Mailbag: incl. An opportunity in agriculture? June 4, 2023

37:13And that's gone up and down. He says it's gone up and down a little bit and hopefully over time we'll see the long-term compound value of that. So teaching the lessons is really, really important in my mind. I'm not sure you can't do that just completely inside super anyway for what it's worth. As long as the super account your son chooses is a low-fee one with a pretty simple, relatively plain vanilla investment strategy, that'll grow equally. You'll learn the value of both anyway. Now, as Ram's already said, you won't be able to touch the other 15 grand until he retires. so half and half's not bad, but I wouldn't leave it outside super deliberately for any specific reason other than if you wanted to be able to cash it in for a car or a house or something else.

37:50So again, that's probably a question for you and your incentives. You don't need to do both and you can learn compounding inside super as much as outside. But obviously if it's outside super as well for other reasons, that's a very reasonable approach. I think you're right about Jackie Chan. And I think the last thing I'll just finish with is you can lead a horse to water. This gets into parenting slash relationship advice at some level uh i i firmly believe in not tying money to things if you're giving it to somebody um not because i don't want it to be true but because relationships are more important than money uh and so you're giving someone if i was going to give my own black money so you have this money but only if you use it for this or you know i want to approve what you do with it or you can't sell you can't sell the shares until i say so uh they can become their own points of friction so i just would encourage just just for having thought about it and this is not a finance advice that's unclear on a relationship counsellor but just think about the interaction of relationships and money for everyone listening and in whatever you know between partners uh parents and kids all that kind of stuff just just be mindful of you know if you're going to get grumpy about them using the money differently to what you intended and that's becoming a friction point think about either not doing it or make your peace with them doing what you don't want them to do because it's their money um i just find tired kind of you know you can have this but only if you do x y and z it just gets a bit uncomfortable, a bit messy.

39:08So I wouldn't do it that way personally. You're welcome to. Your family relationship is yours and you know the people involved and what's going on. But I'll just throw that out there for what it's worth, just having thought about it a bit before. It depends on the kid though too, right? Just to be honest about things. Like, you know, some kids are different to others and some will have a more propensity to quote unquote waste it. So yeah, you need to shape it to your own situation. Don't do it at that point or do it in your own name and tell them you're keeping some money for them or something else.

39:39Doing it and then telling them how they have to use it just gets messy. I guess you can be general in it though, right? It's like this can only be used for a house or a this or a that or that. There's options, optionality in there, but it's not money to have a great couple of years in Europe and come back to any less. Correct, correct. I agree.

40:07mate our question this time from james says hi scott and ram thanks for the fantastic podcast always great to hear your long-term calm perspective on investing and what what's happening in quotes the market i think that's one for you am my question is regarding allocation of regular deposits to a pool of indices and high quality stocks okay imagine there is some imaginary person with an imaginary set and forget index portfolio brackets definitely not me so this is not personal advice uh i like it james i don't think i think you're going to believe that we didn't think it was going to be you mate but but i appreciate you making giving us the um the plausible deniability uh here is here is the imaginary person's uh allocation mate 20 all world x usa etf 20 nasdaq hedged etf 20 us total stock market etf 15 asx 300 500 15 soul pats i own shares 10 two small cap value funds that are actively managed james says this imaginary person's allocation is auto investing which happens fortnightly into these using the broke up perla where it adds to one at a time maintaining that percentage split so let me stop here for a second uh i'm not to give perla a wrap just to explain what's going on here when you invest with perla you can basically say here's my model portfolio when no, add money, keep this allocation percentage.

41:33It's the only way that that thing works. So when he says maintain the percentage split, that's what he's saying. You set the allocation and it manages effectively rebalances with new contributions to get to that. I don't think it sells anything, but as you add money, it kind of puts money towards getting back to that allocation that you've kind of preset. All right. Over the past few podcasts, says James, there's been some discussion around the strength of the US dollar, making global and US-based stocks less appealing at the moment to invest in, given the currency headwinds. But he says at the same time, the ASX is full of miners and banks, so they're not so appealing as long-term growth prospects, with Solpats in my portfolio to diversify a bit in Australia for this reason.

42:14So my question, here's one for you, Rem. What long-term diversified investments would you recommend this imaginary person put their money into right now in Australia and globally given these two factors. Would it be currency hedged overseas in US ETFs or is this person coming to the frustrating conclusion you've likely reached at some point in your careers? There is no other option when investing in Australia but to do the work and start digging through individual stocks on the ASX instead to find some value. James says Scott, insert a promotion here for Motley Fool Share Advisor of which I'm already a member which so probably I give straw man a plug too one quick follow-up question with Perla Auto Invest it allocates each investment to the share that's furthest away from your target allocation is this actually smart to do wouldn't it end up watering your weeds as opposed to adding to your winners or given they're all fairly diversified issue ETFs is this really not an issue cheers gents from James all right let's do these in order mate um James wants a long-term diversified investments given the challenge of a low australian dollar and the massive overweightness of banks and miners in australia or as he says should he just basically give up and say i need to find individual stocks i don't think the the choice is that stark i think the spectrum uh is is wide and you can sort of slide along to where you want to full massive maximum diversification through passive etfs through to hyper-focused stock picking and only stock picking.

43:49This is the exact comment I made before. I mean, James has nailed it. We are really, really fine-tuning at this point. I would say don't overthink it. Keep it simple. I think it's not a point-in-time decision either. You want to think more strategically. What is the strategy here? And you've kind of outlined it already. You've at least inferred it. And so what you should do now versus what should I just generally do over time and just do the unremarkable thing, but do it consistently. There's a subtlety there. There's a nuance there, but I think that's the more important question is the second one.

44:26So I would say, again, very easy and probably unsatisfying in a lot of ways. Just spend less than what you earn and continue to dedicate a portion to various investments. Now, what are those various investments? Yeah, I think you make some good points. We've talked about it recently. The dollar's really low. Could it get lower? Absolutely. Could it stay there for ages? Probably. Does it tend to mean revert? Yeah, it does. How do I play that? Well, look, this is money that's going to be put aside for years. So I probably am less aggressive when the dollar's low and I'm a bit more aggressive when the dollar's high.

44:58And that's about as sophisticated as you need to be. So a bit of money comes in this month. I'm just not going to put it to the S &P fund. I'm going to focus more on Australia. Oh, I don't really like the banks and that at the moment. Well, okay, maybe I'll lean more towards a soul patch or whatever stock pick that you're comfortable with at this point in time. And if you just don't know, we'll leave it in cash. There's no one got a gun to your head saying you must invest this in something right now. And I would play it like that. Three years hence from here, we might find the dollars at 93 cents.

45:28The banks are super cheap because they've just wiped themselves out for somehow, you know, and then it's like all of a sudden the consideration changes, but the broad climate of, of your actions is unchanged, spending less than what I earn regularly putting into investments. And so don't, don't, don't think about, I mean, what, whatever answer, and a lot of people got to remember this with podcasts too, might be listening to this next year or, you know, out of context. So it's, it's, it's, yeah, just don't overthink it you're doing exactly the right thing and if you want my specific answer it would be yeah i i i well what do i do i i focus almost entirely on stock picking because i that's what i like to do and i'm just and more importantly i've got the time and commitment to to do it because i like doing it it's not it's not a job per se so i that's the way i'm going to do and i'm and as money comes in that's available to invest i'm going to look around at my opportunity set and go for the best, as I appraise it, risk-adjusted return.

46:27At the same time, when I get some money in super, I'll probably just allocate that to a combination of offshore and onshore passive ETFs. Simple. Simple. That's it. It's basically it. At some point in time, some money will come in and it'll just be a wonderful time to invest overseas. Not only is the Aussie dollar nice and strong, but one of my favorite stocks like an Apple or a Google or something like that might be trading on a PE of 12. And like, okay, I'm going to buy some Apple at a PE of 12. Thank you very much. Because that makes sense. Keep it simple. Yes, great answer. I'm going to add some thoughts, but largely RAMs covered the big questions.

47:09A couple of things. Just a reminder that the NASDAQ and a US total stock market ETF have some overlap, which is not bad or good, just is. So just keep that in mind. Same with the S &P 500, by the way. Some of the NASDAQ stocks are in that index. They're not mutually exclusive. Just as long as you know that, that's cool. Again, no reason why it should be a problem. Just mentioning it in passing. Secondly, we have a service. I'm going to give a plug. Speaking of ShareAdvisor getting a plug, called ETF Investor. For anyone who's listening and wants to, fool.com.au slash join slash, sorry, join dash ETF dash investor.

47:44Shandless plug. But I say it for two reasons. One is because I'm giving you a plug. it's super cheap by the way it's like 29 bucks for the first year it's just dumb cheap um but secondly we have to your point james chosen to within that uh under allocate to the u.s at the moment relative to what we'll do in the future when the dollar is higher but we're not going to we're not not allocating to the u.s at all right now and over time when we change it we'll change it when the currency is more attractive but we won't stop investing in australia either so i I think it's kind of one of those, you know, straight down the middle of the fairway, but makes them just, and I want to add it, under an overall income to like 10 percentage points, something like that, right?

48:22So the amount we're putting into US ETFs at the moment is lower than it will be when the dollar's higher. And that's just the way we'll do it because it doesn't make sense to over-index there right now. But we like the ideas in the US and we're happily adding to them over time. So those things are absolutely true. By the way, you're a member of ShareAdvisor already, James, so you'll be able to access ETF investors. So go have a look at that if you want. I think you're right, Ram. Dollar cost averaging is important. But I also would say, here's the real problem with investing in overseas markets.

48:54It's generally the case, there was a rough correlation, very rough, but a rough correlation over time between the US, sorry, the Australian dollar and, we're talking about this by the way on Friday, different contexts, between the Australian dollar and the US stock market. In other words, when the US market is down, the Australian dollar is also usually down. So the idea of like, how am I going to until the US market drops, then puts the money in the US, that's normally when the Australian dollar is lower against the US. When the Aussie dollar is higher, you're like, oh, thank goodness, finally I'm getting 85, 90 cents of the dollar.

49:22Now, so I'm going to invest in the US. It tends to be the case. No guarantees, no promises. It tends to be the case the US market is higher. Why is that? Well, for a lot of reasons, but basically, when the US market is expensive, plenty of people want to invest in Australia or overseas instead. So they throw a lot of money over here, so that pushes the Australian dollar up. When the US market falls, US fund managers and US investors' pension funds get a bit skittish. They bring all the currencies home. They push down the Australian dollar because they're selling Aussie dollars. They're buying US dollars to repatriate their cash because they're worried.

49:51So it's very hard usually to be able to have, you almost need to make those trades independently if you really want to take advantage of a lower dollar than a lower US market or a higher dollar and a higher US market or vice versa. It just is. And it's not guaranteed to be, but I'm just going to let you know there's no free lunch there. So just be a little bit careful with what you're expecting to do. But as I said, I would, as Ram said, dollar cost average in whatever strategy you have. And then over time, you might want to tickle up one percentage, tickle down the other as the dollar moves around a little bit.

50:21Why? Because you might as well if there's not relative opportunity. But don't sweat the small stuff. You're roughly right. I think it's going to be completely fine. With the auto allocation, mate, though, I think this is an interesting question about watering the weeds and that kind of stuff is given it's a straight allocation, I'll half answer it, James. What I like about the approach Pearl has taken is they're not selling stuff to rebalance. they're only rebalancing with your new money. So you're not pulling the flowers as you would be if you said, hey, this stock's gone up, let's sell it and buy the cheap, buy the one that's gone down.

50:49That would be absolutely watering the weeds and pulling the flowers. They're letting the flowers bloom. Now, maybe they're adding money to the weeds in a relative sense. So, you know, there is some that potentially, but at least they're not selling the good stuff to fund the other stuff. They're using the new money you're adding to rebalance that portfolio or get towards rebalancing that portfolio. If you're going to do it, I like the way that Perla was chosen to do it. I like Perla, by the way. I have no vested interest in it. I don't own shares or there's nothing. There's no relationship with us and the Motley Fool and Perla.

51:20With the exception of they give some free trades to ETF investor members, funnily enough. But we get no money out of that. It's purely for our members, just for absolute disclosure and avoidance of doubt. But I like at least they're not selling stuff to real. I would never ever sell the rebalance personally for exactly the reasons you talk about. Just wouldn't do it. Automatically, I might do it if my position got too big. that's a different thing. I wouldn't sell to rebalance to an arbitrary allocation just for the sake of it. Would I want them to add to the lower one? I think yes, actually, if I'm doing an ETF type strategy.

51:50I wouldn't in my own portfolio say, I've got 20 companies in there, a couple really sucks, so let's add the money to those because they've fallen recently. That would be crazy. So the more individual stocks you had, I wouldn't get them to rebalance to that. I've had some absolute dogs in my time, probably a couple still. I wouldn't want someone automatically saying hey that company sucks let's buy more shares than that one that'd be a terrible idea because they're etfs you kind of talk about relative values rather than absolute values so you're probably not going to kill you either way it's probably my view do you have a thought on the on the balancing auto invest strategy whether done literally automatically or as a strategy that's done manually by a listener mate uh yeah i mean look the the like in finance like in life there's trade-offs with every decision.

52:34And the trade-off there is that it's just, you might not be doing it in the most rational way, but it's just being automated. And you're actually, there is advantage in taking yourself and your considerations out of it, because you might be wrong a lot of the time too in what you think. So I really like that aspect of it. I agree with you. I think selling for the sake of adhering to some reasonably arbitrary weighting is usually not a good idea. You're just never going to enjoy it. The reality is as with indices and with portfolios, you will look back in time. Actually, it's called the rule of five.

53:11The rule of five says that for every five shares in your portfolio, one will just bomb. It'll do really badly. I've never heard of that ever. Haven't you? Oh, I don't know where I heard it from, but it's always stuck with me. Fascinating. One will just be a disaster, right? you know maybe not a zero but you know a permanent loss of capital of two thirds or more of your money and just think gosh what a dog that was and lord knows i've got my share of those um and and then there's then there's the uh mediocres and they're about three out of the five right these are the ones that yeah give or take a percent or two they pretty much do what the market does and then you got the other end of the of the bell curve which is the one that just shoots the lights out right and and then you know it's a heuristic it's not a scientific law or anything like that but it's a general truism and and the the reality is if you're re-weighting on on that one super out uh compounder um or selling outright to take a profit quote unquote you're doing yourself such a massive disservice and and i i generally think when you look at the real wealth creation success stories out there.

54:21It's generally been not a story of someone with just some incredible foresight and stock picking ability, but just bought a bunch of stuff, hit and miss. But the real skill and talent and luck, if you want, was just holding onto that one and stubbornly sticking with it year after year after year. And you just look at that, that is what has delivered the returns. So yeah, don't, I can't come back to my point here. Don't overthink it, right? And the best way to rebalance is just with new money. And for me, that is usually just so we're looking at this point in time, regardless of profit or loss, regardless of anything else, what's the best use for this new money?

55:00And assuming I don't push weightings really to silly levels, then I think that's just the smartest way to go. Yeah, I like that, mate. I like that. Let's go to a question from James, different James. He says,

55:41where you are encouraged to buy in areas with a high percentage of owner-occupiers and limited land supply, causing greater tension between owner-occupiers and investors. Do you think that by changing policy to focus on newly built homes and even disincentivising investor activity in the established market, Australia would develop a more sustainable property market? Thanks, James. Really good question. I have a feeling you might have some thoughts on property. We haven't discussed on the podcast before, but if I just talk for a bit, you were able to kind of come up with some thoughts on Australian property.

56:13I'll tie it back. Look, I'm bringing it back to property or Bitcoin. So take your choice. Can I say quickly, I meant to say this before. I'm going to interrupt you. When you were talking about, I was going to see this farmer on the podcast. I'm like, how do you think it's a farm podcast? That's interesting. He's like, oh, hang on. It's a big, it was. Guilty. Yeah, of course it was. I was, silly man. I thought, I wonder why he's doing that. It was, oh, Bitcoin. Okay. Anyway, back to property, mate. Should we incentivise newly built homes and maybe disincentivise already existing dwellings? Certainly the former, in my humble opinion.

56:46Look, again, I tend to be a markets guy. Markets are good at solving a lot of problems. But what we want to do is make sure that they are transparent, fair, open, little barriers to entry. We want to foster markets to be their best. and we really want to avoid going to sort of down, you know, crony capitalism sort of lanes and, you know, things that lead to the creation of oligopolies and other kinds of things, which I actually say is probably market failures if anything else. So I don't think government should tinker too much, but at the same time that is really the role of government, especially when you're looking at raising revenue and that is you want to, as you've said many times, you really want to tax the things you want less of and give incentives to the things you want more of.

57:36You don't want to do it from a command control kind of standpoint because that's communism or close to it. It's not an ideological thing. I think the jury's definitely in on that. It doesn't work. So giving the first homeowner's grant was always stupid. It didn't help any. The only people it helped were vendors. That's who it helped, right? That's why. Yeah. Unequivocal. It's unequivocal. It's not even, I don't think, a controversial thing to say. Tell us why, in your opinion. I agree with you, by the way. But tell us why first home owners grant, which in theory should help the first home owner, why did it not help and why did it help sellers instead?

58:14Because people will bid up to what they can bid up. And if you give them more money, they'll bid up to that. But they're not just giving it to you. They're giving it to all the first home buyers. So everyone bids more. There's no more properties available. More demand and supply. Prices go up. Right, exactly. It normalizes. Economics is really a study of equilibria in a lot of ways. And it just – so it sort of – there's – maybe if you're first in line and maybe there are certain advantages, but it doesn't – how many times do we have to do it before we realise this doesn't work? We've been trying various schemes of this of one flavour of another forever, and lo and behold, it doesn't work.

58:48And this is – you know, a 12-year-old will tell you that it is supply and demand. Now, the trouble with increasing supply is that there's a huge lead time on that. to just all the regulations and just the time of construction and the rest of it. But if we don't have any serious long-term sensible response to the housing crisis, we need to build more homes. I know that there's a lot of other stuff we could do and should do as well, but that to my mind is that's ultimately the end of the day, like the biggest needle mover, even if it will be at the slowest one. so I'm all for I'm all for encouraging investors to in to to invest in new properties because that's going to increase the supply absolutely let's make it easier for them maybe I'm less sanguine on the disincentivizing for existing properties you might be surprised to hear me say um um I mean it's a question of degrees again or how much are we talking here I do really think it gets kind of silly to have very, very favorable, you know, for people who have 10 investment properties in this super, I kind of think you're just taking the we at that point.

59:58You know, so there's a lot of tightening up of things that can do, but look, let's keep it high level. Let's keep it broad. Should we, should we be, should we be providing incentives for, for property investment full stop? No, we don't need an incentive. Every man and his dog wants to do it anyway, right? It's Australia that we're talking about. Like it's impossible to put that fire out it seems so no we don't we don't need general really ill thought out incentives but we do want the incentives for the thing that we do want and we definitely want more houses and and units is there an argument i'm going to answer the question differently but i'll i just played as advocate for a second i don't i don't actually necessarily believe this so it's a worthwhile conversation is there an argument that government incentives like negative gearing are effectively just indirect rent subsidies?

1:00:44If negative gearing didn't exist, if I bought a property, to your point, there are X number of properties out there and there are X number of potential buyers, owner-occupiers and investors, and the market will find its own level on price. Is there an argument to say that at a or the given price, we end up with a situation where the negative gearing, the tax deduction is something that the landlord doesn't have to pass on to tenants because the government is effectively paying part of the rent in a direct way. Is there an argument that rents would be higher without negative gearing because of that indirect subsidy that would disappear?

1:01:18Oh, I think that would definitely happen. I mean, interest rates went up and what happened to rents? I mean, I'm trying to keep my language clean, but poo rolls downhill, right? That's the brutal reality of the system. And again, back to markets, there will be a natural tension between what people are able, capable, prepared to sort of pay and what people think that they can get away with charging. And that, again, is a good thing. I don't want to tinker with it. You might be, again, surprised. I'm against rent control in most circumstances. There are exceptions to that, but generally I'm against that kind of stuff.

1:01:51So yeah, I think the immediate impact of getting rid of negative gearing would be to increase rents. And we've seen this come out a lot, particularly on social media. It's just like all the agent emails going around that have been leaked. It's just like, oh, we've now got an excuse to put, I know you don't know that you own the house, outright and whatever, but higher interest rates, put the rents up, you can. So it will happen. It'll 100 % happen. And to your point about the lack of, or the supply and demand imbalance or really, really, really low vacancy rates, it also means that not only is there a qualitative justification in the sense that you can justify it to yourself in words, but mathematically, if you do put the rents up, there's less chance your tenant's going to leave because there's nowhere else to go to.

1:02:35And so both those happening at the same time. By the way, as we've talked about with markets, A perfectly rational thing for a market system to do in a limited or supply-constrained scenario is to put prices up. I mean, in any market... Now, I think housing is different, which I'll get to in my answer in a second, but in any market, if there is constrained supply, the only rational decision for the owner of that constrained supply is to put prices up. Which is why supply is the answer. Which is why supply is the answer. Perhaps. You don't think so? Can I give my answer? Well, I would say this.

1:03:10again if magic thought experiment but i'm just going to double amount of houses in australia tomorrow what happens to prices what happens to rents what happens to the environment what happens to infrastructure so my my answer that's a rhetorical question i'll let you answer it though my answer is a combination of all of those things um so if i was housing minister tomorrow i'd like to be treasurer but if i'm going to be housing minister instead if andrew gets the job of treasurer and i have to walk into his office and say andrew can i please have these policies for housing in australia and he says depends i haven't decided yet uh i've got i'm in the big chair philips sit down there and shut up uh but but until that point uh if i was housing minister i would do a few things mate i would so generally i'll wait the easiest one first for all assets from tomorrow i would reintroduce the indexation of capital gains and remove the arbitrary 50 capital gains tax discount it was never necessary it was never more sensible it never made uh it was never more justified than the current indexation rate.

1:04:06In theory, in air quotes, it was simpler. What it was was really a tax break for investors because if you held assets for a year and the inflation rate was 2%, you got a 2 % indexation on your cost base. All of a sudden, on the 50 % arbitrary discount, you got a 50 % discount or 50 % result. So it just incentivized those medium-term holdings for political reasons. There was never any absolute justification for it. Also, by the way, over long term with high inflation, the investor is actually better off. If I held something for 20 years at a 5 % average inflation rate, I'm better off to index than to have an arbitrary halving of the capital gains tax discount.

1:04:40So I would go back to that. It was never a theoretical... Sorry, are you going to say? I like that. No, I agree. Yeah. There was never a theoretical justification. It was all just politics and vote buying, which, you know, entitled to do, but there's no tax policy justification. That's an easy one. Secondly, I would get rid of negative gearing tomorrow for residential property. uh i i think residential property is shelter it's not it shouldn't be considered primarily an investable asset like any other asset it's not like any other asset if i buy shares in willies i buy shares in willies if i buy someone's house i'm i'm responsible for someone who is a tenant and i don't think we should be playing with house prices or adding to demand using tax policy as you just said before mate about what you incentivize what you don't incentivize any incentive for someone who goes to an accountant who says buy a house you can equally gear it's be great you'll pay less tax the the very nature the very reality of that conversation adds to demand for residential housing which pushes prices up devil i think we can do without it devil's advocate tomorrow though yeah please if i run a business i take in so much money and then i subtract my costs and then i pay tax on on the profit that's that's essentially what um yes that's not negative gearing but that's what you're doing right you're deducting costs off um there is a there is an uh where it's got to be careful i don't think it needs to be equal i don't think we need to be idealistic about ideological about saying all transactions of that nature need to be taxed equally for the sake of it you can't take that for you i just don't i think i i would for everything except residential property because we say this is a special form of asset we don't treat workers like we treat capital equipment we have unions and we have minimum wages and the government does at a minimum price for computers or a minimum price we say they're all assets or they're also all resources we treat human resources differently to capital resources by way of legislation i have zero issue with saying all costs of owning an asset can be deducted from that asset the income generated from that asset except residential housing which is carved out i have zero issue i know it's i know it's a a wrinkle in the tax law i think it's an easy easy easy thing to do i'd do it tomorrow so you claim right down to where you've made um no profit and You just can't take the loss and apply it against other income.

1:06:50Nothing. Nothing. I wouldn't make tax deductible at all. Yeah. Oh, okay. Yeah, okay. Just top of the right. It doesn't need to be. By the way, I'd grandfather it for existing owners because there's no problem putting the rug out from people for the hell of it. That's just unreasonable and creates a market crash. I would say tomorrow, interest isn't deductible on residential property. It just isn't. We don't do it for homeowners. If we're going to say it's all the same, We should do it for homeowners as well as investors because, again, same asset, right? So why do we trade it differently? We trade it differently because it's a different circumstance.

1:07:22I think the same is true for that. I mean, I'm not a mom. I really am a devil's advocate here. Yeah, please do. Just to hammer the point home, and I've made it before, that's the difference with residential property. There's a family there. Yeah, of course it is. I feel as though it's your choice to do it. You've got an asset. You do what you like. And honestly, full respect, charge as much as you can get away with in a market system. I would. I would absolutely charge what I reasonably feel as though I can get away with charging. You also pay tenants fairly, to be fair. That's my next point. Okay, sorry.

1:07:52That's my next point. People tend to assume I rail because of rents. So I know I rail because, okay, this is what the market says. Okay, fine. I'm happy to pay it. But bloody hell, please like fulfill your obligations as well. That's what really gets in my craw. So I feel as though invest in property all you like, charge what you feel is reasonable. but you are playing with a family here and just fulfill your own contractual obligations. It might suck, but they're not being difficult if they want the tap not to leak. They're not being difficult because there's a hole in the roof and there's mold growing everywhere.

1:08:27That's just deal with the reality of your situation, which is if you're choosing to invest in this asset class, there are very real maintenance costs. The Queen of England could be living there. Someone who just walks around in slippers and never touches anything. and that property is going to is going to depreciate right accept it deal with it and maintain it to a certain standard the other thing i put in is just i think um while while you should charge what you can i think there should be some limits on on on this on the degree of increase to turn around to someone and say your rent is doubled is is difficult and i and i would i would change the um i would put no no clause evictions in there but sorry i'm stealing your thunder but i had i add that no i think i think it's great i the only thing i would say with that mate is i i don't know whether those caps on increases actually work because it just incentivizes people to be dumped out of hams for spurious reasons so you could charge the next person more money all that kind of stuff i just i if you guys like charge whatever you want then so you can't charge whatever you want if it's an increase i don't know if that's i don't know i don't i don't think i wouldn't limit the increases i think it becomes artificial at some point puts more pressure on a landlord to get rid of a tenant for spurious or other reasons so they can charge more than next person who comes in the door.

1:09:32I think with the trouble with investors, property investors in Australia is that they, it is treated as some God given right of guaranteed kind of returns and that there should be no risk that I take. And it's like, no, it's you're an investor. Now, if I buy a bond, I've got a certain expectation that that coupon rate is going to be paid and what I can get in that. Now I feel as though when I set up an investor, like I bought an investor, I bought a property, I want to rent it out. Okay. I'm going to commit to making sure it's of a decent sort of standard. And I think I can get this much rent and I get it.

1:10:04And someone comes in and my calculus and framing up my investments, when I look through the return potential lens will be framed on that. Now, if something happens in the wider economy, whether that be with interest rates or whatever it happens to be, and oh, it turns around, it's like, well, that sucks, but that's investing. And it's not that you have some God given right to automatically like pass that on to the full brutal extent, whether justified or not. It doesn't feel right when there is a family, and usually the lower tier of society that is wearing the brunt of that. The market has moved against you.

1:10:43Dynamics have moved against you. That kind of sucks. Now, again, that doesn't mean you can never put up the rent. I don't know what the magic number is. Is it 3 %? Is it CPI? I don't know. That's a whole other debate. But at the moment, even within lease, as long as you do it no more than once a year, I can arbitrarily turn around and say, yeah, your rent is 10 times as much. I can do that. But isn't that the – I mean, how do you square that with if I was a landlord, I'd choose as much as I could get? Yeah, but there's a difference. It's an excellent point. Here's the difference. Now, I'm looking at various places that I might want to rent.

1:11:15This place looks good. This is the going rate. Now, I need some security of shelter and all of the great things that matter with property and why it actually has intrinsic sort of value. and I can make a calculus on, inform judgment on that and that look, you know, rents will go up over the years but this is kind of what it's going to be. The reality in Australia is that I'm going to struggle to get anything more than a six to 12 month lease and after that period of time, they can do whatever the hell they like. That is the difference, right? And I think as an investor, you need to sort of take a little bit of risk on hand that things will certainly change.

1:11:52So set a rate that you think is appropriate, factory in what you can get away with charging, which is reasonable. But you don't, I mean, it's not like a share where I go, oh, a bond, I don't like this anymore. I'm going to sell it and move on. No, I have to now go find a new place. I need to pack up everything. I've now got to pay bond in two places. I've got a rental overlap period. I need to pay thousands. Take it from a dude who's moved seven times in 10 years. Moving is a massive, massive, stressful, costly, difficult thing to do. And for people who are living paycheck to paycheck, to now come up with four extra weeks of rent and blah, blah, blah, blah, blah.

1:12:25It's just sort of like, you know, that is the difference to me. Totally. Okay. So back to the thing. So I would move access to tax deductions for interest for residential property. I might be motivated to keep it for new property for the reasons that James suggests that we want to incentivize, and you've already highlighted, use tax incentives to incentivize what you want more of, which in this case is more building. So it may well be that you say to people, I will let you do it for the first X years of the property's ownership to incentivize that investment in a new property rather than buy something existing.

1:13:02I wouldn't do it forever, otherwise you effectively, you just continue negative gearing, right? Yeah. And you end up with two. But the first five years, the first 10 years or whatever of the building's life, I could absolutely imagine allowing negative gearing probably just on the construction, maybe on the whole thing, the whole value for a period of time that that would make some sense maybe 10 years maybe it's a sliding scale maybe something else but i could absolutely suggest doing that i can there's a bit of a challenge right now right in terms of supply i've i've had some really good people on twitter people disagree with entirely people i agree with entirely but but uh and a lot in between which are but it's a really generally a pretty good group of economists and experts and interested kind of informed people talking about property not not the chill and not the in either direction but the ones in between who genuinely care there's a good debate going on about let's say we did all these things how would supply increase and you say well hang on we've got three three point seven unemployment builders already building as many houses we can currently build uh what what world do we think we can all of a sudden magically click our fingers and have x houses in a certain you know short period of time that that you know there's no frankly the price of housing is so high already that it does incentivize already the price mechanism alone to your point about markets ram or incentivizes new supply right um then now there's some regulations and stuff you could change to make a little bit cheaper to build uh maybe some higher density or medium density stuff that maybe there's some regulation you might change although you wonder what regulations you'd change and whether it be safety or something else like there's regulators there for a reason so you know should we just remove them for the sake of supply probably not but we could probably relook at them so those things are are worth thinking about you and i've argued before or discussed before about population um the the what when you say more supply what we're saying is there is a imbalance of supply and demand you solve it on the supply side i would solve it moderately on the supply side i would solve it more meaningfully as a tactical policy implementation on the demand side as well which is when we have excess supply of housing bring more people in when there's a shortage of housing, maybe adding more people to the demand side when our ability to increase supply is severely constrained by available resources.

1:15:18But it continues to be right. It's never been any different. That's the thing. We have never said immigration policy or, sorry, population policy. If you start with population and immigration. So population policy needs to be a combination, in my view, of the available capacity of the housing market, the impact on, the flow on impacts of things like infrastructure and planning so what buildings in what places the sewage systems in some australian capital cities are already over capacity now i don't i don't want to you know put people off their breakfast but play that out a little bit how many more high-rise buildings do you want to add to sydney before stuff starts to happen right um general planning general community cohesion how many people in what spaces are good for us i don't i'm not saying i have an answer i'm saying let's actually have that conversation resolve those questions before we say bugger it let's put up more houses and bring in more people um the impact on the environment i think is real i'm a card-carrying greenie um you know what is the right number of people in what places in australia before we start having negative impacts and unwelcome negative impact on the environment and what could or should we do to resolve that i would i would say james to answer your question i would do the negative gearing capital gains tax things i want to and this is again speaking of pipe dream stuff um i want a big national conversation which says what is the right population planning infrastructure and environment combination that determines what we do with immigration housing policy and a whole lot of other things that that is and maybe to ram's point maybe it's a massive increase of supply we say you know what dubbo is dubbo could handle 14 000 more houses with the current infrastructure including water by the way which we only got to go back to the drought to remember what happened with country water reservoirs but you know maybe dubbo by the way i'm just picking that picking a name you know what could or should we do where could we put people where could we build houses where could we where could we have high density without causing unnecessary strain on the environment infrastructure or community cohesion where where does it make sense to and by the way when i say infrastructure what about maybe some public transport or some walkable cities or other things and i don't mean to be you know i'm trying to build big too big a story here but saying oh there's some issues let's bring a whole lot of people in we haven't really got the ability to create more housing because all our builders are busy and you know materials are expensive Scruff it.

1:17:25Let's just bring them in and we'll work it out. We'll just supply, supply, supply. And don't let the bloody developers drive policy, right? Because sewage for them is an externality they don't need to worry about. Traffic congestion is an externality they don't need to worry about. Longevity of the building is nothing that they need to worry about. Don't ask those. They're there to do what needs to be done when you need it to be done in the way that you need it to be done. They're not there to sort of set policy because that's what we've – I mean, gosh, here in Sydney, we've seen the outcome of that.

1:17:56Yes. So look, that's a long answer, James, but I wanted to do it justice. I've said as much elsewhere. I think I've probably said it on the podcast too. I think we're mad not to consider the demand side. And again, let me be really, really, really 1 million percent clear for anyone who didn't hear the last time we talked about this. I have no problem with immigration. I have no problem with immigrants. I don't care from which country our immigrants come. This is not an excuse for people to be xenophobic or racist about it. For me, it's a population. If our birth rate went negative, we should bring in a whole lot of people.

1:18:25If our birth rate went through the roof, we should bring in nobody. And somewhere in between is where we'll live and we exist, and we should set our immigration policy tactically based on our ability to absorb a growth in the population. Yeah. It's a perfect point. I mean, you're right. It's a holistic – you're just basically arguing for more holistic consideration of things. Actual policy, yeah. And having a North Star as to what's the general direction that we're heading in. And we can debate that. But I would say the right here and now is that there is a supply and demand imbalance. So even if we freeze things from here, we need more houses.

1:19:01I mean, the elephant in the room. Where do we get it from, mate? That's the problem. How do we unscathed? We built Canberra. Canberra was a bunch of paddocks until we built it. But I mean, quickly, we've got a million and a half people coming in over three years, right? So we've already got a problem. We're bringing in more. We have a 3.7 % unemployment rate. It's not like there's 15 ,000 builders who are like, you know, guys, if you want to build some houses, we'd be happy to build them for it. I'm not being rhetorical or cynical or expecting an answer from you, but when people say supply is the answer, I'm like, where do people, again, not you.

1:19:29Yeah, no, you're right. You're right. But it's a question of - People have made the point on Twitter of like, where do we get that supply from? Because we're already building as many as we can. Yeah. There's no magic tap that we can. Again, I'm not talking to you. I haven't got you at all. No, it's an excellent point. And exactly as I said at the start, you just can't, it's not a short-term fit. It really is the long, so there's other things that we could possibly do, but the fundamental core is longer term and will take ages to sort of bubble through, which is why these current policies are so clearly inadequate.

1:19:59You know, say, oh, we're building 6 ,000 new homes a year. Like, well, that doesn't even cover where we're at. You know, it's dumb. But I would also say don't forget the dynamism of markets. So when the proper intent, you would see the construction and building industry grow. To fill that void, it would. Now, would it happen tomorrow? Would it happen next year? Is it going to fix the problem three years hence? No, it won't. But we still need to get this train out of the station, right? Because it's going to take 50 years to grow a mighty oak. There's no way to speed it up. But the best thing I can do is start now, right?

1:20:31Or I can start in 10 years' time. And, you know, start now. Start now is my argument, acknowledging all the points that you make. And then - And that's the thing. Yes, we already have - Even if we didn't bring another single person into the country, we have a supply shortage. like those things are we talk about the demand side as a separate conversation but how about we do something now given the issue we've got now let's not make it worse but let's actually start with as you say the broader issue of we could probably fix pricing by adding a bit more supply to the exchange obviously well here's the conspiracy side of things and just think about this I mean do you want if you're a property investor do you want more supply?

1:21:07no scarcity is your friend right like that is you know I think it's something like 98 % of politicians own multiple investment properties I mean again it doesn't matter how ethical, you are biased by your own experience and position. You just are. I am. We all are, right? And it's just I would say that if anyone who really understood the true sort of nature of things here and you had a vested interest in property, you don't want more supply. You want people to be able to access this super. I want first home owners to be given more money. I want all of it because it is good for me, right? It sort of sucks if you're not on the so-called property ladder.

1:21:47But for those, it's exactly what you want. Too crazy? And by the way, on demand, you've also got politicians who are saying, well, I hear what you're saying, but I actually really like to have more people come to the country so GDP grows. So I'm not going to just the demand side either because high house. So you talk about property investors. It's actually bigger than that, mate. I think it's everybody with a property. So think about the Australian housing market, the trend of obsession with property. Property prices going up because there's excess demand is probably electorally very, very good.

1:22:22Oh, it's two thirds of the population, 70 % or something like that, right? More people coming into the country pushing GDP up. Also, pretty good. Particularly right now, if otherwise the economy's slowing and there might be some sort of capital R recession. What if we could avoid that by just pumping the country full of people? Now, I'm a bit cynical and a bit conspiratorial, but I have no doubt whatsoever. The politicians have at least thought this through and have at least considered it and are not unhappy with the outcomes that, yeah, there's something we should go deal with. But gee, right now we could do with a higher house prices and higher population and therefore higher than otherwise GDP.

1:22:56If I was up for election in a couple of years time, that's probably what I'd like. Yeah. And my concern, I think the, no, it's not too cynical at all. And I think it's actually a little bit worse than that because there has been so many stimulatory efforts. it's kind of like we're at the point now where it's not a question of, oh, can we pump this for our own interest? It's actually, we need to pump this just to stop this thing from collapsing on itself. Yeah. Right. Like we, we can't, we said we, they've already rolled back their APRA buffers, right? We were talking not that long ago. thank God.

1:23:28They put them back after those ludicrously low levels. Oh, that was it. How stupid was that? And then like I read in the paper a month, I was like, oh no, we've, we've gotten rid of that again. So it's, it's, oh, it's depressing. Yes. Yes, it really, really is. Mate, with that though, I think we're probably done for today. I hope it's been a useful conversation. As always, if you want to get in touch or send us some questions, comments or feedback, please do that. Hit us up, info, I-N-F-O at fool.com.au. Our great member services, Fools will pass it on to me and I will then ask it of Andrew. If you want to get Andrew directly, the only place you can do it is on Elon Musk's Twitter.

1:24:06Go to at sage underscore simian or at strawmaninvest on Twitter. Get all of Ram's absolute goodness. Follow me on Twitter or Insta at TMFScottP or at TheMotleyFoolAU. And you can get me on Facebook, facebook.com forward slash Scott Phillips Money. I'm also on Mastermind before you ask, Andrew. Oh, oh, yeah, sure. It's still rocking. You got to come across to Noster, man. That's where it's at. Is that Noster? I've got to admit, I'm not as active as I initially was. You reminded me there with Facebook. you sent me a direct message on twitter the other day uh uh margaret margaret pomerantz language warning doing a review of lux listings the new reality show with real estate agents and all i'm going to say is if you're on facebook just just google us i mean i'm sure it's on i've uh you know youtube and other places but yeah margaret pomerantz's review of lux listings uh yes she's on a show called the weekly and she does something every week it's like this little review thing.

1:25:09Margaret Pomerantz, of course, the old SBS movie reviewer and ABC movie reviewer. So she does it in the style of that, just for listeners who haven't yet seen it. It is written beautifully and Margaret Pomerantz delivers it wonderfully. So good. Language warning, content warning, etc. It's a little blue, but if you're okay with that, check it out. It's very, very funny. Gold. And with that, Fool on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. general advice only. Please speak to your financial professional to understand how it may pertain to your situation.

1:25:44Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services License 400691.