Disparate groups slam Australia’s housing affordability

In the wake of the 2011 Demographia International Housing Affordability Survey, which identified Australia as having the most unaffordable housing in the Anglosphere, it appears that pressure is building on the Australian Government to take corrective action. Over the past two weeks, concerns have been raised by three disparate groups: the Sacred Heart Mission, the Real Estate Institute of Australia (REIA), and the Australian Greens.

In an article entitled Condemned to poverty in a housing market gone mad,  the Sacred Heart Mission slams Government inaction over Australia’s housing affordability crisis, which it claims is having a dire impact on the most disdvantaged groups in the community.

Last week we read the alarming statistics released by the Demographia International Housing Affordability Survey, which ranked 325 housing markets across the world. It is now more affordable to live in Los Angeles than in Melbourne and cheaper to buy a place in London than Geelong.

Those of us who work in agencies such as Sacred Heart Mission are not surprised by these statistics because they simply reflect the homelessness and housing stress we witness on a daily basis…

Every day at Sacred Heart Mission we see the human face of the housing crisis and the impact it has on people’s mental and physical health, employment prospects and ability to connect with the community…

For too long governments of both persuasions have either ignored the crucial issue of housing or tinkered at the edges of the problem. Safe and affordable housing is a key foundation of any civilised society and deserves significantly more attention than it gets…

This is not good enough. Our federal government must show strong leadership and be bold in its policy responses.

First, it must appoint one cabinet minister who can dedicate his or her full energy and time to this complex and vital issue. There are currently three ministers who are responsible for different aspects of housing.

Second, the government needs to make changes to the tax system that will encourage and stimulate investment in affordable housing. I refuse to believe that changing our negative gearing system is an impossible political task.

We also need a 10-year plan for public housing that includes targets and sets forth the required investment – agreed to by federal and state governments. In Victoria, the target should be the provision of 3000 additional units in each of the next 10 years.

These are just three of numerous initiatives our government can undertake to start addressing this issue.

If we do not take bold and decisive action now it will condemn many thousands to a life of poverty and disadvantage.

The Sacred Heart Mission’s concerns were preceded by the REIA, the main lobby group for Australia’s real estate agents, which issued a media release entitled Affordability still a great concern across Australia:

The Real Estate Institute of Australia (REIA) President, Mr David Airey has commented on today’s release of the Demographia International Housing Affordability Survey saying that the report confirms the REIA’s own research…

 “In the most recent REIA/Deposit Power Housing Affordability Report, it was reported that housing affordability had reached a new low in Australia – the largest annual decrease in housing affordability since the beginning of the decade”, he continued…

“The average weekly Australian household income is currently $1434.00, while the average monthly home loan repayment is $2163.00 per month – for the majority of Australian families the difference between household income and loan payments is narrowing quickly”, he said.

With the most dramatic decrease in housing affordability in 10 years and a worldwide comparison that highlights Australia as being the “most remarkable” for its decline in affordability, there is no question that the Reserve Bank need to leave rates on hold next week and for the foreseeable future”, continued Mr Airey.

Another major contributor to the worsening state of affordability is the lack of supply in the housing market.

“We have called on all levels of government to address the issue of supply, which will relieve pressure on house prices and in turn, improve affordability”, he said.

“Reports such as the REIA/Deposit Power Housing Affordability Report and today’s release by Demographia International should be evidence enough that this is a crucial matter for governments to address”, Mr Airey concluded.

On the same day, the Australian Greens launched a press release entitled Housing affordability in Australia a ‘world-class outrage’, in which it condemned existing housing policies and called for urgent corrective action:

The Australian Greens have called for urgent action in response to new housing figures showing Australian cities are among the least affordable in the world.

Greens housing spokesperson, Senator for Western Australia Scott Ludlam, said it was “inexcusable” that Australian cities were among the most expensive in which to live…

Senator Ludlam said “there is a contradiction between the Government’s work on affordable housing and Government’s actions that provide incentives designed to benefit investors and speculators and to keep house prices going up”.

“There is a tension between the idea of housing as an asset class, which demands appreciation and ever-increasing returns, and the notion of housing as a human right, which requires stability – not property bubbles,” he said.

Over the last ten years Australia has seen a 250% gain (or a 9.5% annual rise) in residential property prices (Fitch Ratings Australia Outlook Report). In recent years the Government has operated a number of initiatives aimed at bolstering home prices, including the first home buyers scheme, and generous capital gains and negative gearing incentives for home owners and property investors.

The 2008 Senate Select Committee on Housing Affordability in Australia found that $50 billion is spent every year on capital gains exemptions and negative gearing incentives. Another $13 billion has been spent on the first home-buyers grant since its inception in 2000. This compares to Government spending of $512 million Housing Affordability Fund to be spent over five years to improve the supply of new affordable housing…

“The Government clearly needs to restore its dedicated housing minister in this time of crisis, with housing as a stand-alone portfolio that is not distracted by other responsibilities. The carve-up of the housing portfolio under the Gillard Government is unfathomable. This is a serious problem that needs serious attention.”

Senator Ludlam said the enormous pressure on Australians hoping to own their own homes took a heavy toll.

“When a family or an individual has to spend so much of their income on paying their mortgage, it has a seriously adverse affect on their education and training opportunities, on their investment opportunities and on their ability to pay for services like health care and child care,” he said.

Australian readers will remember that the Rudd/Gillard Government was elected in 2007, in part, on a platform of housing affordability. Yet since that time, it has implemented a number of measures that have assisted in making the situation worse, whilst refusing outright to implement some of the sensible measures proposed in the Henry Tax Review aimed at reducing tax-driven property investment and curbing speculation.

Whilst policy prescriptions vary, each group is now signalling to the Government that the housing situation in Australia is highly unacceptable and that the time for talk and token policy gestures is over. Concrete action is required to arrest the decline and restore affordability to the housing market.

The Government should take heed. Otherwise it risks getting punished at the ballot box by younger Australians and disadvantaged sections of the community that have been so badly let down.

Sometime in the next few weeks I will articulate my policy wishlist for achieving stable and affordable housing.

Cheers Leith

[email protected]

www.twitter.com/Leithvo

Comments

  1. FrankieFourFingers

    REIA have very different “concerns” to the others. They intentionally measure affordability using income-to-repayments (rather than income-to-value) so that any direct policy which addresses that issue is likely to push house prices even higher.

  2. Looking forward to your policy wishlist.
    Not advocating public housing, however
    I was surprised to learn that ~85% of Singaporean’s and ~48.8% of the population of Hong Kong live in rental or subsidized-sale public housing;

    I remember reading that Australia’s public housing stock consisted of ~300,000 dwellings out of a total housing stock of ~7 million dwellings

    Will Australia move in the same direction?

    http://en.wikipedia.org/wiki/Public_housing_in_Singapore

    http://en.wikipedia.org/wiki/Public_housing_in_Hong_Kong

  3. In the Demographia survey, Hong Kong topped the table. Political pressure on the government has been mounting in Hong Kong in very much the same way as in Australia, I suppose. What I am worried is that from historical evidence, government actions have done remarkably little in influencing home prices, and government actions are often pro-cyclical rather than counter-cyclical. If politicians try to do too much to curb home prices, those actions will not work until one point when the bubble burst, and the effect of those actions will be felt for years.

    Also sprach Analyst

  4. We could have the govt do very little, and that would help housing affordability quite a lot……ie. stop tinkering, let it correct, already…

    • Good on you, Leith, I always read your articles. The government could easily change the whole housing situation in a big way if they limited foreign ownership and reduced the negative gearing rort. Properties would flood the market if they were no longer a tax deduction. However, it is not in the government’s interest to make housing affordable – on the contrary, it is in their interest to keep the Ponzi scheme going because they know that if people felt their properties were losing value and they were therefore not as wealthy as they thought, spending would slow down, jobs would be lost and we would go into recession. Bring it on, I say!

    • Well it is a Fairfax paper after all. Domain is probably there biggest product nowdays for revenue. They have an interest in helping values rise.

  5. The system of government we have is failing. The people are but an inconvienence the pollies work for the ‘establishment’.

    Therefore, I shall look forward to the rise of minor parties and the resulting negotiated policy initiatives of any possible coalition govt.

    This housing affordability issue is worthy of someone founding a political party to address.

    Steve Keen perhaps?

  6. Endrortsonhousing

    I agree with Stewart. The problem with the housing market has been too much government intervention. It will eventually correct as long as there is no more.
    By the way, I don’t know that there is any political party that actually stands for delivering affordable housing. I don’t remember the Greens opposing the Rudd boost to the First Home Buyers grant, and the Greens are always actively opposed to any land releases (because some insect might become endangered).

  7. I doubt whether Labor,Liberals or the Greens have a clue about the economy in general and housing in particular.If they do they are keeping the knowledge well hidden and certainly lack the cojones to put proper and effective regulation in place.

    Unfortunately we are going to need a crash before the penny drops.

  8. THE PROBLEM IS THE BABY BOOMERS IN POSITIONS OF POWER IN GOVERMENT AT ALL LEVELS,FED,STATE,COUNCIL, WHO WANT TO HAVE A PARTY OF A RETIREMENT.

    • I am a baby boomer and 100% agree with Michael…….It’s up to the X & Y gens to say NO WE WILL NOT PAY YOUR INFLATED HOUSE PRICES….They have to get of there backsides and get a cheaper house movement/ political party going….if they just take it, then worry belong them…they must realise you can not effect change without hard work.

      • Why is it any time Boomers suggest Gen X and Y do anything it always starts with “getting off their arse” as though all we did all day was sit around living off the equity in our overvalued homes. Oh wait, that’s the Boomers.

      • Free education, cheap housing, government allowances(dole),wealth creation through no work (Housing),no infrastructure for the last 25years to speak of. Yeah you had it tough. You made the mess we are in, how about your lot clean it up?
        That is if you can drag yourselves away from your lattes.

  9. Whereisthetruth

    The government of both persuasions has looked at housing as a cash-cow to support pork-barrelling and vain promises to a stupefied populace. Now everyone is going to be hurt as the overinflated bubble collapses. Governments are most often agents of damage and destruction to stability in the name of presenting a mirage of ‘success’. Such is democracy.

    • Leith, on the contrary, your calculations DISPROVED the Demographia calculations.

      Your finding was that Australia has a 6.7x house price to DISPOSABLE household income ratio.

      Demographia’s finding is that Australia has a 6.2x house price to GROSS household income ratio.

      Are you trying to say that household disposable income is almost as high as household gross income?

      Don’t you pay any tax at your house? I know I lose a substantial portion of my gross income to tax, meaning my disposable income is a lot lower than my gross income.

      Your calculations totally disprove the Demographia calculations, in the same way that separate calculations performed by several members of the Zetaboards forum also disprove the Demographia calculations.

      If we include your calculation method, plus the four separate methods used on Zeta, we have five separate sources showing that the Demographia calculations are wrong.

      For how long will you continue to defend their figures against such overwhelming evidence that those figures are incorrect?

      Cheers,

      Shadow.

      • You are once again splitting hairs Shadow and have proved nothing, except that you enjoy making a simple issue complex.

        Answer me this: in your opinion, is Australian housing severely unaffordable? If not, why not?

      • I don’t think pointing out the difference between gross income and disposable income is ‘splitting hairs’. For most people there is a substantial difference between gross and disposable income.

        No, I don’t think housing in Australia is severely unaffordable. Approximately half a million families and individuals buy a home in Australia every year, mortgage default rates are extremely low, and we choose to build the largest new homes in the world.

        That doesn’t sound like an environment where people can’t afford homes. If people couldn’t afford their homes then they wouldn’t be buying them, and the people who had already bought would be defaulting on their loans, and developers would be building smaller and smaller homes because people couldn’t afford the big ones.

        Cheers,

        Shadow.

      • You might want to read the fine print in that ABS release Shadow – housing costs exclude the house price! Read the notes on p88 of the release http://www.ausstats.abs.gov.au/Ausstats/subscriber.nsf/0/850B54993AF63E35CA257384000E5A04/$File/4130055001_2005-06.pdf

        Principle component of owner occupier cost is excluded. from 2003-04 onwards. So prior to that time mortgage repayments in full were included. Post 2003-04, only the interest component of the mortgage was included.

        The ABS states the following in regard to the impacts of some of the costs they have left out –

        “Repairs, maintenance and dwelling insurance represent consumption and use of a
        housing asset, and are costs that tend to be incurred by owner occupier households, but
        not by renting households. Expenditure data on each of these is collected in the HES.
        Previous HES data shows that if these costs were added to SIH cost estimates, the
        estimates of average housing costs would double for owners without a mortgage and
        would increase by 15% for owners with a mortgage.
        Commencing in 2003–04, extra information on housing costs was collected in the SIH,
        including the following:
        1. loan repayments made by owners with a mortgage were able to be split into an
        interest component and a principal component. The 2005–06 SIH indicated that
        about 35% of the housing costs of owners with a mortgage comprised principal
        repayments”

        So, since the price of housing is essentially excluded, as are the maintenance costs (which have been increasing I would argue at a much greater rate than the CPI) we wouldn’t expect a large change in the graph.

      • Sorry, excluded this from my last post

        “…from 2003-04 onwards. So prior to that time mortgage repayments in full were included. Post 2003-04, only the interest component of the mortgage was included.”

      • Cameron, that’s not true. The ABS use a consistent measure of housing costs throughout the report…

        “Commencing in 2003–04, extra information on housing costs was collected in the SIH,
        including the following…

        The measure of housing costs used throughout this publication includes all current and capital housing cost components collected in the SIH. The ABS offers specialist consultancy services to assist clients who require disaggregated housing costs data.”

        The only change from 2003-2004 is that they can break the total cost down and provide the disaggregated data on demand.

        Housing costs as a proportion of income have not changed for almost 20 years.

      • I see you trolling all over the comment sections of property websites and news articles Shadow.
        Either declare your vested interest or concede that you’re unlikely to sway anyone’s view when it’s painfully obvious to almost everyone now that while property may still be technically “affordable” it has become extraordinarily expensive by historical standards.

  10. I have a question for Unconventional Economist…

    Would building smaller homes with no extras for first time buyers help get them into the market??? Instead of giving them the grant and then leaving them with huge repayments..??

    Please excuse me, I am just starting out reading and learning about the property market.

    Find your blogs so helpful! Loved … UK deleveraging: “standard of living to plunge at fastest rate since 1920s”

    • Hi JustLearning. Smaller homes would have only a small impact on affordability. The problem with the starter home market in Australia is that the land component of new fringe homes is simply too high – typically around $200k per block (house & land $350k plus)- due mostly to Australia’s prescriptive urban planning structure. By comparison, in major metros in the USA where land-use is deregulated, such as Texas and Georgia, first home buyers can purchase large new family homes for around $150k, with the land component costing only around $30k. Herein lies the problem. It’s the cost of land that is the major cause of our unaffordable housing, not the size of our homes.

      • So, it is not caused by a shortage of land, but by a shortage of government permission to build houses?? which increases the cost of land??

        Thanks Unconventional Economist

    • Hi JustLearning,

      I did some rough calculations last year based on information from real estate and project home websites, estimating how much it would cost to build the cheapest house on the cheapest block of land. If you were considering such an option, you could double the size of your house by spending less than 20% extra in total.

      Leith’s right in that the land component of a new house is very high. Also I suspect that a large chunk of the costs of building a new house are fixed costs that don’t vary much with house size (eg EERs, council approvals, safety requirements, power and sewage). For example, if you take a quick look at home designs on the AV Jennings website, they have a 130sqm home for $138K, but for an extra $68K (around 50% more money) you can get a 255sqm house – almost twice the size.

  11. In 2003 I watched Tony Jones on Lateline discussing housing affordability and other issues in a similar economic environment (low unemployment, high debt servicing) with Treasury representatives Ian Campbell and Mark Latham:

    http://www.abc.net.au/lateline/content/2003/s945489.htm

    It was primarily the media raising concerns about affordability at that stage, not social/political/lobby groups.

    7 and a half years after that TV segment, while I still have little faith that governments will do anything voluntarily to improve housing affordability, I am pleased to see the mass becoming closer to critical.

  12. We are in the era of con men and their paid statisticians. Any one that uses the criteria of being employed as being of working age and not on Centrelink’s books or on their books as working for 1 hour and uses the subsequent averaging figure as some sought of economic miracle formula for economic accountability has got to be simple or bamboozled – hands up all Western governments.
    Little wonder we also get median formulas for household income that is partially based on averaging data such as the unemployment formula above. Failure to understand that the use of averaging data means that accuracy can be 100% wrong makes a mockery of these unemployment numbers to median household income figures and many other economic formulas.

    My gut feeling is that individual income such figures would show far more people in current standards of poverty and therefore even greater housing stress than even the International figures suggest.

    The continuing belief that businesses trying to make money have useful housing or even general economic recommendations for the community needs to be pheripheral to policy and not central – as the business lead for Negative Gearing and its subsequent failure to help anyone but certain business people and be extremely hurtful to huge numbers of individuals
    shows very clearly.

    Interested to see your future blogs on a Policy – good luck as you appear to have some useful information and some not so useful ingredients.

  13. Economist Anna Schwartz, (co founder of the “Chicago School-Monetrists” along with Milton Friedman) has this to say: The Anglo- fractional reserve banking model favours debt and speculation over that of savings and investment.

    Combine this over-arching principle with a three year political cycle and you have a political economy that is totally DNA programmed for boom and bust via debt and speculation (cause) and inflation/deflation/currency debauchery (effect).

    Ignoring this is the equivalent of trying to teach your cat to fetch the morning paper. Nice try but no cigar.

    Guns & butter, warfare & welfare.The economic/banking basis for empire. A tribune mechanism.

    Thank you Dr. Strangeloves for leading us to hell and damnation alley. Marx and Keynes the arch villians of modern society. Both speculated in markets and lost their shirts. Both were bailed by monied friends.

    Can’t afford a house? Just wait for the Keynesians in control to bury some bottles filled with currency down a mine and get a permit to dig them up.

    In the meantime, your money for nothing and your chicks for free. Housing? Come on now, two uot of three ain’t bad.

    This isn’t about root causes it is about being rooted-permanently.

    Anglo fractional reserve banks uber alles.

  14. last time I looked council’s raised taxes (called rates) based on the unimproved land value. I can’t see how land values will change while that relationship remains

  15. “The 2008 Senate Select Committee on Housing Affordability in Australia found that $50 billion is spent every year on capital gains exemptions and negative gearing incentives. Another $13 billion has been spent on the first home-buyers grant since its inception in 2000. This compares to Government spending of $512 million Housing Affordability Fund to be spent over five years to improve the supply of new affordable housing…”

    Australia is second only to Hong Kong in housing UNaffordability

    63 billion + 512 mill = 63,512,000,000 . Lets us assume a truly serious attempt at creating affordable and decent housing supply costing 300,000 per dwelling*. = 211,706 homes housing probably 500,000 Australians but potentially 1 million. EVERY YEAR. Even at 500k per dwelling it would pay for 127 thousand homes per year.

    *Built under Govt ownership, capturing an increased density without paying it as a windfall to a developer, using the Volkswagon principle of testing THE most efficient and pleasant design in every sense and standardising it so that all furnishings can also be mass produced in quality because they will all fit, ditto plumbing, appliances, solar panels etc etc. Let private enterprise tender to build them, based on the strict design but allowing sensible local adaptations re available materials, door knobs and taps, utilities etc…and have a combined building industry, user advocates and appointed review group scrutinising so that tender graft does not get a look in., But leave private enterprise OUT of the land supply and the financing. Use direct Govt financing. Their money only costs them the 10 year bond rate.

    One of the arguments for private development is that it is more efficient. Yes, but only in the building, not in the land supply (which all has to be approved in detail by government officials anyway) and not in the financing. One of the arguments for negative gearing is that if you cut it out you harm supply. True, all else being equal. This is in fact the only argument ever mounted. But building say 150,000 homes a year would soon make that a joke. We already have tax laws that confine losses to the enterprise e.g. having to carry losses forward for a business or for capital /losses on sale of shares and property. We have “alienation” of income laws, so that you cannot claim losses on your Amway “business” against your employment income etc. The tax laws and distortions around property are a primary cause of economic bubbles and busts and are not beneficial.

    * All new Govt built housing to have appropriate community gardens and small enterprise work areas, education and public transport in walking distance, medical “triage” nursing stations, excellent broadband for outworkers, on site childcare, indoor and outdoor sport recreation facilities aimed at maximum participation in minimum space, libraries etc. … anything that overcomes tyranny of distance and living on the edge.

    PAUL MELENG

    • Comparing us to India or China isn’t going to make people forget the fact that houses are too expensive HERE. Discredit Demographia all you like, it doesn’t really change the bleedingly obvious.

  16. @Pellicle.

    The value of the land is not relevant for council rates. Councils produce a budget, decide how much money they want and divide that into the total land value. Land value is only a way of distributing the tax, not of deciding how much the tax will be.

    @ Everyone.

    BTW, Shadow is the handle of an old property spruiker from way back. The absolute level of the ratio between price and income, be it 3 times or 9 times, isn’t what is most important. The ratio can be calculated in various ways with varying results. What is important is the long term trend, and even Chris Joye’s last article (that I read, dated 9 Sep 2010) on the matter admitted that the ratio has increased, regardless of the way it is calculated. In Rismark’s calculation the ratio was circa 2.6 in 2000 and circa 4.5 in March 2010.

    These are different numbers from Demographia but they show the same trend.

  17. @Shadow 1.06pm. How do you explain this chart from the RBA showing the large rise in mortgage interest payments as a proportion of disposable incomes over the 2000s? And remember, this chart does not take into account the added principal repayments required on the higher loan balances.

  18. @DazedMW, you say…

    “Shadow is the handle of an old property spruiker from way back”

    Yes, Shadow has been my handle for many years, but I am not a spruiker… in fact I have never sold property, I have only ever bought property.

    Seems strange that pointing out simple mathematical errors makes one a ‘spruiker’ in the eyes of property bears.

    Have you actually read this thread…

    http://s4.zetaboards.com/Australian_Property/topic/8368369

    Even Rastus2, a long time GHPC, Credit Crunch, and now Zetaboards ‘bear’ is forced to acknowledge that the Demographia figures are just plain wrong!

    • Shadow.

      I believe you are putting words into my mouth, or, at the very least, twisting the situation.

      After reading a debate on the forum on Sydney Incomes, I DMOR on the topic of Sydney incomes… I was not was ‘forced to admit anything’, I did it of my own choice thanks very much… but it does add a nice dramatic edge when you put it like that doesn’t it ? Agree or disagree with it, I don’t mind… but don’t fabricate the background to it’s creation please.

      I still see flaws in my calculation (as cited in the forum by myself)… but am awaiting other input from posters.

      Your questions as to how Australia can possibly be unaffordable are all nice, however they avoid my question to you on the forum…
      Your simple concept that house prices in Australia must be affordable because they are selling completely misses the reality of what happened in America and other countries. Houses sold there in very large numbers, and prices continued to rise… they appeared affordable, despite the fact that they were only affordable while the perfect combination of easy credit from financial institutions and blinkered buyers who could not see the bubble they were in. It’s obvious to all now that the situation was not affordable in the real world.. it needed the perfect set of circumstances to maintain the prices… That set of circumstances was always doomed to failure.
      In Australia we have blinkered buyers and a great looking economy, fairly easy credit, and (by your own admission) a government that is desperate to keep house prices from dropping. This will not continue indefinitely. Indeed, I think we are rapidly approaching a cycle in Australia where other financial pressures mean the Government and the average house buyer is unable to keep the bubble going.

  19. Within a recent article in The Age and the SMH “House prices out of sync with incomes” I made a particular point of stating that there is no perfect measure – but the Median Multiple is sufficient.

    The reality is that the MM across the 32 cities surveyed is 6.1 and the major ones 7.1.

    As a check measure, the relationship between GDP and the total value of the residential stock is important too. This should not exceed 1.5 times.

    I understand there is something in the order of $A4.1 trillion total value of residential stock in Australia, which has a GDP of something in the order of $A1.2 trillion – about 3.4 times.

    Texas in contrast is in the order of 1.5 times. Better still is Houston at a remarkable 1.1 times. Check out the Bureau of Economic Analysis, US Dept of Commerce for Gross Metropolitan Products.

    To me it is extraordinary how some are still in denial that Australian (and NZ too) housing prices are grossly overcooked.

    What is quibbling going to achieve?

    Australians should be proud of the fact that the Greens, the Sacred Heart Mission and the Real Estate Institure have come out stating publicly their concerns about the unaffordable housing. Where are the other groups out there following the socially responsible lead of these three?

    Stop quibbling and get in behind these responsible groups and others so that affordable housing can be restored in this part of the world.

    Whatever happened to our “fair go” culture?

    Hugh Pavletich FDIA
    Co author – Annual Demographia International Housing Affordability Survey
    http://www.PerformanceUrbanPlanning.org
    Christchurch
    New Zealand

  20. Keith MacLennan

    I was getting a bit dazed at the dialogue between the “Shadow” and “EU” but nearly fell on the floor when i read the Shadow stating “Housing costs as a proportion of income have not changed for almost 20 years.” Everything in my bones and 45 working years experience in home building industry and real estate said “Bollocks”
    Or have i got it wrong.

  21. Apologies for the earlier error Shadow. Rushing through the ABS fine print with many things on my mind at once led me to my preconceived the conclusion. (although I meant to retract the statement about inconsistent use of costs from 2003-04, but it seems that they use the principle and interest rather than interest only)

    One still has to question how such surprising figures can be produced, given that, for example, the ABS established price index has grown at >8%pa since 2002. I don’t think incomes have seen that type of growth over the past 8 years or so.

    How do you reconcile this?

  22. threedogsandakid

    This is all a lot of talk about….what exactly?

    Endless argument about this or that graph, this or that report, Demographia v Rismark, restricted land use, etc, essentially leads nowhere.

    This is not an issue that can be fixed by any one measure and certainly not by government intervention. The market needs to self-correct over time.

    Impediments to future house price increases include the missing in action first home buyer (usually say 30% plus of the market), threat of higher interest rates, prohibitively high mortgage costs, realisation that housing may no longer be the key to rapid wealth, global financial uncertainty and so on.

    The housing market will stall for a period (currently) and quite likely drop, particularly if there were to be a significant global downturn.

    Facts:

    Australia has expensive housing, particularly in capital cities and prime coastal regions.

    Australia is one of the most expensive housing markets in global terms.

    Australian housing is largely unaffordable particularly for first home buyers.

    In recent times housing bubbles have been experienced in USA, UK, Canada, NZ, Spain, HK and presently China.

    These housing bubbles are reflective of low interest rate policies, recent easy credit, speculation and the real, at least for a time, rapid increase in ‘wealth’ experienced by those already in the property market. Gains of $100,000’s ensured that everyone wanted to get on board.

    Various government policies may, or may not have contributed eg interest rate policy, first home buyers grant, restricted land use etc. But not one of these on their own created this housing bubble. Human emotion, the belief that it could never end, the desire to get a foot in the door, the desire to make big dollars quickly – by thousands upon thousands of individual purchasers ensured the bubble grew, certainly aided by unheard levels of easily obtainable unbelievably high levels of credit. Everyone was (or thought they were) making money.

    It was what it was. And now it isn’t.

    So Leith, and others, why all this talk?

    Chill.

  23. Threedogsandakid

    With all due respects, some are very slow learners about the costs and consequences of unnecessary housing bubbles.

    Indeed – many dont actually learn until they collapse. May I suggest you read the superb recent Vanity Fair article by Michael Lewis “When Irish eyes are crying”. The Irish are currently learning the hard way – as did the Californians, Floridians and many others.

    May I suggest you calculate the bubble value in the Australian market at the moment and imagine the consequences when it vaporize.

    Bubbles by definition are unsustainable. Thats why they are called bubbles.

    Hugh Pavletich

    • Where is the evidence of a property bubble in Australia?

      Why does the Demographia report not use accurate income data for Australia?

      Why does the Demographia report only include freestanding houses to calculate Australian median prices, but include units/townhouses for other countries such as UK and HK?

      If Australian houses are unaffordable, how are half a million people able to buy houses every year without defaulting on their loans?

      If Australian houses are unaffordable, why do we choose to build the largest new houses in the world?

      Why do none of the bears seem willing to answer these questions…

      • I think these are all good questions but I think your criticism actually answers your questions. Without any rigid benchmarks to make direct comparisons, it’s hard to come to any conclusion that a bubble exists. However, that also shows that it is impossible to show that a housing bubble doesn’t exist. Any survey or research must be understood from the perspective of its weaknesses and its strengths. It may be intuitive as opposed to conclusive.

      • Shadow,
        As a cashed up Zodiac Bear, ready and willing to take “SERIOUS ADVANTAGE“ of highly leveraged property investors and retiring baby boomers.

        God Help any highly leveraged person(s) and desperate real-estate agents that get in my way, when and if the bubble pops.

        Disclaimers: I own my primary property in Sydney’s lower North Shore Outright, will seek alternative investment strategies if regulatory environment changes or appears to be changing in the medium term horizon.

      • One personal anecdote, that Australia is indeed in the midst of a Property Bubble.

        My Best Mate, sold six apartments in Sydney. Flew to the USA, started up a US Company, spent a month networking, then purchased 19 apartments (2bed,2bath)in Miami from the equity he received from the sale of the six Sydney Apartments.

        I can assure you he is receiving a significantly better ROI.

    • threedogsandakid

      Hugh

      I well understand the machinations of a bubble, but thank you for your guidance.

      My point is that the housing bubble, driven by easy credit, could not have happened without human input. In very simple terms – millions of homebuyers in various countries around the world, decided for a range of reasons to purchase property.

      This may assist your understanding:
      http://www.ritholtz.com/blog/2010/08/psychological-stages-of-a-bubble-market/

      http://www.ritholtz.com/blog/2010/06/anatomy-of-a-bubble/

      All the talk taking place here simply does not address that fact that in a free market you cannot fully control human behaviour. Individuals will make decisions based on their personal perception of the appropriateness of that decision to their circumstances.

      Hence, low interest rates will have an impact, restricted land use may or may not have an impact (read a report from Harvard that said in many cases restrictive land use did result in higher prices (but many other factors were included) and that in general comparatively unrestricted land use resulted in lower housing prices – but not always – Las Vegas being a good example). Access to easy credit is the clincher – can’t buy if you can’t borrow.
      (Probably everyone reading this has been told in recent times they can borrow $600-$900k, and many may have done just that….believing the bubble would never end. Lending at those levels would, not so long ago, have been incomprehensible).

      What do you suggest is the solution to this or future bubbles?

      I certainly haven’t seen one yet. Because we are human and we are imperfect.

      • threedogsandakid

        Leith, the Harvard report I linked to in your more recent post did not consider Las Vegas a restricted land use precinct – even the experts disagree!

        Excerpt:
        “While prices did not rise substantially in places such as Houston and Charlotte with the least legal and natural restrictions on supply, there is little doubt that homebuyers in places like
        Phoenix and Las Vegas, where there were
        fewer regulatory or natural limits on the supply of new housing, had astonishing amounts of optimism about future housing prices that were
        completely inconsistent with the past history of those places.”

  24. [email protected]

    At the end of the day the figures add up for themselves.

    In my personal situation, is now cheaper to rent than buy. So long as I am prudent and save the difference I will be better of not buying until such a time when the math is different.

    In the UK a property bubble was popped in the early nineties(mainly through the post dated withdrawal of stimulus – get it while you can…familiar?). This PRECEDED a period of recession. I got burnt(unit purchased 1990 – £48500 sold 1999 £26000). So many people have not learnt from the past…….