Sydney speculators continue to eat their young

ScreenHunter_844 Jan. 15 17.18

By Leith van Onselen

As noted earlier this week, Monday’s Housing finance figures for November, released by the Australian Bureau of Statistics (ABS), revealed a continued  blow-off in investor demand, with investor finance commitments rising by 1.5% in November, 35% over the year, and hitting the highest level on record (see next chart).

ScreenHunter_761 Jan. 13 12.12

Yesterday’s Lending Finance release by the ABS provided a break-down of investor mortgage demand at the state and territory level, which revealed yet another increase in New South Wales (read Sydney) investor mortgages, which are also driving the blow-off nationally (see next chart).

ScreenHunter_845 Jan. 15 17.39

According to the ABS, investor finance commitments in New South Wales rose by 35% in rolling annual terms in the year to November 2013, well above the national average increase of 23%.

Further, as at November 2013, investors accounted for a whopping 51.5% of total housing finance commitments (excluding refinancings) in New South Wales, which is the highest share since September 2004 and well above the experience of the other major capitals (see next chart).

ScreenHunter_846 Jan. 15 17.43

And with investors so active, first home buyer (FHB) demand in New South Wales has collapsed, with FHBs accounting for just 9% of total finance commitments in the year to November 2013 – an all time low. FHB demand has also collapsed in Queensland, although investors are less active there and Victoria is heading the same way (see next chart).

ScreenHunter_847 Jan. 15 17.45

The divergence between New South Wales investors and FHBs has also widened once more, hitting a new record in November (see next chart).

ScreenHunter_848 Jan. 15 17.47

Sydney clearly remains a speculators market, with first home buyers kicked to the curb.

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60 Responses to “ “Sydney speculators continue to eat their young”

  1. PhilBest says:

    The malinvestment in apartments rather than proper houses is another aspect of this grossly distorted market.

    • Jake89 says:

      Not sure I agree there Phil. What’s your reasoning?

      • hamish says:

        I’d agree with Phil there, whilst nothing wrong with apartments per se, most people prefer detached houses to live in, whereas apartments are preferred by investors, and the big increase in apartment construction compared to houses I think reflects these investor finance numbers.

      • Jake89 says:

        I like houses too but I also like being central, near friends and facilities. Commuting in Sydney is not much fun. With the rise of the independent, single Gen x and Y, who are opting for smaller families, or to live solo, and extend the time before they decide to settle down, more apartments are needed. I feel that this is a growing trend

      • pingupenguin says:

        Nothing wrong with apartments per se. However the shitty dogboxes we build here are not livable and aimed purely at investors.

        I would be quite happy living in a well constructed central apartment block with my family if it was possible to get 3 bedroom large apartments that were not penthouses that cost as much if not more than a house anyway.

        When I see how apartment living can look in parts of Europe compared to the shit we have in this country I am not surprised people prefer freestanding houses here.

      • Neville Gearless says:

        Kind of perverse having over construction and housing shortage at the same time. Only in Australia (and Ireland)..

    • thomickers says:

      Nothing wrong with apartments. Just that they are also too expensive

    • Powermonger says:

      The problem with apartments are they are proliferating rapidly, cost too much, poorly made and just cause the price of detached housing to rise even further.

  2. Lef-tee says:

    Very sad. Appalling is probably a more accurate word to describe the situation. Still, I’m a bit doubtful of meltfund’s argument that prices will just continue to grow strongly long after it is brought home to the average Australian that their children and grandchildren will never have a home of their own. Many people still haven’t realised or don’t believe this is the trajectory we are on. The more people understand that their offsprings future is being crushed into the dirt, the more politically untenable the situation will become. The reaching of a critical mass that leads to action could be quite a ways off yet though and until such a time, investors will probably continue to roll in clover.

  3. aj. says:

    Well Syd is a nice enough spot, but it is rent-seeker central. As i’ve commented before there is a certain paradox in a city that survives by financial rent-seeking complaining about property rent-seeking.

    Perhaps people that don’t like it should just go live somewhere else.

    The curse of the country is that Sydney disease has been exported to the rest of the country under the watchful eye of our chief financial rent seekers. Perhaps the rest of us should just seal it off, and it can live in its own financial bubble.

  4. LBS says:

    And the govt just sits there doing nothing about this. Probably because they all have investment properties….. ….. Very sad.

    • flawse says:

      LBS The government is doing a lot about this. They are bringing migrants in to feed the system. More migrants is the key to growing GDP. In addition it is RBA policy. If all this was obvious to a stupid old ex-bushie the RBA must have had this well tagged. So the lowering of interst rates was designed to set this all in motion.

    • emess says:

      Well, of course they could go back to the days when State Governments had large housing departments which developed great tracts of land for low cost housing. This used to cap prices to some degree and also meant that developers could not drip feed land onto the market, or blame government for excessive prices. In SA, for example, the Housing Trust under Sir Thomas Playford (Liberal) was ruthless in constructing whole suburbs and even towns for low and middle income home owners. Developers were left to compete at the high end and in the middle if and only if they were prepared to meet the lower prices of the Housing Trust.

      And prices were consequently much much lower for all classes of purchaser as a result of this imposed competition.

      Furthermore, that meant that both governments and the informed public knew how much infrastructure cost, and developers could not bullshit people with claims of high infrastructure costs justifying crap land prices.

      However, to get back to that sort of Government action would take more than a few armchair economists with an over inflated view of market efficiency to admit they were wrong. As if!

  5. Jake89 says:

    Cheers Leith, pretty incredible charts.

  6. DarkMatter says:

    May I suggest that the title of this post should be changed to -

    Sydney speculators continue to eat Other People’s young

    Part of the whole tragedy we are seeing has at its root the observation that people often do things of dubious ethical value – justified by the idea that they are helping their immediate family. Its human nature.

    If you challenged a speculator most likely they would say they are doing it for their kids – its up to other people to look after their own. Dog eat dog, tragedy of commons.

    Getting a consensus on the notion that we should try and help our society as a whole would be seen as socialist and impractical. Just check out the web site of our new friend Meltfund – self interest is king.

    Speaking of the great man, Meltfund may favour us with a visit sometime today. Perhaps he has some poetry for us or a little bit more information about his large financial testicles. We can only live in hope.

    • Powermonger says:

      Good observation. I have quizzed a few multiple IP speculators and they are all oblivious to the fact their actions cause social harm. All they see it is a way of improving themselves and being financially responsible, they have no comprehension that many people repeating the same behaviour turns what seems like a noble idea into a cancer on society.

      It’s a bit like a fractal picture, one individual creates only a small part of the greater picture and looked closely looks rather simple and unobtrusive, but repeat the same behaviour again and again with other investors and you end up with quite a large beast that causes problems, all made up of individuals oblivious to the other but moving together as a whole.

      • Mining Bogan says:

        For someone to know they’re causing social harm they must first have a social conscience, something that is sadly lacking out there.

        There is no sense of community anymore, more a sense of conflict. Everything is a game to be won and grinding the vanquished foe into the ground makes the glass of red taste better at the end of the day.

      • AF says:

        I agree, I have a friend that was proud that she had bought a place on the central coast and that, because she has “Sydney money”, she won the auction against the single mother trying to buy a flat to raise her kids in.

        So sucks to be the single mother trying to put a roof over her kids heads and provide a home for them to grow up in!

        Self interest if king

      • Lef-tee says:

        I think you’ve summed up the situation quite neatly there Powermonger.

      • Lef-tee says:

        @AF – I think I would find myself a new friend.

    • Escobar says:

      @Dark & Power

      Obviously. Common knowledge.

      But had to be said.

    • N.C. says:

      Nah – they’re eating their own young, even if they don’t know it.

      I wouldn’t change the title… but I would make sure we’re clear about something here – when we’re talking about speculators and investors, we’re talking about our landlords. And they do alright.

      I’m just going to throw this one out here again, for kicks: http://tunswblog.blogspot.com.au/2013/11/three-ways-to-pay-and-locked-out-twice.html

      • hamish says:

        Aren’t their young stuck at home eating their food, and their retirement, when they eventually have stump up a heap of their money to “help” their kids into a mortgage to get them out of the house?

        I think it’s the finance sector eating everyone else’s lunch, then pointing their finger at a boatload of reffos and saying, ‘watch out, they’ll eat your leftovers…’

      • N.C. says:

        “Sydney speculators continue to eat themselves and the children of migrants”

        Yes Hamish, I see your point.

  7. speculator says:

    this is good news for FHBs!!!

    If investor demand increases 35% this year as well, FHB will have great opportunity to buy cheap homes (up to 50% cheaper) in 2015.

  8. Rich says:

    Blame the RBA people

  9. AF says:

    What amazes me more is the idiots on this website that were calling for the interest rate to be dropped, now you idiots can see what the result is !

    You along with the RBA and vested interests share the blame for this mess that we are in.

    So no more crying about how this country is uncompetitive, we have, thanks to low interest rates brought this on ourselves and will suffer the consequences.

  10. China-Bob says:

    Personally I see these insane RE valuations as just the logical extension of our multi generational shift from investing in productive capacity to investing in unproductive but very profitable ventures. So I’m certain that the recent Sydney RE boom will turn out to be a very profitable “investment” for all involved, the real cost will only ever show up on the current account.

    Twenty years ago when a swimware clothing factory closed, the land was redeveloped as a shopping mall, in the end more people worked in and around the shopping mall than were ever employed by the factory, so GDP soared. This is makes for a profitable investment but was it productive?

    Clearly when a pair of brandname board shorts, that costs $2 to make(in China), sells for $50 in the up-market mall there is $48 in value generated by the combination of mall environment and the Brand development. In the post factory system the value of Aussie labor involved in each and every sale of boardshorts far exceeds the meager wages of a seamstress working in a clothing factory, this means the GDP is higher and all participants in the system are better off….BUT are these activities really Productive?

    In the end the factory closed because it wasn’t able to compete globally. I suspect we have recently entered the second chapter of the same story. This time it is the Mall that will close and for the very same reason. The Brand will survive and will now represent an even larger percentage of the products value. (say$50 boardshorts: $2, production plus $2 web/advertising plus $2 shipping/handling means $44 profit for the brands owner/developer)

    Today this change is most obvious in rural Australia where physical shops are closing so quickly that many malls look like ghost towns with a Coles at one end and a Wollies at the other, for all I know the boardshorts brand owner may live in Singapore so whats new is that no percentage of the money stays in the small towns.

    To link back to the start: If there is no value in bricks’n’mortar than there will be no investment in it, similarly there will be no investment in factories yet or wealth must flow somewhere so it goes into that one true remaining asset that Aussies still control (and manipulate) namely RE.

    The solution (apart form more houses) is the creation of new productive ventures. Alas were miles away from the point where that that’ll happen so in the mean time enjoy the Sydney RE game!

    • meltfund says:

      A letter to China…

      Bob, these are all good points, and I agree largely.. No buts.

      My reply is to point out that you correctly show how technological invention, brilliant as it certainly is, only ever seems to end up in higher property value and lower earnings for producers of that technology. And then go on to propose the “only solution is to invent more technology”.

      Forgive me, this is circular reasoning isn’t it, or did I misread you? If not you appear to be pointing at a paradox.

      We do not believe in paradoxes. We do believe there’s always a simple reason causing us to either miss or deny the reality of it. Usually as a result of these kind of blogs or our professors to whom we pay way to much respect.

      Take a look at the following link which resolves the paradox into clear reality.

      http://www.henrygeorge.org/pchp20.htm

      “And so every improvement or invention that gives labor the power to produce more wealth, no matter what it may be, causes an increased demand for land and its products. Progress thus tends to force down the margin of production, the same as the demand of a larger population would. This being the case, every labor-saving invention has a tendency to increase rent. This is true whether it is a tractor, a telegraph, or a sewing machine. There will be a greater production of wealth — but landowners will get the whole benefit.”

      While privatisation of property assets persists, and taxation of hard work and enterprise persists, this is exactly why MeltFund encourages ONLY investing in property. All other assets ALWAYS fall in value and are heavily taxed and regulated. Especially the hard work and enterprise in technology.

      We love technology, BECAUSE, it increases the value of property, for free, work free, tax free. Not in spite of it.

      If you can affirm this, see your own place in it, stop blaming everyone else,.. just maybe some astonishing things will start appearing right in front of you. Until then everything will remain a paradox.

      Affirmation is up to you. No one can help you, especially the experts. Just look at it and make up your own mind.

      • China-Bob says:

        Thanks Meltfund,

        you correctly show how technological invention, brilliant as it certainly is, only ever seems to end up in higher property value and lower earnings for producers of that technology. And then go on to propose the “only solution is to invent more technology”.

        Yea weird isnt it, alas I’m at my core a technologist so I’m a little like a carpenter with a hammer in that when I hold a hammer all problems begin to look like nails.

        If you can affirm this, see your own place in it, stop blaming everyone else,.. just maybe some astonishing things will start appearing right in front of you. Until then everything will remain a paradox.

        Hmmm I dont think I really blame anyone for my own good fortune, and life has been good to me, sometimes I find it perplexing that most people clearly prefer to play a rigged game (RE speculation) that superficially delivers faux value in place of creating real value (productive capacity) but I get over it pretty quickly, because there’s always a new shiny technology around the next corner, I’m very aware that my new shiny invention also creates no real value because people really dont need it but fortunately they want it, an so the cycle starts and ends. For me there is no paradox its a cycle and just like any wave it goes up some times and down others the trick to surfing all waves is to know the difference between the ups an the downs.

        Affirmation is up to you. No one can help you….
        Woow there old chap you’re getting a tad righteous especially given the nature of your own undertakings. I guess at my heart I’m a libertarian so I firmly believe I have every right to enjoy the product of my dysfunction just as I would wish for you to enjoy the product of the dysfunction that you create.

      • dumpling says:

        “I’m very aware that my new shiny invention also creates no real value because people really dont need it but fortunately they want it, an so the cycle starts and ends. For me there is no paradox its a cycle”

        This is an interesting point.

        There are many different layers of “paradoxes” in capitalism.

        For example, suppose I somehow came up with a way to cure cancer. Is it a good thing or not?

        It will save many lives in short terms for sure, but if the discovery is not accompanied by the increase in the amount of natural resources, then the resulting overpopulation will make the matter worse in the long run.

      • China-Bob says:

        @dumpling
        There are many different layers of “paradoxes” in capitalism

        IMHO All forms of Orthodox and Neo Classical economics create these paradoxes because they attempt to define a static utopia and hold our dynamic social system in this static state.

        Dynamic economic paradigms dont have paradoxes they simple have cycles whereby cause and consequence are elements of the feebback loop that can have mufti generational time constants. The effects of feedback can be to accelerate the system rapidly between newly discovered unstable states or stabilize the system in a semi static state, maybe utopia or maybe dystopia, which state you perceive kinda depends on your view of reality. Confusing isn’t it thank goodness we invented adhesive sticky labels. We know exactly where everyone stands if they only remain still long enough for us to slap a sticky label on them.

    • meltfund says:

      A letter to China…

      Bob, these are all good points, and I agree largely.. No buts.

      My reply is to point out that you correctly show how technological invention, brilliant as it certainly is, only ever seems to end up in higher property value and lower earnings for producers of that technology. And then go on to propose the “only solution is to invent more technology”.

      Forgive me, this is circular reasoning isn’t it, or did I misread you? If not you appear to be pointing at a paradox.

      We do not believe in paradoxes. We do believe there’s always a simple reason causing us to either miss or deny the reality of it. Usually as a result of these kind of blogs or our professors to whom we pay way too much respect.

      Take a look at the following link which resolves the paradox into clear reality.

      http://www.henrygeorge.org/pchp20.htm

      “And so every improvement or invention that gives labor the power to produce more wealth, no matter what it may be, causes an increased demand for land and its products. Progress thus tends to force down the margin of production, the same as the demand of a larger population would. This being the case, every labor-saving invention has a tendency to increase rent. This is true whether it is a tractor, a telegraph, or a sewing machine. There will be a greater production of wealth — but landowners will get the whole benefit.”

      While privatisation of property assets persists, and taxation of hard work and enterprise persists, this is exactly why MeltFund encourages ONLY investing in property. All other assets ALWAYS fall in value and are heavily taxed and regulated. Especially the hard work and enterprise in technology.

      We love technology, BECAUSE, it increases the value of property, for free, work free, tax free. Not in spite of it.

      If you can affirm this, see your own place in it, stop blaming everyone else,.. just maybe some astonishing things will start appearing right in front of you. Until then everything will remain a paradox.

      Affirmation is up to you. No one can help you, especially the experts. Just look at it and make up your own mind.

  11. meltfund says:

    Response to China,

    Me too, I’m also a technologist. Isnt it amazing how all technology has already been invented. It just has a shiny new name and goes a little faster.

    Why project righteousness on me for suggesting you help yourself? Surely a “true libertarian” needs no help, support, subsidy, bailout and we are in agreement? You may be the first, I’ve never met a true libertarian. Nor socialist, nor christian. Have you been rumbled?

    Everyone blames everyone outside of themselves. This is implicit in your response above and initial statement. Its not a snipe at your character at all. Its a “warning signal” not to get tempted into faux libertarianism or other religion, thus placing everything in danger because of ones religious beliefs. Read it back and see how you have started to preach about freedom and then later contradict that by suggesting things are banned and people should be restricted in this way or that. You see?. Try to affirm this and not take it personally or as a judgement. We do training on this but its pricey. Its pure psychology so requires exceptional skill and grace.

    But “shiny new things” DO create new value, or at least the work that made them. How would you describe someone who said people do not really need the things they buy – Righteous?

    The cycle starts and ends due to a positive feedback loop, or boom, created by speculation in economic rents. Bidding up future guaranteed price of property mainly using the mortgage as the vehicle. Trouble is people blame banks for this when root cause is millions of gambling home owners. See how the blame is so easily projected and externalised by the great mass of religious claiming righteousness? Blaming Others you see, and you have done similar in your response above yet maybe cannot see it clear in black and white. Pure psychology you see.

    Do you think speculation is wrong, in itself though? If so, how do you explain how speculating in things that are not economic rents(all capital formation) is the most effective price discovery mechanism? Cheapest price is found relative to all future costs of production by speculation. Do you like paying higher prices?Without speculation that would be the effect. And banning speculation is hardly the policy of the “true libertarian” is it? I fear you have been well and truly rumbled out there in ‘socialist China’.

    There is no “trick” to timing the wave. It is guaranteed and the timing is not relevant because the price of property ALWAYS rises, and capital ALWAYS falls, relatively. If you disagree can you furnish your long term statement comparing the final price of property relative to capital, then compared to the sums invested in both. The Acid Test avoided like the plague by misadventure.

    I don’t mind what you are. It seems you are not a “True Libertarian”. Thats a good thing because it means at least you are not being strangled by that religion. Why not tell us who you are?

    • pithoneme says:

      Why not just go away, you preposterous loony ?

    • China-Bob says:

      It seems you are not a “True Libertarian”

      yea: sad isnt when you cant even trust the Libertarians to tell the truth.

      As I’ve said many times before I dont have much time for western philosophy or theology nor do I value the labels that go with them. If you want to rock my world you’ll need to learn neo-Confucianism specifically Wang Yang Ming but hey I’m also known to dabble in a little modern Japanese philosophy. That said I am partial to”Objectivism” who wouldn’t support an idea as noble as :
      “the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute.

      Why not tell us who you are?
      the only truth is that we’re all John Galt.

      • meltfund says:

        Well all those things are other religions too. We do not do hero worship, of any kind. Because the tendency is misadventure, through being compelled in the end to deny basic guarantees of investing in a market, due to beliefs that do not harmonise with reality.

        Religions are neither good nor bad, per se. They are all what one makes of them.

        So if your religion helps you become more vital as a person, and see reality, to end denial, then ones religion is truth… to you. If not, then it is a lie. How much does what you believe in improve your investing potential?

        Do you worship at the alter of Rand? She was a basket case for faux libertarianism. Highly socialist at the root. Yet unable to affirm that, in herself. It was the same for Marx from the other side. Excellent psychological case histories.

        The thing is, nearly everyone believes in one or the other. Few believe in themselves. Constantly seeking protection from the state or a private master, but preaching the freedom or liberty.

      • dumpling says:

        “Religions are neither good nor bad, per se.”

        What I do not like about religion is that many use it as a substitute for thought and, by doing so, by-pass independent / critical thinking.

        In other words, religion makes one intellectually lazy and stupid. Of course, this is not the fault of the founders and there is a great deal to learn from ancient sage, like from history.

        So….., use religion to strengthen your wisdom, not being used by it……

    • dumpling says:

      “Do you think speculation is wrong, in itself though?”

      The fine line separating investment and speculation is never bright and clear – Warren Buffett

      • meltfund says:

        Yes. Evidently even Buffet does not really understand the nature of markets.

        Fascinating right?

  12. meltfund says:

    pithoneme

    Clearly I have hit the spot deep inside you too, which you too seem determined to deny, causing yourself potential misadventure too.

    Here’s a fair deal for you.

    1) Show me what I’ve said is in any way preposterous
    2) Show me what then makes me a loony

    Using reason, logic, evidence of any other kind.

    If you can satisfy both of these serious allegations you make, then, I will go away.

    If you cannot, quid pro quo, will you do the same for me, and go away yourself?

    Is that a fair deal?

    • DarkMatter says:

      Hello Meltfund.

      I do hope we are past the various contests of testicular grandeur. It was a relief that you spared poor old CB that in addition to the smackdown.

      Here is the thing. You have bamboozled us here at MB. We are simple folk, dazed and confused like rabbits caught in the headlights. We do have a conga line of loonies coming through our pages, but mostly they are quite well behaved and you know where you stand with them. They play their role properly in the the great debate and all is well in the blogosphere.

      Many here at MB are not sure if you are a looney in disguise, or vice versa.
      Can we vote for you?
      Can we have Russell Brand instead?
      We are confused.

      • meltfund says:

        Darkmatter

        By all means. See my post to pithoneme above. This is a test to determine exactly your question. Did you notice?

        The thing is, how do you define a loony –

        - the few who affirm reality using hard work, skill and enterprise – those with balls, who are ‘men’

        - or the masses who deny reality under the mighty protections, monopoly powers and intimidations of the same mass – those ‘boys’ whose balls have yet to drop

        Does being in the majority, mean one is truly facing reality. What is ones potential as an investor?

        As we keep saying, notice how the authors are very quiet. They are paid highly to help hide reality with each of the posts made. And the vocal here are paid nothing for doing a great deal of fruitless work… for them.

        How would you define that – masters and slaves? So who is confusing you really? How many times have you asked your master the same question you pose to us? Try it and see what happens.

        By all means go ahead and have your poll, you select the rules and we’ll play fair on a level field if you will. Quid pro quo.

        We’ll use it as another case history for our valued clients with balls. Many laughs are had among us in expensive hotels smoking cigars, drinking wine, entertaining beautiful women.

      • DarkMatter says:

        Why is it always about testicles with you?

        Also, what do you need to do to enjoy cigars? I was given a very expensive one a few Xmas’s a go and even after several attempts I just could not hack it. I am thinking this might be a testicle issue.

        Did you see the episode of the Borgias where the Pope’s spanish son brings him back a cigar from the conquered Americas? Alexander who was partial to the royal pronoun exclaimed:

        “What is this? You have brought us back a turd!”

        He did grow to enjoy smoking the turds however, so perhaps the original cigars were much better.

      • China-Bob says:

        Thanks DM for the support, didn’t think I was getting “smacked-down” to badly but….

        Re Cigars:
        Maybe you just need to learn proper cigar etiquette, I might help if you studied certain disclosed Whitehouse procedures relating to the enjoyment of a good cigar.

    • pithoneme says:

      While you will not provide infinite evidence, I am happy to provide you with infinite grief as long as you continue to spout what you know (should you choose to embrace it) is pure bilge. Your appeal to the intuitive plausibility of an omission to recognise a fallacy of misplaced self-projection of fallacious reasoning may fool some on this site, but I’ve seen it all before too many times to let pass quite so easily, old chap.

      • flyingfox says:

        +1. While meltfund refuses to actually engage in discussion and continues to put forward his agenda, he should be given as much grief as possible.

        I am surprised he has not been banned yet.