that is geologically identical to the same area of land 6 hours away from the nearest hospital are not of the same value.

This is known and expressed in idioms like "location, location, location" and "better to own the worst house on the best street than the best house on the worst street." and in somewhere in Beijing "grab at feathers when geese fly by." All of which suggests that the main function of landlords is essentially scalping beds, bathrooms and kitchens. 

As in, landlords are literally scalpers, people who insert themselves between the producer and the eventual actual buyer and take a cut. Unlike a concert or sporting event though, there's no expiration, meaning you can buy and hold land until you can gouge someone. Property investment guides can literally be boiled down to "buy 10 tickets to see Taylor Swift and sell 9 of them for double or triple what you paid."

I'm confident I can sell a landlord to someone, but only under very specific criteria - namely being the long term owner and custodian of a property somewhere people have to live for short chapters of their lives. Pretty much, property with good access to a tertiary Education where young people are going off to experience independence for the first time and briefly before returning home because every young person's parents' retirement aspirations involve scalping housing to young people.

Company towns pose a potential problem with wage theft, if for example I need to move to Cypress Creek for the duration of my contract I would rather not have to invest in real estate whose value is going to be determined by the longevity of the town's major employer, given that any one employee has little control over a company's performance. Enron going bust produced stories of loyal employees that invested all of their 401(k) retirement funds into Enron and not just losing their jobs but their retirement. Subsequently to me it makes sense that if all a town has going for it is a single employer, if that employer goes bust they should be left holding the baby.

Renting a room in a nice house that you aren't free to trash at your own expense for a few years is something worth renting from someone else owning. I would honestly prefer that than spending my final summer between high school and university purchasing a home near the institution that accepts me and then selling it so I can be moved out the day after graduation. 

The clue is in the name.

So there might be a "Energy Czar" or a "Business Tycoon" but how often have you applied for a job position like Human Resources Sultan, or Payroll Viscount, or Sales Marquis. 

Landlord's aren't a hallmark of Capitalism, they are a hangover from feudalism. Yes it has been democratized out over several centuries to largely include the upper 20% of society, where it used to just be the aristocracy and the king.

But the middle ages was probably the last time landlords provided any valuable service, namely stopping the neighbouring landlord from raping and pillaging. It was like an involuntary scheme where working people all had to retain a lawyer throughout the course of their lives. A lord and other nobility with land holdings that didn't fish or farm or craft but trained in the yard. In practice people belonged to the land which belonged to the lord. Not the other way out.

Now you pay tax to upkeep an army and navy in a nationalized military that is under some kind of civilian oversight and the landlord is someone who has bought the right to levy a private income tax should they choose to provide housing, which they increasingly don't bother with, because there is more money to be made in trading the rights to levy a private income tax than there is likely ever to be in charging rent.

What Water?

If this is the first time you've heard me articulate that landlords are basically useless and we shouldn't be encouraging people to become landlords, you may be feeling a little disoriented as you ponder for the first time, whether your owning a rental property is good for anyone but you.

What I would point out is that it is in no way unusual for people to just live entire lives unaware that some fundamental thing is in front of them all the time.

A semi-famous example is the fish parable from David Foster Wallace's 2005 commencement speech:

There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?”

This is a standard requirement of US commencement speeches, the deployment of didactic little parable-ish stories. The story thing turns out to be one of the better, less bullshitty conventions of the genre, but if you’re worried that I plan to present myself here as the wise, older fish explaining what water is to you younger fish, please don’t be. I am not the wise old fish. The point of the fish story is merely that the most obvious, important realities are often the ones that are hardest to see and talk about.

Do you believe in a God? Or not? Pretty much unless you believe in all the God's, like Lord Krishna has many aspects, including aspects that won't tolerate any other aspect of Krishna, you would already recognize that vast numbers of people are convinced of a God that does not in fact exist. They can persist their whole lives under the apprehension that all the unnecessary suffering they and animals experience is a completely justified test of their faith. Maybe even a fun wager with a divine antagonist they all-powerfully choose not to stop.

And crypto, the number of people who find crypto really exciting is startling, a digital magic bean that has produced some of the largest financial crashes, bankruptcy and fraud in history as well as bad art, and nobody in it seems to have noticed that crypto isn't good for anything. Bitcoins scarcity might be ironclad, but it also seems that while we have one crypto currency that nobody uses for any transactions, anyone can make another blockchain crypto currency that nobody uses for any transactions.

The fact is, most people will not believe in something that is right in front of their noses, and believe in shit that has never existed.

So you live your whole life with these people of the asset owning class called "landlords", and cinema never portrays them in a flattering light. You maybe play Monopoly with the family as a child where the aim is to drive everyone else into bankruptcy. Media informs you that the [insert your country here] dream is to own your own home. 

As presented, this "dream" is never questioned, questions like "why is this the dream and not the default?" "Should a nation in the 21st century be proud of people having a prospect of housing security? Or is this like being proud of having drinking water in the 21st century?" (Actually the Mexican dream could be "drinking water from the tap.")

Ultimately it becomes normal to be advised that you don't really invest in property for the rental income, but the capital gains. A statement that is logically equivalent to saying you don't open a store to sell goods to customers, but to sell the business. I haven't really come across someone who enjoys being a landlord, and I'd expect this to be more common than someone who enjoys having a landlord.

Alas, I am good friends with my current landlord, but that is because I don't live in Australia. The only other landlords I've had that I like are my parents, but my parents always dreamed of me moving out.

The Future

Do I ever expect someone to sell me the valuable service and societal function of land lords? 

Expect, no. 

But I am not closed to it. Frankly, I have always expected a better effort than I have ever received. I expected some back and forth like:

"They give you a place to live, call a plumber at 2AM, fix your dishwasher, replace the carpets and the rent isn't even worth it you ingrate shit!" Something like that, to which I would ask "Why don't you sell me the house then at a reasonable price? Surely it's quicker for me to call a plumber, get an electrician in, replace carpets etc." 

Most people being oblivious that for a landlord to be renting property to a tenant, the fundamental premise is that they don't need the property, don't want to use it, they just want to own it and retain control of it.

I don't ever expect someone to sell me a landlord, because were that the case, rent should generally come as a premium paid by tenants to forego the hassle of ownership. Landlords would look more or less like cleaners. People can do, or not do, their own cleaning, or they can pay for a cleaning service at a premium. There is a threshold at which, if you earn $120 an hour it doesn't make sense to spend another hour every day or two, cleaning in order to save $30.

The renter-landlord relationship appears to be the opposite of the tenant-cleaner relationship. A landlord is a service forced upon the poor, you cross a threshold of earning where one can become their own landlord at an increasingly eyewatering cost.

For this reason, I no more expect anyone to sell me a landlord than for someone to compel me through a reasoned argument to believe in any variation of the Abrahamic God. But I'm open to both. People like me can appear closed minded because so many people fail to appreciate that the most intuitive arguments are F-tier. It would relieve a lot of angst and irritation if I could be shown how wrong I am in my apprehension. That I was confident people in charge of the economy could sell me a landlord.

I'm not holding my breath however.

To Schadenfreude or Not to Schadenfreude?

“Markets can stay irrational longer than you can stay solvent." ~ Attributed to John Maynard Keynes.

I spent my early 20s predicting the imminent and catastrophic crash of the Australian housing market. I associated with, but never bought into, the crowd that believes in 16 or 20 year economic cycles that allow someone to predict with no understanding the market. I'm generally not in the prediction game any more, even though the Australian real estate market directly impacts my life.

My general position is that Australia is "The Lucky Country" in it's original, intended, pejorative sense. Australians generally do not have the imagination to invest in anything productive. Australian entreprenuers and innovators exist to be sure. Many great artists. But these are not really representatives of Australia.

I am content to be confident that whether property investment secures someone's financial future or not, it is wrong. I also feel, much as I can look at former President Donald Trump and be confident that for all the wealth, or appearance and access to wealth he has enjoyed, he is probably miserable in some fundamental way. Even winning the presidency and serving a term, was likely a situation that exacerbated both his wealth and his misery, and were he to wake up tomorrow with my life, it would probably come as a great relief.

The thing is that too many people I know, love and care about have bought into the Australian housing market. Generally speaking, the buy in to own their own home so they never have to go through being informed the landlord has decided to sell the property and they have 3 months to find a new place to live and their kids new schools to go to.

Though most of my loved ones wealth is tied up in some of the most overvalued property on earth, the potential devastation they face just from defaulting on their mortgage is no fault of their own. It's the cunts that congratulate themselves for owning 2, 3, 4, 5, 6 homes, the speculators that have forced anyone who wants to raise children indoors to speculate on their own homes. 

While there's something potentially delicious about watching people who didn't earn their wealth and have been smirking for decades losing it all, the devastation will be undeniable. 

My position is more that property investment is something I simply wished my fellow Australians didn't do. I wish they invested in productive things and bought homes to live in that pretty much just tracked with inflation. I also appreciate why they don't. People are risk averse.

So I anticipate no gloating, because their will be no pleasure. I also anticipate that I will feel more remorse than any participant will show. I would also not put it past the Australian government to basically outlaw mortgage defaults, simply because the law of the land is that property markets cannot fail.

If it happens on a good government's watch, the kind of government that tried to undo policy that has created this fucked up situation, like the governments currently in office everywhere bar Tasmania, the media isn't going to own up that they are far more responsible through their dependence on real estate advertising, than any government. So I expect to be basically gaslit.

Ain't that a pill.