My prediction for 2014 – winds of change

By Catherine Cashmore

Data concluding the last 12 months of real estate activity is slowly filtering through and not surprisingly, gains were recorded in all capital cities as well as some regional localities.

Louis Christopher was first out the ranks on New Year’s Day with a fairly comprehensive ‘twitter’ update from his vendor sentiment index – the most accurate timely indicator we have on market movements.

SQM’s index shows over the course of 2013, national asking prices increased +7.2% for houses and +2.3% for units, and whilst Canberra recorded the weakest result from all capital cities, with the asking price down -1.5% for houses and -3% for units, Sydney was unashamedly the stand out performer, with a remarkable uplift in the advertised price range across all regions.

Additionally, ‘RP Data’s’ December Capital City home value index hit the press, showing a gain of +9.8% nationally over the 2013 calendar year, and charting a dramatic increase of +15.2% in Sydney’s house values, compared to a more subdued +2.9% in Hobart.

The accompanying statement from ‘RP Data’ reads; “this is the fastest annual rate of value growth since August 2010, and the largest calendar year increase in values since 2009 when home values were up by 13.7%.”

According to ‘RP Data, despite a new record median house price in both Sydney and Perth, at $655,250 and $520,000 respectively, compared to other ‘growth cycles’ this is a ‘somewhat muted’ recovery;

“..home values increased by 9.8 per cent in 2013 (however) the growth follows a -3.8 per cent annual fall in values in 2011 and a further -0.4 per cent annual fall in 2012. Cumulatively, from peak to trough, capital city dwelling values were down 7.7% prior to this current growth cycle…” therefore “…although value growth has been strong compared to recent years, the current growth cycle has been somewhat muted.”  Mr Kusher said.

However, this ‘muted recovery’, which according to ‘RP Data’ is somewhat justified by the decline in values in both 2011 and 2012, is little consolation when you consider the gains that lead to the previous peak were initiated by the first homeowner boost, which formed part of the Rudd stimulus packages post GFC.

Whilst the packages introduced over the period helped to buffer a rise in unemployment, the ‘FHOB’ did little more than enrich vendors and developers at the expense of inexperienced purchasers, thereby stemming any fear that house prices might suffer a significant fall, and played to the needs of an aging population who have been encouraged to used capital gains in their principle place of residence, to fund retirement.

It also flooded the lower end of the property market with swathes of easy credit, arresting the downward decline and deceleration in household debt growth, as the effects rippled across the rest of the segments, and upgraders, downsizers, and investors all shifted seats predominantly in the second hand sector.

You don’t need to be an economic master, to understand throwing easy credit at a limited division of the market, does nothing to stabilise prices over the longer term, instead working pro-cyclically to exacerbate the swings, bidding up prices and encouraging young buyers to take on an inflated percentage of mortgage debt, before the inevitable withdrawal of the grant produces the expected ‘slump.’

Albeit, it doesn’t prevent the REIA lobbying Government for a return of the policy along with other ideas, such as allowing first home-buyers to access their Superfund to purchase which, in the absence of substantial supply side reforms, would result in a similar effect.

Meanwhile, market analysts tend to adopt the premise that as long as prices are below, or not at previous peaks, or – as mentioned in the ‘RP Data’ media release – moving as strongly as those witnessed in past cycles, during which no major downturn occurred, (however manipulated a prevention may have been,) any upward trend is merely a ‘recovery’ and an understandable symptom of record low rates in a post GFC environment.

In other words, in an era where investment activity in the housing market is at record levels, with speculation on market movements broadly encouraged by incentives such as negative gearing and SMSF acquisitions stewing the pot, ‘up’ is good, and when it follows a downward trend, it can be safely termed a ‘recovery.’

Another factor that plays into the analysis is that the heat is generally focused on contained geographical areas – such as the inner and middle ring suburbs of Sydney and Melbourne – again, allowing analysts to conclude the offsetting data from regional and outer localities balances the distortions.

As ‘RP Data’s’ Melbourne analyst Robert Larocca commented in The Age “..I don’t think you could mistake what’s happened in Melbourne over the past year as a boom. It’s not been, it’s been a recovery (here we go again) and we’ve still got some way to go (reassuring!) …..there’s   a ”vast swath of suburbs” in middle and outer Melbourne where a dwelling – house or unit – could be bought for below the median of $563,000.”

However, whilst investors may be able to pick and choose the suburb, state, or territory they wish to leverage in order to fall in line with their budget and long term requirements, home buyers and renters are restricted to fairly limited areas where they can access their place of work, ferry the kids to the local school, and facilitate their family’s requirements – therefore if we’re to provide plentiful accommodation for our largest home buying demographic (families with children,) we must cater in a timely fashion, to both housing and infrastructure needs.

Such remarks show we have lost all sense of what ‘recovery’ really means – to paraphrase a comment made by economist Steve Keen – being a thousand metres below the peak of Everest does not mean that prices at their current levels, are in anyway acceptable, or in need of ‘recovery.’

Purchasing a home has never been easy, however years of poor public policy by local, state, and federal government, has paved the way for a downward trend in the number of homes constructed each year – produced rapid increases in residential land values – a worrying degree of investor speculation in the established market – a consistent shortage of rental accommodation in most capital cities – an increase in over crowding of accommodation – a decrease in home ownership -a drop number of first home buyers entering ownership outside of grants and incentives – double the number of Australians aged 50 to 65 since the turn of the century still paying off their mortgage as they approach retirement – and this is before we have even touched upon the quality and supply of Public housing.

The fact that median house prices in most capitals are now more than six times the median income, simply highlights the long-term symptoms of a failure to adequately cater for a rising population, and ensure the options in our housing market cater for all, and not just ‘a few.’

Those who entered ownership toward the start of the lending boom when it was possible to purchase and service a mortgage on a single wage for roughly 3 times the median income, have basked in the halo of the above consequences of housing policy failure, and enjoyed a substantial increase in asset wealth.

To a limited extent, this has ‘gifted’ their children’s foothold onto the ‘property ladder.’ However, it’s also promoted the dangerous cultural conception, that rising house values are a ‘public good,’ with perhaps the only niggling worry from most mainstream economists, being the pace at which they are sustainable to protect existing gains.

In the face of swelling levels of unemployment and politicians who are focused on paying down Government debt at the expense of increasing levels of private debt, along with record numbers of inexperienced investors speculating on gains in the established sector, this is understandable. However, politicians – ever worried about their rating in the polls, will always play to the majority, as Howard openly admitted in 2007 when he delivered the comment;

“A true housing crisis in this country is when there is a sustained fall in the value of our homes and in house prices”

What Howard failed to acknowledge, is a sustained rise in land values, funded by a dramatic increase in our house­hold debt to income ratio, which at 148%, has more than off­set any fall in inter­est rates over the resulting period, has caused a gradual erosion of affordability which has broad reaching consequences for Australia’s community as a whole. Yet, despite in-depth studies – such as the five year old senate enquiry I mentioned prior to Christmas, which was comprehensive enough to educate our political movers and shakers to some of the complexities surrounding the provision of affordable accommodation, little if anything is done.

Over the coming month, predictions on yearly market movements in each state and territory will occur from all spectrums of the property sector. Sydney is expected to continue it’s acceleration in house prices, and some analysts have picked Brisbane as this year’s ‘hotspot.’  However, I have only one prediction to offer – the ground swell from a younger generation of non-home owning residents which has gained pace throughout 2013, will continue to shift the debate on prices from one in which gains are considered ‘good’ – to one where inequality and anger will increasingly bite.

The main stream media has played into this to some extent, with one hit headlines suggesting that simply scrapping negative gearing (for example) or restricting foreign buyers alone, will be enough to solve the problem – it won’t – rather a real recovery in Australia requires significant political reform and a broad spectrum of changes (many of which myself – along with numerous others from various advocacy groups – covered in detail last year.)

Whilst none of the above is achievable overnight – it is important we continue foster effective advocacy of the issues at hand, and push for better representation from politicians who may have personally benefitted from restricting supply, to those who recognise the social and economic inequities produced, and work consistently to push through the difficult reforms needed to fix them.

132 Responses to “ “My prediction for 2014 – winds of change”

  1. MickyG says:

    Great article. Nice and succinct summary.

    • Janet says:

      A change from her views 3 years ago?
      “Investment in real estate is long-term game plan, so trying to get a return on price one or two years down the line is a gamble no one should take, or be forced to take….even in flat markets with well-publicised drops over any one year, there are those properties that buck the trend – the roses amongst the thorns – in locations with unique aspects that drive owner-occupiers to stretch budgets. And these are the very properties investors need to target if they’re going to prosper during boom-and-bust cycles.”
      Like a reformed smoker, the vices of the past are to be forgiven, even as people of the time were screaming “Give up smoking, it might kill you”, and they were ignored…..

      • Catherine Cashmore says:

        Janet – 3 years ago I was being paid to write for real estate companies. Shortly following I dropped all company advertising from my writing and have written independently since – no RE commission based company will employ someone unless they advocate that it is always a ‘good’ time to buy. Hopefully this answers your question.

      • md says:

        Well done, Catherine.

      • Thank you Catherine your honesty is a great relief. Nice to see you on MB. :) … Will you be writing here soon as well?

      • Catherine Cashmore says:

        Thanks – I know there’s been discussion about this on APF – just for the record, I don’t get paid by Property Observer (none of their ‘observers’ do) or by Macro – and I’ve taken a significant financial hit from the industry for writing as I do. I write for the same reasons that many of you have when visiting this forum and commenting – We can make a difference.

    • Mik says:

      Speaking of predictions, last year we were asked to write our predictions for 2013, I would love to see what the conclusions versus reality were.

      maybe we could also try again this year.

  2. Escobar says:

    “the ground swell from a younger generation of non-home owning residents which has gained pace throughout 2013, will continue to shift the debate on prices from one in which gains are considered ‘good’ – to one where inequality and anger will increasingly bite.”

    Can’t come quick enough.

    We’re a nation that doesn’t complain enough. Too scared to offend the chef, might he spit on our steak.

    • Ino says:

      > We’re a nation that doesn’t complain enough. Too scared to offend the chef, might he spit on our steak.

      Little do we know that the chef only has one arm and we’ve all ordered meat-stuffed peppers around the table!

    • Bubbley says:

      Here is your chance to make a difference –

      Senate Inquiry into Affordable Housing, the public is welcomed to submit but it must be in by 25th March 2014.

      http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Affordable_housing_2013

      How to make a submission to the Senate Inquiry –

      http://www.aph.gov.au/Home/Parliamentary%20Business/Committees/Senate/How%20to%20make%20a%20submission

      Here is the main part of the letter I received (not altered or redacted.)
      Inquiry into Affordable Housing in Australia

      On 12 December 2013, the following matter was referred to the Economics References Committee for inquiry and report by 26 June 2014:

      Affordable housing, including the following matters:
      (a) the role of all levels of government in facilitating affordable home ownership and affordable private rental, including:
      (i) the effect of policies designed to encourage home ownership and residential property investment,
      (ii) the taxes and levies imposed by the Commonwealth, state, territory and local governments,
      (iii) the effect of policies designed to increase housing supply,
      (iv) the operation, effect and future of the National Rental Affordability Scheme,
      (v) the regulatory structures governing the roles of financial institutions and superannuation funds in the home lending and property sectors, and
      (vi) the operation and effectiveness of rent and housing assistance programs;
      (b) the impacts, including social implications, of public and social housing policies on housing affordability and the role of all levels of government in providing public and social housing;
      (c) the impact of Commonwealth, state and territory government policies and programs on homelessness;
      (d) the contribution of home ownership to retirement incomes;
      (e) the implications for other related changes to Commonwealth government policies and programs, including taxation policy, aged care, disability services, Indigenous affairs and for state and territory governments;
      (f) the need to develop improved overview and accountability mechanisms in relation to Commonwealth grants and funding to the states and territories in order to ensure that public funding delivers outcomes consistent with Commonwealth objectives;
      (g) planning and policies that will ensure that women, particularly vulnerable women, have access to secure, appropriate, affordable and adaptable accommodation;
      (h) planning and policies that will ensure emergency and essential service workers have access to affordable housing close to where they work;
      (i) planning and policies that will ensure the availability of an appropriately skilled workforce;
      (j) the role of innovation in building materials and construction, including prefabricated and sustainable materials;
      (k) the impacts of improving sustainability (including energy efficiency) of new and existing housing stock on improving housing affordability;
      (l) the role of innovative and responsible funding mechanisms used in other countries, including the United Kingdom, United States of America, France, Canada, Austria and the Netherlands, that provide a stable and cost effective way of funding affordable rental and social housing, such as affordable housing supply bonds and an affordable housing finance corporation;
      (m) the role and contribution of the community housing sector in delivering social and affordable renting housing;
      (n) the need to increase the supply of accessible and adaptable housing, and housing that is culturally appropriate;
      (o) the impact of not having a long-term, national affordable housing plan; and
      (p) any other matters the committee considers relevant.

      The committee is seeking views from those interested or involved in providing affordable housing in Australia and is calling for written submissions.

      The purpose of this letter is to draw your attention to the inquiry and to invite you or your organisation to make a written submission to the committee. The terms of reference are broad and range over many aspects of providing affordable housing. There is no requirement to address the full terms of reference and you may choose to comment only on the terms of reference that are of relevance to you.

      Also, the committee is seeking to publicise its work as widely as possible and would appreciate you referring this letter of invitation to any colleague or organisation you think would like to contribute to the inquiry. The committee would also like to hear from you if you have any suggestions about people who may wish to assist the committee with its inquiry.

      • Nudge says:

        I’m not so eloquent, but I’d like to put something in.

        Are we better off deluging them with individual cacophonies of incoherence, or better to collectively draft out something along the lines of MB, run it on FB etc to maximise exposure & numbers, & submit it in unision as a signed petition/submission?

        Any thoughts?

      • Hector says:

        Any ideas on what terms of reference “D” might mean?

      • abelsee says:

        Thanks Bubbly, excerpts of a submission I am working on is below, 3:39pm.
        Anyone is free to use any part, there is nothing original.
        Making a sub is positive action.
        Let the Senate know that you are onto how rigged the system is.

    • saintmatthew says:

      like

  3. flawse says:

    Well said CC! Unfortunately, even though it looks like ‘Everest’, housing reform is really the easiest task we face…unfortunately.

  4. adoxographer says:

    Welcome back, and thank you for this article.

  5. kodiak says:

    The part that I would agree with in particular is that the crisis is not when prices fall. THe crisis is now, as failed policies are eating out the guts of our economy, not the after the fact acknowledgement that this has indeed occurred.

    The real crisis is that I would tell any qualified young twenty-something to head overseas for real opportunity.

    • Gunnamatta says:

      Exactly!

      Any kid with a view to doing something other than aged care or hospitality should be working on making sure he/she is highly mobile. I’ve told a few relos to head OS and beef up their contact/skill base and then come back if they think it worth it down the track, rather than try and slip into the bottom of some corporate and work their way up – all they’d get here is to bask in mediocrity.

      Of course anyone with skills of a technical/engineering/IT nature will be working for an OS company or one of the few Australian companies competitive on a global basis. Those working in the rest of the economy can look forward to an endless grind of salaries being clamped, and functions being outsourced wherever possible to OS. It just aint going to be all that cost competitive to do much in Australia, and the biggest single factor in that is RE.

      Then there is the small matter of anyone with productive assets in Australia has been deep fried in high AUD for a few years (again on a largely RE/Bank stability basis) and would need a fair bit of convincing to hang around.

      • flawse says:

        “Then there is the small matter of anyone with productive assets in Australia has been deep fried in high AUD for a few years (again on a largely RE/Bank stability basis) and would need a fair bit of convincing to hang around.”

        Exactly Gunna…and they aren’t going to come out unburned, pink and tasty just because we temporarily get the A$ down with some temporary unrealistic artificially absurd negative RAT interest rate.
        We have multi-decades of reform ahead of us and the suspension of our supposedly ‘free and floating exchange rate’ system is the first thing we need to address.
        We MUST get on with it. Unfortunately no political party in Aus has even the slightest grasp of our problems. Again I suppose we can’t blame them. Neither does anyone in Treasury, RBA, Banks or University academia.

      • fushy says:

        The missus and I both work in IT and for large international companies but we are still both moving OS (EU) later this year.

        Fuck this place.

      • Ortega says:

        Flushy, I understand exactly how you feel. I would agree that Australia is the most delusional, most smug and most ripe for an economic cataclysm of all the countries i have ever visited.

        Idiocy = genius.

        The piper will be paid ;) Its a certainty.

        I am actively looking to escape as well.

    • Explorer says:

      The “crisis” is a multi-headed beast.

      Some people are in crisis for housing all the time. (the homeless). Other sectors can be in crisis because land prices have escalated so far. (a popular thesis here on MB). If land prices fall it will be an opportunity for the cash rich, not yet invested but it will be a disaster for the real economy and the highly geared.

      Most things are relative between a series of competing sectors.

      Me? Personally I’m all for a higher AUD, cheaper prices for durables and OS travel. Cheaper medical costs for hips and knees would also be good – can you tell I’m aging?

      I’m ambivalent about house prices in some ways as my kids would benefit from a fal while I would hurt, but they are hurt by rises while I do well, so as a multigenerational family we are about neutral

      • flawse says:

        Sorry Explorer

        The real economy not housing banks insurance restaurants and coffee shops. However you are correct in that a housing price collapse will signal the start of a very long road of very difficult times to reform to a real productive economy.

        “Me? Personally I’m all for a higher AUD, cheaper prices for durables and OS travel. Cheaper medical costs for hips and knees would also be good – can you tell I’m aging?”

        Me too. However we are financing all this stuff with asset sales. We are denying our children a future in their own country.
        I’m in the importing and wholesaling into the leisure market. You can imagine what happens in severe recessions with large Aussie dollar falls! OTH this low interest rate consume everything economy allows the reckless (and lying b….ds) in my industry to prosper. It’s time for a cleanout!

  6. Snail Cafe says:

    http://www.dailytelegraph.com.au/realestate/buying/my-home-owners-dream-is-a-nightmare/story-fni0cate-1226795219888

    Jessica Irvine is not to happy about it either….time for some noise in the streets of Aus

    • Dave_Comments says:

      Thats where you should direct your comments… instead of preaching to the converted, get some voices out in the MSM whenever the opportunity arises. Can’t hurt.

  7. flawse says:

    I think there is an essential point being missed. It is becoming apparent that Aus house prices will not be constrained by our own Price/Income ratios.
    One solution proffered, even here in these pages, for our current account deficit is simply to sell foreigners, especially the Chinese, our expensive RE. What is logically obvious about that, and is now becoming reality, is that the cost of houses becomes more than we locals can afford to pay. As long as we run CAD’s we need to flog assets to cover the deficits. So as long as we run CAD’s we can expect this housing cost crisis for our young people to get worse.

    I have previously refernced a chart presented by Ben Bernanke showing a very high correlation between CAD’s and house prices (bubbles in local terms). I can find it again if necessary.
    Interestingly this also calls into question the ‘bubble’ It’s a bubble in our terms but not in the terms of the Chinese investors who are just trying to convert virtually worthless paper into real assets. (Note: Not arguing whether it’s a bubble or not…just an observation on bubble perception)

    • Escobar says:

      Well said.

      Many of our middle class will become an underclass.

    • Temijin says:

      hey flawse could you be so kind to find that chart again.

      Ta

      • flawse says:

        Temjin
        Perhaps ‘very high’ might be the wrong wording so much as ‘strong’.
        http://www.newyorkfed.org/research/staff_reports/sr541.pdf

        The chart is on page 2 of this paper. Bernanke did quote it in one of his addresses to Congress. I can’t find that just for the moment.

        IMF has quite a few papers on the phenomenon as well.

        Of course I believe Bernanke, Western university academics et al, have the cart and the horse largely mixed up (or they are arse about face :) ) Bernanke’s great savings glut pretty much everywhere but in the western world is generated by the US, being the Reserve currency, printing the stuff at ever faster rates to cover its over-consumption. However, given that, there are, of course, feedback loops which can confuse cause and effect.
        This particular paper gets it about right I think.
        IMO we have CAD’s, chronic ones at least, because we consume more than we produce (because of too loow interst rates) achieving increased living standards with higher debt. Everything follows from there.

        P.S. R2 on that chart is 0.78 from memory.

      • Sweeper says:

        Bernanke’s savings glut theory does explain the housing bubble/ CAD correlation.

        Savings flow out of financially repressed economies to financially open economies like Australia who also have elastic credit markets.

        We end up getting a lower interest rate than we can handle and a higher exchange rate than we can handle. The result: A housing bubble/ CAD combination.

      • flawse says:

        How you see it depends on where you are sitting in the loop. However ask yourself how are those massive ‘savings’ generated? The US runs a massive CAD. It chooses to over-consume. Those who work and make the stuff end up with the money which is in excess of what their economies can absorb. So yes desperate ‘savings’ are flowing around and distorting economies such as ours. However that is also our choice. It is what we want…and now need. We can’t stop without a catastrophe.

        Perhaps read the paper referenced. I’m not the only one in the world who figures this in this direction.

      • Sweeper says:

        I agree that Australia doesn’t have to accept the savings. But not doing so would also mean not accepting the goods (ie. would be protectionist). Personally, I don’t see a problem with that as long as others are doing the same.

        As the distressed goods buyer of last resort, the US doesn’t have that luxury. I would say the US CAD is 100% the responsibility of others.

      • flawse says:

        So we just over-consume, pollute, use up resources and it is all the fault of those damned diligent hard-working less foreign privileged workers . Glad i got that.

      • Sweeper says:

        No, all the fault of their billionaire bosses and cronies who think they can adopt a Singapore model for a country of 1.3 billion people and continue to dump the proceeds offshore.

      • flawse says:

        Again maybe read the article.

      • Sweeper says:

        Reading that article, the obvious response is this – so where was all the inflation?

        If Greenspan and Bernanke were able to pin down the world real interest rate from 2000 to 2006 without creating inflation, then they really are geniuses.

        I’m sure you will say that any overheating was offset by CAD blowouts?? But theory says that overheating should blow out the CAD and lead to accelerating inflation. Since the authors also admit that Fed easy money should have been transmitted to the rest of the world through the official and unofficial peg system, inflation should have reared its ugly head somewhere. But it didn’t. So what gives?

    • Explorer says:

      And with the AUD off 20% we are now able to get a lot less in international terms for our apartemtns as we are now selling them at 5 for the price of 4 in FX terms compared to a year or two ago.

    • OMG says:

      We had a very different real estate market this year in Melbourne compared to previous booms.

      After all the interest rate cuts there was barely a murmur in price movements until the dollar dropped in August and suddenly we saw prices rise 5-7% thanks to increased demand from Chinese buyers.

      The gains were not spread evenly, Fairfax reported that areas like Glen Waverley, Mount Waverley and Balwyn (Chinese preferred areas) performed best and that 90% of recent sales in Glen Waverley were to Chinese including 60% to Chinese living overseas

      My forecast for 2014 is further increases in these areas and a rather stagnant year for non Chinese preferred areas as the remainder of Melbournians are feeling the impact of higher unemployment

  8. gonderb says:

    I have a question though when throw away lines like this one are put out there: “Those who entered ownership toward the start of the lending boom when it was possible to purchase and service a mortgage on a single wage for roughly 3 times the median income, have basked in the halo of the above consequences of housing policy failure, and enjoyed a substantial increase in asset wealth.”

    When exactly was the last time a median SYDNEY house could be bought for 3 times the median single income? Sydney is about 25% of the entire national market remember, and the home to many a housing bear blogger.

    Hint – not in my entire lifeftime (I’m mid-40s), and not even when my parents bought their first Sydney house in the mid-60s either? It still took 4-5 times the median single income even back then. Still a lower ratio by about half than today in Sydney, yes, but far from the “3 times” CC puts out there as a fact.

    I think this shows that these higher wage/price multiples are not purely caused by the “easy credit” era, but are also driven by good old fashioned supply/demand and related constraints, household income changes and so on. These other factors have clearly existed in Sydney for a very long time, and have more recently crept into other markets like Melbourne, Brisbane, Perth etc. Remember that Adelaide, Hobart, and most regional centres still do have house price / wage ratio’s around where Sydney was back in the 60s (ie 4-5 times).

    • Turnitup says:

      Sydney’s barely 20% of the national market, and I still this all this as largely a Sydney issue.

      Crazy low IR have failed to encourage prices in all other capitals to even equal previous peaks. Based on that, I’m calling we’re in the early stages of a slow melt in all but Perth and Sydney. If, as Stephen Koukoulas predicts, IR rise by as much a 100 basis points this year, then the melt will be on in earnest.

      • flawse says:

        Turn

        I THINK you are wrong but who is to know. Sunshine Coast on fire particularly in the investor end. Gold Coast coming alight. Brisbane, according to a mate RE agent about 10 to 15 mins from city, asking prices are up 20%.
        It’s a spreading fire that is likely to burn us all.

        Note PSI today. IR’s to be reduced further no matter what the consequences? If they are then the spruikers are right. Boom! Boom! Until we get the catastrophic fracture.

    • Hill Billy 55 says:

      Hi gonderb,

      I looked at Sydney housing mid ’78 in the Marrickville area. I can remember one house under $30K, with my then salary @ $9.5K. There were many houses in western Sydney cheaper.

      We moved to Brisbane and bought in Fairfield (5 Kms to city) for $23K with my then salary up to $10K. I was a trainee accountant (3rd year).

      Sold the house mid ’82 for $39.5K when my salary (now qualified) was approx $20K.

      I would suggest then one could find a house at an affordable price range, however, now its impossible.

      Even regional centres the prices (whilst significantly cheaper than city prices [just sold Feb 2013 Inverell NSW] are not anywhere similarly affordable compared to 30 years ago. Actually, on that point, bought first Inverell house in ’84 when my salary was $24K for $33K. That house currently on the market for $285K, “worth” probably $250K. It would be nice if my salary had similarly incremented :).

      Cheers

      • gonderb says:

        Sydney median house price in 1978 was $43,200 (http://www.econ.mq.edu.au/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf). Average single full-time *male* wage in 1978 was ~$11000 (figure varies a a lot from start to end of year due to high inlfation period!). (http://www.ausstats.abs.gov.au/ausstats/free.nsf/0/A1790DDFB9AF46DECA25750C0014B77D/$File/63020_JUN1978.pdf), median wage over-all full time would have been even lower than this figure.

        So, using the figures above, the Sydney price/wage multiple in 1978 was just under 4 times. I think my data trumps your anecdotes, so I stand by my assertion! :-)

        PS: Marrackville was considered a sub-par area back then – prices significantly below median. Your earnings were probably about median for full-time earners at the time.

      • JohnsonM says:

        I think its complicated by what is included in each quoted stat gonderb. For example this article was also quoting that the median house price is over 6 times the median income. Yet Sydney is now $650k+ median with a median wage of only around $60k. http://www.macrobusiness.com.au/2013/05/what-is-the-typical-australian-income-in-2013/

        By that metric Sydney is nearly 11 times the median income, and all other capitals would still be significantly over 6 times (thus saying over 6 times is probably misleading as it understates the extent of the overpricing).

        I suspect the devil is with the details though, are you comparing to household or full-time earner income? Are you including salary only or investment income? Are you including the underemployed in your ‘median’ assessment? etc. etc. Most likely all the facts out there are correct depending on what you put into the calculator.

    • “Remember that Adelaide, Hobart, and most regional centres still do have house price / wage ratio’s around where Sydney was back in the 60s (ie 4-5 times).”

      Residex / APM put Adelaide house prices circa $395-435k, which income figures are you looking at which put the median Adelaide income at $79-109k?

      • gonderb says:

        Clsoe enough – still dirt cheap compared to the other cities – average full-tim wage is $72k by the way, plus 9.25% super, plus o/time and bonuses for some. So maybe Adelaide is at 5 x at the moment or there abouts?

        By the same measure, Sydney was at a 5 x ratio for a fair proportion of the 70s, when credit was rationed, regulated, and hard to get in Oz.

      • Not everyone works full time or gets overtime & bonuses. Super can’t be used to pay a mortgage.

        ABS puts ‘Average annual Wages and salaries income’ @ $48k in 2011 (not likely to have increased significantly since).

        http://www.abs.gov.au/ausstats/abs@.nsf/cat/5673.0.55.003

        Using those figures we have house prices at 8-9x incomes, not the 4-5x you claim.

        Even if you used the census figures for household income at $57.5k we still have a multiple in the vicinity of 7x

        http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/4gade

      • JohnsonM says:

        average grossly different to median gonderb…

      • gonderb says:

        To all recent replies – ABS actual average full-time wage stats are here: http://www.abs.gov.au/ausstats/abs@.nsf/mf/6302.0/ Current average single full-time wage is $74kpa, $81kpa including compulsory super. Full time average single total earnings are $77.2kpa, or $84kpa including super.

        You can’t use median household income figures from census etc unless you use the same for your historical comparisons, which no-one has in this discussion. Only the RBA has done that, but you guys don’t like the household income numbers they use from the National Accounts, as they “deflate” the price/income ratio significantly – although I hope that you recognise they are great for historical comparisons if you want to see how the ratio has changed over time using consistent data?

        Yes, median single income may be lower, but we don’t have accurate up to data on hand for that. Super etc should IMO count, as when comparing wage figures today to the 70s, they didn’t get the super back then, and have forgone wage increases between now and then to get the super. You actually can pay your mortgage with your super – you just have to do it at the end rather than as you go (either literally or hypothectically in terms of having lower “other” savings at retirement). The super is still your money and it represents compulsory savings that most people in the 70s didn’t have. As an aside has anyone considered this might be a major factor in the run-up of average household mortgage debt over the past 10-15 years?

        It’s moot anyway, as my original point was around CCs claim that “3 times median single income” used to be the norm. Based on the ABS average figures to median house prices I showed that Sydney has been nowhere near that for 45+ years. If a lower median wage figure is used (which we don’t have), then my point will be made even stronger!

        Other smaller cities may have in the distant past had price ratios as low as CC suggested was “the norm for Australia”, but never Sydney. Given these timeframes pre-date the era of “easy credit” by decades, there must have been other factors at play in Sydney since back then yes? And I think that those are the factors that more recently have been replicated in some other cities and caused prices to rise to what have always been “normal” income ratios when compared to Sydney’s historical housing market?

        But yet still today in some cities, like Hobart and Adelaide, and the majority of major regional towns, house prices are still at income ratio levels as low as Sydney had in the 70s.

      • gonderb, even using your link it has South Australia at $66k (not $74k). You can’t compare the house prices of a specific state/city to the national average income. Just plain deceitful.

      • The Patrician says:

        wow gonderb

        You use average instead of median? (when average is far more prone to skewing-up)

        You use fulltime wages instead of household income? (when less than 40% of the population works fulltime, and falling.)

        Why not just make up a number? it would save you a lot of time and be just as unpersuasive.

        Your fudging won’t wash here.

      • gonderb says:

        @The Patrician – hey suggest you re-read the original article and the comment to which I was responding – CC wrote ““Those who entered ownership toward the start of the lending boom when it was possible to purchase and service a mortgage ON A SINGLE WAGE for roughly 3 times the median income” – so it was CC who started this discussion around using the “SINGLE” income figure, and using median instead of average simply makes my point even stronger, as the median based ratio will always be higher than the average based ratio. Household income based figures, whilst very useful and in fact my preferred measure (as is the case for the RBA), were simply not what CC was talking about.

        Anyway, all I was/am doing is pointing out that CCs quoted above statement has not been true for SYDNEY for 45+ years – ie since well before the “easy credit” era etc. The follow-on point is that cities where this may have been true in the past are now not much more expensive in those terms than Sydney was in the 70s, and many major regional centres are still that “cheap” even today.

        Also you using figures such as “only 40% of aussies work full-time” is hyperbole and much mire like a fudge than data I have used – as it’s an irrelevant figure. Do you think people buying houses might be predominately households with at least one full-time wage earner perhaps? That’s why the single average full-time wage is still a valid measure to use in analysis related to mortgage/housing affordibility.

        So please drop the unnecessary accusations of “fudging”, and try and keep up!

        @Bullion Baron – if the Adelaide average wage is that much lower than the national average, then I partially concede to your point – the price/single income ratio may be more like 5-6 rather than 4-5 then. Still looks incredibly cheap to someone who grew up in Sydney I can tell you. Also again please drop the accusations of deceipt – I am simply trying to counter hyperbole, anecdotes, and BS with actual data and facts here.

      • The Patrician says:

        gonderb,
        Re your accusation of hyperbole
        Hyperbole is the use of exaggeration as a rhetorical device or figure of speech.

        My statement – “less than 40% of the population works fulltime”

        Aus population – 23m

        Total F/T employed persons – 8.1m (Nov 2013) http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0

        The actual percentage is closer to 35%

        Can you please identify what you say is the exaggeration in my above statement? Please link to any data to support your accusation.

      • gonderb says:

        @ Patrician – I characterised your statement as hyperbole, because it attempts to downplay the importance of the single average wage figures in both the context of the discussion at hand and with respect to looking at property valuation metrics in general. The “exagerration” is in suggesting that because many people do not work full-time, that the average wages of full-time workers is somehow less relevant. This, plus your follow on: “Why not just make up a number? it would save you a lot of time and be just as unpersuasive. Your fudging won’t wash here.” is clearly designed to create an emotional response to dismiss all the previous discussion points and data that had been raised. Hence hyperbole.

        Perhaps obfuscation would have been an even better word?

      • The Patrician says:

        I’ll take that as a no.
        Thanks

  9. foreigner says:

    Meanwhile the MSM is getting worried about some “urban sprawl” being caused by the current government, God forbid we build some more houses in Sydney ! we have enough ! /sarcasm

    From SMH:

    The state government’s land releases last year were concentrated on Sydney’s fringe, prompting warnings from planners that it needs to encourage development in built-up areas or risk urban sprawl.


    NIMBY is alive and well :

    Precincts at Wentworth Point and Epping are expected to be rezoned early this year for 6000 more homes. But at least three others, in Randwick, Maroubra South and Mascot, are on hold after community and council backlash.

    Read more: http://www.smh.com.au/nsw/land-releases-on-sydneys-fringe-spark-fears-of-urban-sprawl-20140105-30bwd.html#ixzz2pZJHupzG

    • bobalot says:

      There is nothing wrong in building up density in the inner city areas to take advantage of public transport and existing services.

      Urban sprawl has its own problems.

      The problem is that building up density is being slowed down considerably by NIMBYISM too. It takes months or even years to get approvals to knock down older housing and build apartment blocks. Years.

      There is resistance from councils, heritage spruikers and neighbourhood busybodies.

      We really need “Right-to-build” laws in NSW.

      • flawse says:

        bobalot

        The problem with building up density in inner city and close-in urban areas is that the model is based on an unsustainable economic model. We’ve had massive growth in employment in cities which has been due to a massive expansion of government and their associated lawyers enforcers etc.
        A more productive economy would have a more diverse decentralised population. We cannot continue forever to sell more and more resource assets to foreigners in order to fund inner city dwellers with all their demanded luxuries.

      • bobalot says:

        Note: When I say the inner city areas, I mean between the City and Penrith (West) and from Gosford (North) down to Campbelltown (SW) and Wollongong (SE).

        falwse

        “The problem with building up density in inner city and close-in urban areas is that the model is based on an unsustainable economic model.We’ve had massive growth in employment in cities which has been due to a massive expansion of government and their associated lawyers enforcers etc.”

        I would like some evidence for the myriad of claims you made there.

        “A more productive economy would have a more diverse decentralised population.”

        Why? You just keep making these claims without a single shred of evidence.

        “We cannot continue forever to sell more and more resource assets to foreigners in order to fund inner city dwellers with all their demanded luxuries.”

        Are you suggesting the entire CAD is due to luxury consumption by inner-city dwellers? That’s quite a claim to make. Can you back it up with any proof?

      • md says:

        flawse, “We cannot continue forever to sell more and more resource assets to foreigners.” Why not? I haven’t seen any signs that it’s going to stop. Maybe once there’s nothing more to sell, then it will be a different story.

      • ArchCC says:

        I’m going to back flawse claim that “A more productive economy would have a more diverse decentralised population” by pointing to Germany’s highly productive and dynamic SMEs, their Mittelstand.

        60% of employment in Deutschland is in SMEs. These provide provide almost 85% of all trainee positions. The huge number of companies and resuling competition drives innovation forward. These companies are indeed spread all around the country.

        From the combined effects of the AUD deep-fryer, high land prices/rents, and the death of the Aus auto industry, we will soon have absolutely no equivalent to the Mittelstand.

        Our only SMEs will be those installing PV panels manufactured somewhere else onto roofing iron manufactured somewhere else plugged into an electricity grid owned by someone else, and the like.

      • flawse says:

        bobalot

        I’ve reasoned this out in some detail in these pages. I don’t have time always to go back to the urban theory.
        Simply on the economic front there is no point in bringing more and more people here and parking thenm in capital cities building more and more infrastructure, houses, retaurants, shopping malls, government etc all of which has to be paid for by the sale of resource assets to foreigners with the savings to pay for it all.
        How the hell does that make any sense??????????
        Not ALL the current CAD is due to that NO! However this CAD is running now for 54 years straight bar one minor surplus in 1971 (from memory) After ALL THIS TIME in the middle of the greatest boost in terms of tradxe ever we are now heading back towards 6% and likely to get here soon enough and maybe a lot worse. What the hell good is that?
        If we were not wasting much of the foreign capital that has poured in here how come we are not running surpluses, buying some of our own nation back for the benefit of future generations? Now your proposed solution is to bring more people here park them in cities and do what? How will they not add to the CAD and resultant asset sales?

      • Lori says:

        “How the hell does that make any sense??????????”

        Flawse, it make sense for many, when we are expected to “eat and consume” our house’s equity for the economy to grow. How does that make sense?

  10. jdliveuk says:

    A prediction of a revolution by young Aussies is absurd. They are quite happy living at home with their Mum and Dad and posting pictures on Facebook.
    They will be quite happy trying to save a house deposit, realising it is impossible, then blowing it all on an overseas holiday.

    • RRichard says:

      Exactly. An entire generation of overaged adolescents. Dating in Australia is terrible with everyone confined to a single friendship group based on which high school they went to.

      • JohnsonM says:

        I’m 29 so I consider myself a young Aussie. I have no idea what either of you are talking about. I moved out at 17 and I only know two people from my high school now. I actually don’t have a single friend who lived with their parents after they finished uni (although I’ve heard some friends of a friend).

        Stats might convince me otherwise, but the anecdote don’t fit with me.

      • drsmithy says:

        Exactly. An entire generation of overaged adolescents. Dating in Australia is terrible with everyone confined to a single friendship group based on which high school they went to.
        Given how much easier it is to move around these days, especially internationally – seen in the massive exodus amongst young Australians to other countries – that sort of statement doesn’t even pass the laugh test.

  11. Bigdevo says:

    2 years is all it will take for property to imploded. We will crash and burn like every other easy credit addicted country that has busted. Anyone under 30 do not put yourself in 40 years of debt it’s not worth it. The rental market will crash and burn too much supply not enough demand.

    • md says:

      “We will crash and burn?” I wish you were right, but one government after another have taken measures to ensure this won’t happen. If Australians can’t afford ridiculously high prices, we just bring in more immigrants or sell out to foreigners who are happy to pay these prices. That’s exactly what’s happening now, and will continue.

    • Chester says:

      Big fella,

      “too much supply not enough demand”

      Australia hasn’t just appeared.

      Rates of immigration and foreign money are very high with no end in sight. There has been a changing of the guard. What this country was for me, everyone got a go if you had a go, is not what it will be for you.

      Get yourself a piece of land, son. Anywhere and anyway you can.

      • Bigdevo says:

        Chinese buy in select suburbs migrants buy in whoop whoop. Piece of land pfffft a ponzi scheme on the brink rates water gas all going up rents not moving mmmmm prices stagnant capital loss but Mr real estate you said it was easy. I’ll just keep renting 1mil this 3bed for $480. If you put up the rent up I’ll move next door. I have never seen so many places for rent. Good luck.

      • Chester says:

        Here are the numbers bigdeva. Ratio of Additional Resident Population in Australia to Houses and Flats built (ABS stats):
        1982 : 2.22
        1983 : 1.57
        1984 : 1.16
        1985 : 1.33
        1986 : 1.85
        1987 : 1.92
        1988 : 1.51
        1989 : 1.73
        1990 : 1.91
        1991 : 1.62
        1992 : 1.2
        1993 : 0.88
        1994 : 0.91
        1995 : 1.47
        1996 : 1.77
        1997 : 1.38
        1998 : 1.2
        1999 : 1.22
        2000 : 1.55
        2001 : 1.66
        2002 : 1.24
        2003 : 1.27
        2004 : 1.25
        2005 : 1.56
        2006 : 1.79
        2007 : 2.36
        2008 : 2.83
        2009 : 2.97
        2010 : 1.88
        2011 : 2.02
        2012 : 2.53
        2013 : 2.44

      • Bigdevo says:

        Nice numbers.

        What’s you’re point?

        Poor Indians will keep the bubble from popping?

    • FHB says:

      +1
      Your comment about indians is right on the mark.
      There is 2 houses next to my grandmas with about 4 indians living in each. They are not creating a demand, they are just living as they did in india.

  12. Ortega says:

    The article is predicated on the assumption that house prices in Australia will remain forever at their current highs, or continue their exponential rise.

    Prior to last year, we had 2 years of falls.

    We have very, very short memories.

    • flawse says:

      Yes Ortega and the RBA has learned its lesson. High and increasing house prices are RBA policy. Nothing else matters.

    • interested party says:

      Ortega,

      something to consider is that the RE is priced in dollars…….which are being created at obscene rates. So is it RE rising in perceived value?…. or is it the value of the currency that is falling?……………….maybe RE is just a symptom of a far greater problem. I suspect you know the answer, as do most here.

      • md says:

        Whether it’s perceived value or falling currency doesn’t matter all that much. The fact is that housing is unaffordable by all measures, and certainly much harder than ever before to get onto the ladder. And the other fact is that it is all due to government policies which created this bubble and prop it up.

      • interested party says:

        No argument here.
        No pollie will change the direction, you don’t bite the hand that feeds you.

      • Ortega says:

        No indeed. You don’t bite the hand that feeds you.

        But we mustn’t forget that despite what we may wish, the hand remains to a great extent, and despite all interventions, largely invisible, and will soon wrap itself around our pollies throats.

        Dance while the music is playing.

        Dance with wanton extravagance.
        ;)

      • AB says:

        “But we mustn’t forget that despite what we may wish, the hand remains to a great extent, and despite all interventions, largely invisible, and will soon enough wrap itself around our pollies throats.”

        Yes, I do laugh at the cognitive dissonance of those who continually bemoan the quality of our politicians and bankers whilst at the same time believing that said rulers are capable of keeping our housing bubble permanently inflated.

  13. dam says:

    As Brit she is well aware of the path we are following, haves and haves not, those who missed the boat, are missing it forever.

    2014 is going to be much of the same, supply is not increasing, immigration is crazy high, their nowhere but property to invest, the Chinese wall of money is only getting scarier, rates are low and could even lower this year.what ever the economy does, prices will be rising, I dont know were is the price ceiling but we are not there yet, by a long shot ( unless pollies get their fingers out of their ass, which is even as unlikely as property being affordable).

  14. TheJoneses says:

    + 1

    My New Year resolution is to shout this message from the rooftops.

    Every MB reader should be sharing these kinds of thoughtful, well argued articles via Facebook, Twitter etc.

    • SaCo says:

      What! Become a pariah at every barbecue? I’ll side with Reusachtige’s stance. We need to cheer the higher prices on. Up up. Build less. Speculate more. It’s for the common good.

  15. boomengineering says:

    I may be the odd one out here but what I see is a two speed Sydney housing market.
    While most people are blinded by the high price headlights artificially driven by investors and Chinese,
    I see the real unseen market travelling in the dark in the opposite direction since late 2013 looking for intrinsic value.

  16. Escobar says:

    Sweeper

    That’s what I’ve been concluding – that excess money (or ability) to borrow ends up in (best dressed) housing somewhere around the world.

    I guess Sydney is our New York.

    • kodiak says:

      Sydney is more expensive than New York in virtually every way without the experience of actually living in one of earth’s great cities.

    • flawse says:

      Escobar
      This article is relevant to your observation

      Brian Pretti: The World’s Capital Is Now Dangerously Boxed In

      http://www.zerohedge.com/news/2014-01-05/brian-pretti-worlds-capital-now-dangerously-boxed

      • Escobar says:

        Flawse

        Thanks for that.

        I feel for the Europeans if they install a deposit tax. I always thought it should be a borrowers tax or levy.

        Anyway, with that aha! moment about money pouring into economies that are viewed as “safe”, I now need to work out how to protect myself.

        The smart /able guys would move between currencies until they’re ready to buy into housing (when it meets their criteria of bottoming – I guess)

      • flawse says:

        Depositor’s tax…it just goes to show the powers either don’t have any idea of the real problem or don’t give a RA and we have deteriorated quickly and totally into facism with the sole aim of looking after corrupt ignorant bankers.
        Damned if I know.
        Being ahead of the property market is a bit hard. There is a bloke called Nadeem Walyat who has this site who has been pretty on the money re UK and US. Might be worth reading.
        http://www.marketoracle.co.uk/
        Other than that my son is pretty good! :) However his opinions are not available. He’s been into Irish property for a year or so. Got in when it was really beaten down and already ahead 15% or so. He’s a quantitative type…and good..they print money he works out where to buy! So I’ve had to instill some fear of the catastrophic failure of the market mechanism!
        Right now, as far as property goes he has no particular recommendation. Problem is you have to have the currency movement and the property movement both right. He thinks Aus property, particularly Gold Coast, might be good for a few years. However A$ might be another matter. I think, like me, he favours US property but it is much harder to leverage than UK and Ireland from where he is in London.

      • Escobar says:

        Flawse

        Perhaps an EU depositors tax means more inflows for Australia.

        If our government can resist the tax take.

        Also just read on money morning that they think qe and low interest rates and stimulus are here to stay for up to 20 years.

        It’s kind of what I think. Any dip in the economy won’t be tolerated.

      • Turnitup says:

        I tend to agree with escobar

  17. margsview says:

    The article was fine as far as it went but the darker cloud and questions persist, as to how ‘too big to fail investment banks’ that plague the global system with derivatives run amok can be stopped (under directed governmental support) from derailing the entire financial system again through ‘bail-ins; and ‘safe harbors’ to get at siphoning public monies at will? Particular banks which feel that since no criminal laws for fraud were applied rightly to them for the recession, that they now have immunity. Proof lies in the fact they have continue to gamble recklessly and now some have set their greed on using banking funds to purchase utilities, airports and other public venues to extract ever increasing profits for each and any of these services. Withdrawal?

    • md says:

      We can be absolutely certain that the government will support anything that causes real estate prices to rise. They need the banks to prosper. The banks know which side their bread is buttered on, and will continue to do what brings in the most profit. The average Aussie is way down the list, or should I say, not even on the list of any form of consideration, except how to screw him/her. It’s probably always been that way, but I am guessing it’s far worse now than ever before.

      • flawse says:

        Hmmmmmm md
        I think your cause and effect is a bit mixed. For the Banks to prosper they need RE to BOOM! Therefore the Banks will tell the Govt what they require and the Govt will do their bidding.

  18. sydboy007 says:

    It amazes me every time I hear the corporate sector bemoaning Australias’ high cost status and calling for something to be done that they never mention RE prices or rents.

    Considering how the overvalued property in this country is crippling the economy I find this funny, in a tragic comedy sense.

    Abbott must have been channelling Howard when he was backing up Ponzi Joe last year with his “Don’t forget … if housing prices go up, sure that makes it harder to get into the market, but it also means that everyone who is in the market has a more valuable asset,” he said. Acknowledging who votes for him and the rentier class he needs to keep on side.

    Throw in Ponzi Joes’ “Rising house prices actually help to make marginal property development viable. There is a shortage of supply out there and what this will do is make supply more readily available,” and this is the guy who thinks he can be treasurer. Ouch. head meets wall one too many times.

    I don’t see anything getting better any time soon with L.iberal attitudes like the above, not that Labor has shown any interest in the issue

    • md says:

      Both Labor and Liberal are as bad as each other. Actually, on second thoughts, Rudd was the worst of all. He went over the top in reinflating the bubble, causing pain and misery for years to come. His policies of mass immigration and unrestricted foreign investing are still in place and nothing’s going to change there for a long time, if ever. And it was Rudd who enabled the use of SMSFs to be leveraged into property. Not to mention bringing forward a whole lot of FHBs and encouraging them to bid up prices with the tripling of the FHOG. Then there are all his other policy failures unrelated to housing like pink batts, school halls etc. Gillard then lurched from one debacle to another – a total failure. Sure, Abbott and Hockey are all for a housing bubble, but what politicians aren’t?

      Catherine Cashmore for PM!

      • ArchCC says:

        And it was Rudd who enabled the use of SMSFs to be leveraged into property.

        I thought that particular piece of genius was one of Howard’s last acts… but I’m happy to be shown to be wrong.

        other policy failures unrelated to housing like pink batts

        Pink batts was not a failure: the aim was to put money into a reasonably labour-intensive activity to pump up economic activity in the short run, with some longer term efficiency gains in the process. It worked on both scores.

      • md says:

        Sorry, ArchCC, I thought it was Rudd, but I searched for more info and now it seems it was indeed Howard. The water is a bit muddied because the rules were amended a few times. Maybe someone can clarify?

      • TheJoneses says:

        Choosing between Libs and Labor in an election is equivalent to judging a Beauty Contest on a leper colony.

        Both parties automatically go to the bottom of my preferential ballot list.

  19. pithoneme says:

    As many others have already noted, there is no end to this until it literally falls apart.

    The period after October 2008 offered us our best chance ever of reeling in the worst excesses of the banking/finance and real estate sectors. There was a legitimate villain to be made to turn a critical mass of public perception in favour of much tighter regulation and removal of taxpayer largesse. This opportunity was missed, and ever since the FIRE sector has redoubled its efforts to ensure it will survive a long, punishing political battle against any moves to put it back in its box. This sector and its political puppets are just simply NOT going to let the price of residential housing normalise, they will never yield to a slowdown in earnings growth.

    So this is how it will continue to play out, as scripted by the banking oligarchy.

    - two income earners, with two children both in childcare, will be the new culturally entrenched norm.

    - any shortfall in population growth to be compensated for by increased immigration intake.

    - land supply will continue to be rationed to maintain prices.

    - purchasing power of domestic investors will be maintained by existing incentives in the taxation system.

    - pressure on taxation revenue to be alleviated by privatisation of most services.

    - all existing public infrastructure to be privatised, no government funding of new infrastructure.

    - any shortfall in purchasing power by domestic owner occupiers will be compensated for by access to superannuation.

    - any subsequent shortfall in new domestic buyers will be compensated for by increases in individual foreign buyers.

    - any subsequent shortfall in individual foreign buyers will be compensated for by increased purchases by domestic super funds.

    - any subsequent shortfall in domestic super funds will be compensated for by increased purchases by foreign hedge funds.

    - any subsequent shortfall in foreign hedge funds will be compensated for by increased tax incentives to foreigners.

    Eventually it all falls apart, by which time the smart money has moved elsewhere, the poor are bailed in to protect the rich, and we are tenants in our own country. It always happens this way.

    • squirell says:

      agree for the most part. the only exception is if govts succeed in doubling population over the next 30 years without much land release – then current price per square metre may be justified as an existing block of land will be supporting more dwellings and therefore paid for by more incomes.

    • Rusty Penny says:

      the poor are bailed in to protect the rich, and we are tenants in our own country. It always happens this way.

      That’s why violence serves a legitimate, and even noble, purpose.

      Hence the continued emasculation of the main perpetrators of violence. I don’t thnk it will be enduring however.

  20. squirell says:

    i see a number of possibilities:
    1) despite govt policy to inflate, the bubble simply pops due to the market finally reasserting itself. This may occur sooner or later.
    2) govts succeed in doubling our capital city populations over the next 30 years and this keeps demand high enough to justify existing LAND prices. Although MEDIAN HOUSE prices cant beat incomes forever (incl from overseas), if twice as many people live in a city and we only release 20% more land, people will live more and more on subdivided sections/townhouses/apartments. a sad omission missing from a “median” house proce comparison with the past is the change in the median house. Perhaps 10 years ago it was a 600sqm block 10 k out of Melbourne. Now it might be a 300 sqm townhouse 20ks out. People may still be able to afford to house themselves, but they are getting less and less land for their money.
    For me this is the worst case scenario as it provides a sustainable basis to crazy prices and a continuing reduction in living standards.
    3) as Catherine suggests, the disaffected organise themselves and exert political pressure. This can happen quicker than we think, eg look at NZ but even there prices are on the rise again as change is slow and eve those with the right intentions can be misled by vested interest propoganda. However, if real change occurs to restrict immigration and change inflationary tax laws then the property market will implode. … personally i wont hold my breath for this, even as we outnumber boomers there are many in GENY and Z who can be easily manipulated by parents, FIRE propoganda etc.

  21. Jackson says:

    RP’s Mr Robert Larocca needs a lesson in basic statistics. “A vast swath … can be bought below the median price”. 50%, actually, Mr Larocca.

    A whole generation are eyeing off their parents, uncles/aunts and grandparents trying to work out when a death in the family will finally allow them to realise the dream of home ownership. It is ridiculous.

    • md says:

      +1, unfortunately.

    • Mining Bogan says:

      That just proves to me that we have three generations in this country who don’t know how to enjoy their short stay on the planet.

    • dumpling says:

      “A whole generation are eyeing off their parents, uncles/aunts and grandparents trying to work out when a death in the family will finally allow them to realise the dream of home ownership. It is ridiculous.”

      Did we already reach that stage? Then it won’t be long before the likes of “99 year loans” and “3 generation loans” become the new normal.

      How far can the insanity go?

      • flawse says:

        dumpling…so far there is just a few of us going mad. It can go on until the whole madhouse gets set ablaze!

      • TheJoneses says:

        Friend of mine is 50 y.o. and he says he repeatedly gets offers to take out 30 year mortgage on investment property.

    • Turnitup says:

      So true. And sadly, human nature being what it is, when most of the people currently screaming do inherit a place, all of a sudden they won’t be screaming anymore. They will gently slide out the side door onto the deck, open a beer & bask in their good fortune. It sucks, but it’s true.

  22. abelsee says:

    To Bubbly and others,

    Working on a sub to Senate Inquiry Affordable Housing 2014. Help yourselves, use any of it.

    Nothing original, I just cut & pasted some lead paragraphs, then made comments.

    Anyone doing a submission can use this simple format:
    1. Introduction, include main factors you see affecting affordability;
    2. Choose topic(s), eg. negative gearing, foreign investment;
    3. Summary – if more than 4 pages;
    4. For each topic, quote paragraph(s) from other source or earlier Inquiry;
    5. Make a comment;
    6. Make recommendations;
    7.Submit

    Here is excerpt, with topic ‘Tax System Facilitates Speculation’, help yourself to any part:

    To Senate Standing Committees on Economics
    Affordable Housing Inquiry 2013
    Name and address: withheld

    Dear Sir/Madam,
    Thank you for accepting this submission to the Senate Inquiry into Affordable Housing.

    INTRODUCTION
    An Inquiry into affordable housing is really an inquiry into affordable land.

    A fairly priced market in housing and land will only exist if it is protected by a regime of inter-governmental agency checks and balances. These balances limit opportunistic and self-interested manipulations by special interest groups.

    Had recommendations of previous housing affordability Inquiries been adopted, it is likely this issue would not be the subject of this Inquiry today. It can be argued that a lack of political will to enact policy revisions is holding back reform.

    High land cost is not only a hurdle to those starting out in life wanting to buy a home but imposes drag on the wider economy. The high cost of land is one the main factors for the decline in vitality of the manufacturing segment of the national economy.

    The current distortion in the price of land has multiple causes.

    Much as squeezing a balloon simply causes deformation but no loss of volume, attempting to address this multi-dimensional affordability problem in a piecemeal manner will prove ineffective. To slowly deflate land cost, and make sure it does not inflate again, requires that all facets of the problem be tackled simultaneously.

    To bring the cost of land to an affordable level therefore requires a whole of government approach – Federal, State and Municipal.

    This is the 3rd Inquiry in 10 years to directly look at housing affordability. After reviewing the work of earlier Inquiries and other literature, it is difficult to believe this matter is being taken seriously. The reasons for political reluctance in not addressing inequities within the system need to be explored.

    The previous two Inquiries related to affordable housing issues are:
    1. First Home Ownership Report, Productivity Commission Inquiry, 2004
    2. A Good House is hard to find Report, Senate Select Committee on Housing Affordability in Australia, 2008

    SUMMARY:
    - Government policies are negatively impacting on land prices – the current tax regime facilitates property speculation, land supply policies do not match demand, lax lending standards are only casually supervised, a Claytons policy of rapid population growth is not being matched by infrastructure and services – all of these policies need to be revised;
    • Government needs to articulate a Population Policy;
    • There is an annual cost to government in terms of: tax exemptions for home owners ($36B) & generous tax losses allowed property ‘investors’ ($7B); collateral damage to business with higher start-up and running costs;
    • Tax system facilitates speculation and needs revision – poorly targeted negative gearing and Capital Gains Discount allowances, misuse of speculative Interest-only Loans and highly leveraged Equity Loans for existing property;
    • RE industry is in need of greater accountability – what is the role of lobbyist, time to ban the nonsense of vendor bids, reduce excessively high sales commission down to 1%, sales data to be made public as is the case of share prices, proof of Australian citizenship or visa status needs to be shown at sales;
    • Allowing Temporary or Student visa holders to buy existing dwellings needs to be explained – how exactly does such a sell-off help housing affordability;

    TAX SYSTEM FACILITATES SPECULATION
    The current tax system has effectively turned shelter into a speculative commodity.

    Tax regulations seem to be designed to increase the trading temperature of the market. The elements of tax policy that seem to exacerbate land prices include:
    • allowing negative gearing to be claimed on existing dwellings;
    • generous Capital Gains Tax discount;
    • allowing speculative Interest-only Loans and highly leveraged Equity Loans to be used for purchase of existing homes;
    • access to high Loan to Valuation Ratios across the board

    Negative gearing, supposedly designed to promote new construction, attracts only one dollar of every twenty dollars in investment loans. In other words, the other 95 percent of negatively geared investment loans are used to buy existing dwellings. This does little for construction activity, offers investors a tax advantage to outbid other buyers at sales, and creates more systemic debt into the bargain.

    Allowing negative gearing to be claimed for purchase of existing dwellings is inflationary in effect.

    Any change to the treatment of negative gearing would need to also apply to shares. For example, only new shares bought at Initial Public Offering issue would be eligible.
    —-
    LIST of Recommendations:

    1. Government draft a Population Policy so as to properly manage resource and administrative issues which includes housing and urban development;
    2. Allow negative gearing claims for new construction only, apply grandfathering provisions to negative gearing for existing dwellings;
    3. CGT discount, as recommended by AFTS, move to “more neutral personal income tax treatment of private residential rental investment . . through a 40 per cent discount on all net residential rental income and losses, and capital gains”;
    4. ABS publish data related to land price inflation as part of the CPI;
    5. Commission a study into land-banking, urban planning and the role of Government in facilitating affordable land releases;
    6. Legislate that SMSFs only use full recourse loan arrangements on low LVR;
    7. Ban the use of Vendor bids at property auctions;
    8. Mandate that property sales commission be set at maximum of 1 percent;
    9. RE agents update a government website designed to capture property sale price data and this data is made publically available, as are share prices;
    10. Proof of Australian citizenship or visa status to be lodged at all sales;
    11. FIRB publishes data on all sales to foreign buyers of residential real estate;
    12. Appropriate government Minister to appear before the Senate and explain how allowing Temporary residents & foreign Student visa holders to purchase existing residential real estate improves housing affordability

    (end of submission has a reading list)
    Help yourself to any of the above. Bury the Inquiry in submissions. More fun than voting.

    How to make a submission to the Senate Inquiry –
    http://www.aph.gov.au/Home/Parliamentary%20Business/Committees/Senate/How%20to%20make%20a%20submission

    • tetama says:

      I wrote the following on 15 October 2013 which you may find useful for your submission. I like what you wrote and am always reluctant to make suggestions but given the importance of what you are doing thought I should point out that I feel that supply is the number one issue, and land tax is the number two issue. These two things stop land prices increases and in fact send them in a deflationary spiral, and shows that not need to fix many things to bring it back into correct operation. If supply restrictions on “inelastic” land will not be lifted by govts, thus increasing prices to ridiculous levels (which is financed by banks making obscene profits), then the land price increase that will occur because of demand (ie low interest rates, FHOG, immigration, negative gearing, etc) should be grabbed by the govt in land tax ie they take “all” the land price in land tax so stopping the market putting any price on land because the govt gets it ie land price goes to nil under these two methods. Philbest has a lot to say on supply and David Collyer of Prosper Australia has a lot to say on land tax

      Good luck

      http://www.macrobusiness.com.au/2013/10/in-new-york-hockey-defends-housing-bubble/#comment-287413

      My words originally were

      “If I could control only two things they would be land supply first and land tax second. As you know, if there are no restrictions on supply then the price for the raw land will be zero or close to it. If there is a supply limit, so that this capitalises into a land price, then use the “Henry George” model to land tax away the gains to the govt from the landholder. After all, it is the community that created the land value and not the landowner, thus land tax returns the gain to the community. This thus reduces the price of the land that landholders would be willing to pay for given that the govt takes the value away.

      No high land price, then credit offered in the banking system reduces in a major way given the land prices are so much lower. Reduced monopoly rent seeking”

    • TheJoneses says:

      That is brilliant.

      +1000000

    • TheJoneses says:

      I believe the NSW govt has a program which actually pays people to move to regional areas. It used to be restricted to home buyers but I think now it also applies to renters. Should be a win-win. Less stress on capital city house prices , population growth and economic opportunity for rural towns.

      I think something like this needs to be considered on a NATIONAL scale.

      Would like to see some discussion of this idea on MB.

      • JohnsonM says:

        Don’t need cash to get us to move, need jobs.

        If i could work in a regional centre I would have moved years ago. $10 or $20k of government grant wouldn’t make a scrap of difference to my decision because what the hell is $10k without a job with it? Right now I have several hundred k of incentives through lower house prices and I still am not taking that incentive without the job.

        If the grant was in the form of a free house I’d probably move and bum off centrelink though ;P

      • TheJoneses says:

        I agree that for most people, a relocation grant will not be a decisive factor. But for some people e.g. “tree-change” retirees , a government cheque could tip the decision to move.

        Relocating house is a troublesome and expensive business so if Fed Govt picked up the tab it would help sell the proposition.

  23. flawse says:

    Thanks abelsee Some really good suggestions in there!

  24. Nudge says:

    Well that gives me something to chew on. Thanks Abelsee!

  25. Chester says:

    abalsee,
    Say the policy was to generate 2 million incomes of $100,000 from exports.
    If we used 50% imported inputs, to get that we would need the following export sales at particular prices being a particular % of world population:
    $100,000; 4,000,000; 0.05%
    $10,000; 40,000,000; 0.5%
    $1,000; 400,000,000; 5%
    This is the challenge.
    Of course if our population grows at a faster rate than the world the harder it gets. It’s just maths.

  26. AK says:

    All this just confirms that the government is the enemy of the young (both sides of politics). There won’t be a revolution; most young people I know side with labour and don’t even realise what Rudd did to increase property (the super changes, fhbg doubling, foreign investment relaxation for local housing, and more all at once to screw the young australian). They are more busy thinking about asylum seekers, the nbn, better health and education (health favours the old, education in teachers salaries just takes money away from state infrastructure) and most are pro migration and refugee when in reality they are the ones to suffer most from population increases and lack of infrastructure into new housing estates (they are the ones starting families).

    In other words most of the young are voting for this outcome they want this fate and theres far too little common sense anymore.

    • md says:

      You’re right, AK, though most people in general, not just the young are not aware of what Rudd did to increase property prices. The young would no doubt see Labor as being more aligned to their interests.

      However, if someone (like Catherine Cashmore) was to get into politics or Gunnamatta (both have expressed an interest in the possibility) then maybe young people might open their ears and listen.

      I just had a thought – those who can get up and speak about housing unaffordability really needs to go and speak at the universities, and explain the whole situation.

      “In other words most of the young are voting for this outcome.” We’re all guilty of that as there hasn’t been a choice. We had to vote for a housing bubble or a housing bubble so it wasn’t as though any change was going to result from the last election.

  27. flawse says:

    AK
    In the last Scientific American they had an article on the subconscious mind. They reported an experiment where (young?) people in the US were shown photos of political candidates from other states of whom they would have no knowledge and were asked to predict the election outcomes. They were shown the photos for about the time it takes to blink your eye.
    Suffice to say the predictions of those shown the photos for a fraction of a second were pretty close to the actual results.
    Scary! What’s the use of complex political, economic or social argument?

    • AK says:

      If what you say is true then we know who will win this; and it isn’t future generations that’s for sure. People are their own worst enemy. What you say unfortunately confirms my suspicions of most people.

      How easy it is to control people who are that simple in forming voting opinions and judgements? Do we vote really subconsciously based on who we think is “cooler” and “more in tune?” rather than who is right and cares? Probably.

  28. Hugh Pavletich says:

    Great work as always Catherine…

    BIG QUESTION … what is coming down the track from China to Australia this year ? …

    Note Item 1 at todays Interest Co NZ and items within the comments thread …

    http://www.interest.co.nz/opinion/67944/mondays-top-10-soros-worries-about-china-comparative-advantage-myth-bond-pressures-emo

    Hugh Pavletich