Detailed Report: The 2011 Demographia Housing Affordability Survey (By Leith van Onselen)

The 7th Annual Demographia International Housing Affordability Survey has just been released and, once again, it has delivered a stern condemnation of housing policy in Australia.

This year, the Demographia survey has been expanded to 325 markets in seven countries: Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom, and the United States. The survey employs the “Median Multiple” (median house price divided by gross annual median household income) to rate housing affordability. This measure is widely used for evaluating urban markets, and has been recommended by, amongst others, the World Bank and the United Nations, and is used by the Harvard University Joint Center on Housing.

The Survey ranks urban housing markets into four categories based on their Median Multiple, from “Affordable” (3.0 or less) to “Severely Unaffordable” (5.1 & Over) [Table ES-1].

According to the Survey, Median Multiples were historically 3.0 or less in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States. Whilst this affordability relationship continues in many housing markets of the United States and Canada, the Median Multiple has escalated sharply in the past decade in the other housing markets covered in the Survey (Table ES-4).

Demographia’s findings are supported by the below chart, which compares the total value of residential housing assets against GDP in Australia, Canada, New Zealand, the United Kingdom, and the United States (data is not available for Ireland). As you can see, Australia and New Zealand have the most expensive housing based on this metric (3.2 times GDP), followed the United Kingdom (2.9 times GDP). By comparison, Canada and the United States, which have more “Affordable” and “Moderately Unaffordable” housing markets, have house price to GDP ratios of only 1.8 and 1.1 respectively.


Of the 325 markets surveyed by Demographia, the lion’s share of unaffordable markets are located in Australia, with 27 ranked as “Severely Unaffordable” and five “Seriously Unaffordable”. Australia currently has no housing markets ranked as “Affordable” or “Moderately Unaffordable” (see below chart).

In fact, out of the 20 most unaffordable housing markets identified in the Survey, nine are located in Australia (see below chart).

The decline of housing affordability in Australia is clearly evident from the below Demographia chart, which shows the escalation of Median Multiples in Australia’s major urban markets.

Whereas all major Australian markets, except Sydney, had Median Multiples of three in the early 1980s, today all are ranked at five or above.

Further, this deterioration of housing affordability has occurred without regard to market size or demand, with prices in slow growth areas such as Hobart and Adelaide, as well as regional areas, exploding over the past 15 years (see below RBA chart).

It’s all in the land:

The Demographia Survey makes a convincing case that:

…higher land prices are the principal contributor to the rapidly increasing home prices in unaffordable markets. These land prices include the cost increasing influence of land supply restrictions (such as urban growth boundaries), excessive infrastructure fees and other overly strict land use regulations. In Australia, 95 percent of the increase in inflation adjusted new house (and land) costs were attributable to land, rather than construction from 1993 to 2006. In more restrictively regulated San Diego, house prices were 250 percent higher than in Dallas-Fort Worth in 2007, yet cost only 15 percent more to build.

Again, Demographia’s contention is supported by evidence. As the below RBA chart shows, the lion’s share of the rise in Australia’s home prices has been due to rising land costs rather than higher building costs or incomes.

And a recent release from RP Data shows just how expensive fringe land has become in Australia, with blocks ranging from $145,000 in Hobart to $269,000 in Sydney. Amazingly, on a cost per square metre basis, Adelaide ties with Sydney for the highest cost land (see below table).

The key reason for this land price escalation in Australia (as well as in New Zealand and the United Kingdom) is that the market’s ability to quickly provide low priced new housing supply is being hampered by restrictive land use regulations, many of which have come into effect since the mid-1990s (Sydney has had long-standing limits on housing development on the urban fringe). Demographia describes the key features and consequences of restrictive housing markets as follows:

More Restrictive Markets rely on comparatively intrusive land use regulation, and include markets where residential development (new construction) is strongly controlled or driven by comprehensive plans or with extensive limits on development imposed at various levels of government. More restrictive land use regulation are also referred to as “compact development”, “urban consolidation”, “growth management” “and ” smart growth.” Generally, more restrictive land use regulation is “plan-driven,” as planners and governments determine where new housing is allowed to be built. As a result, there is a “negative presumption” with respect to development: Development is generally prohibited, except in limited areas where it is permitted by government plans. By severely limiting or even prohibiting development on the urban fringe, more restrictive regulation can make the “supply vent” inoperative where demand for new housing exceeds supply, which retards housing affordability…

House prices have skyrocketed principally because of more restrictive land use regulations that have virtually prohibited new house construction on or beyond the urban fringe. This is particularly evident where there are “urban containment” measures, such as urban growth boundaries. Land value differentials of ten or more times have been documented immediately across urban growth boundaries (such as in Portland and Auckland).

By contrast, affordable housing markets, like Texas and Georgia in the United States, utilise open market-based land use structures whereby plentiful new housing supply is able to be built quickly and cheaply on the urban fringe, thereby preventing rapid house price escalation. Demographia describes these markets as follows:

In these [less restrictive] markets, residential development is allowed to occur based upon consumer preferences, subject to reasonable environmental regulation. Generally, less restrictive land use regulation is “demand-driven”. There is a “positive presumption” that land can be developed, except in limited areas, such as parks and environmentally sensitive areas. By allowing development on the urban fringe, less restrictive land use regulation allows the “supply vent” to operate, which keeps house prices affordable.

So under an open market-based model, increased demand (e.g. from reduced lending standards) quickly leads to the building of additional low priced housing on the urban fringe, which keeps house prices in check and helps prevent speculative housing bubbles from developing. Further, highly leveraged speculators are not encouraged into open land use markets since there is little prospect of achieving strong capital gains. Investing, instead, becomes all about rental yield.

Demographia also provides a direct comparison of housing affordability in the more liberal markets of the United States versus Australia’s restrictive urban markets. The results are worrying.

The widening affordability gap between more restrictively regulated markets and less restrictively regulated markets is illustrated by comparable cases in the United States and Australia (Figure 3).

Generally, the three US markets (Atlanta, Austin and Indianapolis) have experienced price stability, with their less restrictive land use regulation (even during the US housing bubble). On the other hand, in Australia (and elsewhere in severely unaffordable markets) house prices have hyper-inflated, as more restrictive land use regulation has virtually outlawed new housing on urban fringes.

As a consequence, new large family homes can typically be provided in these open markets for only $150,000, with the land component comprising only around $30,000 (see here for details). This compares to Australia’s restrictive urban planning structure where capital city blocks of land typically cost between $145,000 to $270,000.

To make matters worse, Australia’s restrictive urban planning structure and housing affordability problems are not just confined to Australia’s capitals, but to our regional centres and towns as well:

… Severely unaffordable housing is even evident in the smallest markets with more restrictive land use regulation. This is illustrated by Wallan, Victoria an urban area of 5,000 people more than 10 miles (16 kilometers) beyond Melbourne’s urban fringe. Wallan is surrounded by land that could be developed, and which if the market of willing buyers and sellers were allowed to operate, could provide housing that is affordable.

…a new residential lot would cost $155,000 in Wallan, Victoria (Australia). This is approximately 5 times the cost of a lot for a new house inside (not 10 miles beyond) the urban fringe of Atlanta, Dallas-Fort Worth, Indianapolis or a number of other urban areas in the United States with less restrictive land use regulation. As a result of its high land costs that result from more restrictive land use regulation, the median multiple in Wallan is approximately 5.8, nearly double the affordable norm of 3.0.

Regular readers will remember that I wrote an article comparing the cost of homes in Wallan to Houston, Texas (the United States’ fourth largest metropolitan area). Included in this article was the following map, showing just how much plentiful land is available for building near Wallan if only regulations were permitting.

A problem of our own making:

The Demographia Survey proves, convincingly, that Australia’s housing affordability problems are caused, to a large extent, by artificial restrictions on where new homes can be built. When combined with demand-side drivers – such as easier credit (fuelled by heavy offshore borrowings by the banks), overly generous tax concessions (e.g. negative gearing), high immigration, first home owner concessions, and baby boomer wealth accumulation – Australia’s strict land use regulations have inevitably caused land prices to escalate, encouraging speculation and the development of Australia’s current housing bubble.

The big losers under this socially regressive system are younger and lower income Australians who are either required to take on prohibitive amounts of debt in order to enter the housing market, or are locked-out of home ownership altogether.

That said, property bulls should not necessarily view Australia’s restrictive urban planning structure as a bullish indicator for house prices. As explained previously, unresponsive housing supply merely results in greater house price volatility – both on the way up and the way down. Therefore, when the inevitable correction arrives, say through a contraction of credit or large falls in commodity prices, Australia’s restrictive urban planning structure is just as likely to cause large house price falls, similar to those experienced in the restrictive housing markets of the United States (e.g. California).

Cheers Leith

Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.


  1. Oh dear, the old Demographia survey again. The one that only compares Australia with 6 other countries and omits to consider the majority of factors that influence house prices! Demographia’s findings have been thoroughly debunked here…

    Demographia Debunked

    Huge flaws in the Demographia survey. Their use of median house price to median income is very blunt.



    • Good post, Shadow. I cannot agree with you more on how baseless Demographia’s analysis is. The median home size in the USA in the 1970s was 1200sqft. It is now 2400 sqft, and has a lot more luxury features. Mortgage rates are below 5%, far less than what has been for many decades. None of that matters to Demographia, since they are stuck on a multiple of 3, whether it is literally a mountain of a home, or a mole hill. Go figure….

    • Your comment is just smear campaign to the Demographia survey. Of course the survey is just a survey based on aggregate data and statistical concept, e.g. median house price and median income and therefore, by nature, is blunt and not specific to individual economy in the survey. And yes, there are other factors in each individual economy like the blogger said, e.g. unfair tax incentives, easy credit, etc but these things do not in-validate the survey result at all.

      The survey result is supposed to be used only as general indicator of the current home affordability situation of each economy in the survey and not to be used as the ALL encompassing research paper about ALL factors that may cause such affordability situation on each economy.

      Rather than trying to destroy Australian economy, the bloggers here are actually the ones trying to save it from self-interested crooks like you, Rob / Shadow who never cares about the fact that this country is under severe risk of high debt burden and the population have become debt slaves due to their blind reverence to the residential property cult-like status and to the people like you who act as the cult’s priests.

      • It is unfortunate that you have to resort to using words like “crook”.

        My point is only that this median multiple is relative. The “developed” world is self-destructing itself by collapsing the housing assets held by its citizens to complete worthlessness, though the median multiple is only in single digits in the developed world. The so called developing countries like India and China are hyping and driving themselves into tremendous prosperity with government backed absurd home price appreciation that has led to the median home price to income multiple being in the hundreds to a thousand.

        • Well, I just called it a duck when I saw a duck.

          Considering you said that current property price is still affordable in single digit multiple (i.e. more than 9) and never cares what will happen to younger generation who will be debt-slaves whole their lives if they want to get a home for themselves – then the “crooks” description is still quite modest IMO. I certainly could imagine ones that are more flamboyant.

          Of course for older generation which prob includes you, the current price is dandy and nice because it means huge wealth and retirement savings but as I mentioned this whole thing is not nice at all for my generation.

          Put yourself in our shoes for a second and ask yourself whether you’d buy at current price with more than 9x median earnings when it used to be just 3 or 4 or even 5 times in your generation.

          • Single digit is more than 9 ??? My “generation” certainly is not that bad at math….LOL….

            Even now, there are plenty of homes at 1x and 2x multiples in the USA, and these are the same size as what it was 30 years ago….around 1000 sqft. Manufactured homes are at 0.5 times median income….What has changed with “your” generation is that you are extremely greedy to expect a 5000-sqft palace of gold to be 3 times your income.

        • Yet another absurd statement!. In developing world they dont become rich through real estate , they become rich through other businesses and then dunk the money in realestate and even dont give it out for rent. It is like some nice possession to hold.

          Even without realestate investments these people are making enough money to buy your potfolio,

  2. Great article, thanks.

    Will be passing this onto my friends and family, whom i am trying to help with this sort of information and commentary! (though, sadly, with only limited success…!)

  3. The Demographia survey is completely meaningless because of one main reason. It never defines what the median home itself is. Is it a 100-sqft tent, a 200-sqft cabin, a 300-sqft trailer, a 600-sqft apartment or a 5000 sqft individual house with 5 acres of land? I have repeatedly challenged Leith and the authors of Demographia to first define this “home” that they consider people should be able to purchase for 3 times the median income. So far, Leith and the authors of Demographia have not shown the integrity to do that. The Demographia work is akin to publishing a report of vehicle prices without ever saying what kind of vehicle it is – a bicycle, a car, a boat or a spaceship.

    Leith, you are doing exactly what Case/Shiller and Wendell Cox did in self-destructing the United States. The United States never had a bubble in home prices, and neither does Australia. The homes in these countries are very quality, with a lot of features, a lot of land around them, and with great infrastructure near by. And they are ridiculously undervalued compared to prices in India and China, where these median multiples run in the hundreds. If low home prices are great for the future generations and high home prices are a disaster coming soon, would that not mean the complete and utter collapse of India and China is in the near future?

    • Rob
      You make bad comparisons with India. I am from India and I can tell you that its only metropolitan areas in India that are severly unaffordable. The small towns are still affordable.In India people live collectively so it is not the case like in Australia if you dont have loan you cant buy a house. People just stay with old family with parents and raise family. In some cases Families just subdivide the plot and construct another house. Also the massive spike in realestate values in India is not mainly due to loan growth . It is mainly because of black money from businesses and politicians finding its way into hard assests, also Non resident Indians invest from overseas. In the US and Australia house appreciation is correlates well with loan growth. Because of this correlation if the debt in the system is too high then deleveraging sets in house prices fall. You can stop this by letting the Asians and Indians to migrate or let them invest directly.

      This is also nice scenario for me because my wealthy people back home can buy piece by piece Australian mines,farms and homes.This is the end result of the Ponzi where it will have to finally rely on foreign capital.

      If you have raised the house prices to a level where your wages and loan originations cant support it anymore, us vultures are to start fluttering our wings. We cook strong curries as well. I hope you dont mind us being neighbours 🙂

      • Hey indo,

        I travel frequently to India on business so have been to many “small” towns. Homes in these small towns are more expensive than even the so called expensive homes in Australia. And these homes are like match boxes. Other than that one thing, I think you are making the same points that I am. I agree that it is corruption, extreme black money and foreign investment that has resulted in the most absurd home price appreciation in India and China. I also think it is highly possible that the massive populations in India and China that has become USD millionaires from their real estate investments will turn sooner or later to the ridiculously low prices especially in the USA. We will then see how the clueless folks behind Demographia react calculating their “median” numbers….

    • Rob,

      If you stuck with your first paragraph and developed the argument further, perhaps you might have a (still admittedly wonky) leg to stand on. But to then go on and argue that “The Unites States never had a bubble in home prices” kinda strips you of credibility… Just ask any of the two-bit turnip farmers who thought they could become multi-property-owning landlords (despite having limited income) thanks to the virtues of sub-prime / lo-doc loans.

      Sure, there is a big discrepancy in the definition of “home”, but having homes that are perceived as “better” (whether they be larger, of superior construction, on bigger blocks, or otherwise) does not of itself make them any more “affordable”.

      If banks will lend me the money then I can build the greatest house of all time. But if I can’t afford the mortgage repayments, then *boom* the house is unaffordable! And when a significant enough chunk of the population follows suit… Yep, the whole property market becomes unaffordable.

      Despite what Christopher Joye et al might have you believe, a house is only productive to the extent that it puts a roof over your head. Everything else after that is a creature comfort.

      PS: Good luck waiting for Australia’s median property P/E multiple to hit the hundreds, a la China and India!

      • Sam,

        You are totally missing what “affordability” is and confusing it with people buying homes way beyond their means. For example, if you have no way EVER of earning even a single dollar in your whole life, but if you buy a home that costs exactly ONLY 1 dollar on a mortgage given by an unscrupulous bank, is that 1 dollar home “expensive”? It is sure unaffordable to YOU, since you will never earn enough to afford paying for it. But to say that the home is unaffordably expensive is the wrong conclusion

        • Aaaaah… The age-old spruiker technique of taking a hypothetical to its illogical extreme and then claiming that *ipso facto* your point is proven.

          Affordability is easy to define, Rob… If people can’t afford something then it is unaffordable. If they can afford it then it is affordable.

          Over the shorter term, sure, affordability can fluctuate – depending on interest rates etc. But over the longer-term, it comes back to a function of cost and income.

      • Hi all,
        I think the most important difference between US and other housing markets is “property tax”. In US, you have to pay 1-1.25% of the property value as tax every year. That is not the case in India or china. Assume the house price will go up with inflation and/or wages in the long run. It is usually around 3% in US and your property tax will eat around half of that. So there is no real incentive in hoarding a property here in US. I am not sure about the tax rates in Australia and Canada. In India property developers and investors buy land and hoard them. They have the holding power and common people can’t wait forever before buying their home. This is the reason for higher ratios in those places.

  4. My last question in my previous post what just rhetorical. The reason the USA is in a great slump is because its already very low home prices have been “forced” to fall even more by clueless economists, resulting in massive losses for its citizens. India and China have been flourishing for the past 30 years because of their massive and absurd home price appreciation. This goes against every theory you guys are advocating about low home prices leading to a solid economy. It is actually strong housing appreciation that leads to a strong wealth effect which then produces a vibrant economy.

    Leith, you will soon be the “father” of the collapse of Australia and the immense misery that your “mates” will suffer for the next many decades.

    • Hi Rob

      Quote ” It is actually strong housing appreciation that leads to a strong wealth effect which then produces a vibrant economy.
      Leith, you will soon be the “father” of the collapse of Australia and the immense misery that your “mates” will suffer for the next many decades.”

      Rob, you cannot be serious that this blog will bring down the ‘bullet proof’ housing market mate!

      Strong housing appreciation should be an effect of a strong economy not the precursor for it. If you like reading, I strongly suggest “Boom Bust” by Fred Harrison – discusses how we can truly make a strong sustainable economy with appropriate taxes that incentivise productive enterprises rather than rewwarding ‘idle speculation’ with tax breaks and cash grants.

    • Rob, the wealth effect you’re talking about is true, and Jeremy Grantham describes it quite succinctly in his October newsletter. The problem is that it’s still a ponzi scheme and entrants at the bottom need to committ more and more of their disposable income to propping up asset prices as debt to income/GDP/whateveryouusetocalculatetheabilitytorepay get out of control.

      Sure, in places like India households spend more of their disposable income on housing than we do. I lived in Zambia for a short time and many people there spent 70-85% of their income just paying rent on tiny two room homes (that’s not two bedrooms, two rooms!), but that left them with precious little for food, clothing and basic education for their children. As for health care, forget about it. If kids get sick they just die. It really is quite awful to watch. 🙁

      If people like my Wife and I wanted to walk everywhere, live off rice and a few veggies, have no money for medicines, use candles at night and wear rags we could committ 85% of our disposable income to the mortgage and the ponzi scheme could continue for quite a while yet. But this is Australia. Almost nobody would end up malnourished, living by candlelight and have no medicines for their children just for the privilege of owning a house. Long, long before then people decide that it isn’t worth the sacrifice and that’s when the music stops. Just as it did in the US, where you claim there was no bubble.

      I agree with Nick’s statement that house appreciation should be the result of economic growth instead of the precursor to it. Suggesting we should have economic growth from appreciating house values really is putting the cart before the horse.

      And Rob, your suggestion that this blog will wreck the housing market is hilarious! ROFL!!!

    • The ideas that home prices in the US were “affordable” in the US prior to the bubble popping is preposterous.

      No, there was not a bubble in all markets, but given that the typical new home buyer could not afford a decent down payment and only afford their payments under absurd lending standards with artificially cheap money, that was unaffordable.

      And the same is still true now because the health of the US housing market is dependent upon the new buyer and these people were and are flat broke. They were broke before the “Great Recession” but absurd lending standards and artificially cheap money just disguised it.

      As for Australia, I do not live there, but from what I know, its a similar situation to what existed in the US up to 2006. With a median home price of nine times income, how many people have the savings to come up with any kind of down payment unless they already own a home? What are your lending standards? Do you have nonsensical “exotic” mortages? Interest rates are higher from what I understand, but how much of someone’s income does housing typically require? If it is more than 30%, than is borderline unaffordable and if a lot more thna that, definitely unaffordable.

  5. property bulls should not necessarily view Australia’s restrictive urban planning structure as a bullish indicator for house prices

    Isn’t historically restrictive urban planning an incredibly bearish indicator for house prices in the future, at least in the long term? Given its current state, land use in Australia is surely much more likely to become less restrictive than to become more restrictive…

  6. Hi Leith.

    I have followed your blog for a short while and frequent others similar to it.

    I strongly agree with most of your arguments regarding the housing situation in Australia, especially the serious bubble-nature of it’s pricing. However, I’m not convinced that this is all driven in the main by restrictive land regulations and that by implication, allowing developers much freer reign to simply spread out as they saw fit, would solve this or prevent it from ocurring altogether.

    First, do we or do we not have an oversupply of housing relative to actual need? It seems difficult to conclusively prove one way or the other but there does seem to be evidence suggesting that we do. How would this be possible? Surely the same restrictive land regulations would prevent overbuilding from occurring by physically restricting the supply of a crucial component of housing (the land upon which the house is built) just as if physical restrictions were placed upon the supply of cement, bricks and timber. It’s true that blocks of land have gotten smaller but that might simply reflect developers seeking higher returns which they can expect to get as long as prices are rising. So if we indeed do have significant overbuilding, it seems that land regulations might not be quite as restrictive in effect as you have argued.

    Also, I see you using Texas as an example of a place with minimal restrictions on land development and where prices did no run away as they did in many other places in the US in this latest fiasco. You are aware that Texas suffered a serious house price crash during the 1980’s? Just as prices in Japan have never returned to anything like the top of their boom 20 years ago, I would not expect prices in Texas to rocket away again, even though the same easy credit must have been available there. The collective memory of what can ultimately happen when everyone becomes indebted to the eyeballs, only to see prices then collapse must be a painfull deterrant in both those places to speculating (sorry, “investing”) in a housing boom.

    Further, Texas would logically have had very restrictive land regulations prior to the boom which have since been relaxed – can you demonstrate that this was the case?

    My own feeling is that land regulations play a more minor part in this story. In any case, is it wise to allow developers to act as they see fit and build whatever feel like wherever they feel like? And everything they do ultimately becomes the responsability of local and state government so it’s little wonder that governments place restrictions on their activities.

    I think this probably has more to do with other factors you have mentioned – negative gearing, slashing of the CGT, easy credit – and also with the meme that is deeply entrenched in the broad Australian phyche: that everyone can become rich through property investment.

    This one disagreement aside, you write a very good blog and raise many excellent points. Keep up the good work!



  7. The Demographia survey is, in fact, very useful.

    (1) Yes, it is only Anglosphere countries. (It is 325 markets in Anglosphere countries.) That is where the data in similar form is easily available. But it is still a very useful comparison because it is so many individual markets in those countries: seven countries with many institutional similarities.

    (2) Comparing Median house prices to Median household income is a useful ratio because households buy houses and it connects income in the market to houses as purchased in that market. It allows us to compare the dynamics of different housing markets as markets over time.

    (3) People are free to consider other factors, but you have to start somewhere. Getting international comparison data as detailed as this is still a goldmine.

    (4) That price controls affect markets is well established. The Swedish economist Assar Lindbeck famously wrote, “next to bombing, rent control seems to be the most efficient technique so far for destroying cities.” The notion that quantity controls are somehow benign or innocuous makes little sense. If price controls matter (and they do), quantity controls matter too.

    (If you want further argument for that, click the link in the previous paragraph.)

  8. Endrortsonhousing

    Rob anyone who spends a bit of time in the US or even on the internet can verify the results of the Demographia survey.
    Another point property bulls never seem to grasp is that if these hyperinflated house prices don’t end soon they will have killed the golden goose. That is, Australia will no longer be the country it once was – egalitarian and fair – if the class of property overlords consisting of real estate agents, developers and baby boomers continues to gain at the expense of first home buyers and debt slaves under 40. This effect is already happening to some extent.

  9. In addition to the Demographia findings, recent analysis by The Economist identified the magnitude to which Australian house prices have diverged from historic trends. The Economist calculated that Australian house prices are more than 60% overvalued, making Australia the most overvalued housing market of all the countries analysed by The Economist.

    Also, in August 2010, Goldman Sachs declared that Australian house prices are “25 to 35 per cent overvalued, based on a measure of affordability that takes house prices, income, lending criteria and mortgage rates into account”.

    Furthermore, legendary American investor and bubble expert Jeremy Grantham, Chairman of GMO, has stated that he believes “the two (bubbles) that are (currently) outstanding are the UK and Australian housing bubbles” and that if those bubbles do not collapse, “it will be the first time in history that such a bubble has not broken”. Grantham goes on to say, “The U.K. and Australian housing bubbles may be unimportant to U.S. investors, but to bubble historians they look extraordinary. The U.K. event in particular has broken out of any previous mold. Despite the usual cry of “special case”, they will decline around 40%, back to trend, as was the case for the previous 32 bubbles.”

    Sam Brown
    Australian Housing Crash Blogs

  10. Can we try to recognise that urban planners do the best they can with what is available to them? One of the biggest restrictions on land release, particularly in Sydney, is the physical issue of available land near job centres. We can’t simply go carpeting the countryside as far as the eye can see with new housing. If I were planning a new suburb, (no I don’t work in local govt), I would have a hard time juggling all the conflicting demands, and at the same time trying to avoid some of the bad planning decisions of past urban design. People living in new suburbs have to work. Should they be travelling vast distances (by car) to get to work? Is the suburb they live in sustainable in the long term? It would appear that the megopolis we see in many countries is not the best answer. Yes it’s the old chestnut of decentralisation, but surely there must be a better solution than the massively unweildy and expensive cities that we continue to develop?
    P.S. I live in a counrty town, by choice.

    • No. Urban planners do an awful job. They zone all the offices in one place, then zone all the houses miles away with no railway line near. They don’t even zone corridors for future rail.
      Leith has the solution. Our planners are so hopeless, better to scale back the planning function.

  11. Leith,
    Excellent analysis but I quibble with the end bits.
    Do we have “easier credit” than other jurisdictions? Interest rates here are astronomical compared with the policy induced low rates in US/UK
    Do we have “overly generous tax concessions (e.g. negative gearing)”? Many jurisdictions have this and in US they have capital gains tax on homes.

    In addition, “high immigration” is not confined to Australia – Texas has much higher rates – while “baby boomer wealth accumulation” is a feature of the entire western world.

    Mentioning these matters tends to dilute the main point of your analysis which is superbly put – namely that the price heights in Australia are solely due to the contrived system of land rationing that has been universally followed throughout the country.

  12. Leith – no surprises in the new report. Employment is perhaps the trigger that will reset people’s expectations in Australia as the western world enters a decade of deflation/deleveraging debt due to age demographics and spending life cycles. Noting that unemployment came after the GFC in the USA …

    When this happens, all assets except cash will be re rated bringing those who rely on positive feedback loops to their knees.

    The point is … there are periods or expansion and periods of contraction in any economy – you need to be tuned into these periods and adjust accordingly.

    In my view we are at the end of a 30 years period of expansion in the western world (people born 1933 to 1962 overlaid by their spending lifecycles which peak at 47/48 years of age). The next 10 to 12 years will see a reversal as the X Gen come through – there are less of them due to the pill being introduced in 1962/3, so total GDP will reduce, meaning unemployment is just around the corner for many – as it already is in the USA … where businesses are reluctant to take risk as consumer demand weakens. New jobs are a long way off. And that is with unprecedented stimulus that puts future generations into the dog house, adding further pressure on any sustained recovery. There is a long row to hoe in the USA, Australia is protected thus far by the resources boom. When that buckles – and it will – it will be very painful for Australia as our purchasing power will fall dramatically and our costs will go up (think oil with the AUD back at 55 cents).

    From unemployment it is easy to see that servicing a loan becomes a massive issue and we get a recursive path down to the bottom – where ever that is, I suspect a drop of at least 40-50% in housing.

    For those lucky enough to read Leith’s blog, and have multiple investment properties set up like a house of cards (less than 40% equity to make you shake in your boots) – you have a unique opportunity to beat the herd and lock in your gains … and put the dough into the top 4 banks for safety.

    Tabled constructively to get some people’s heads from out of the sand.


  13. There are some pretty desperate comments on here. Obviously owners of “investment properties” who are about to have an uncomfortable crunch with reality. Steadily rising prices have a “wealth effect”? Spare us. That would mean that ALL “Ponzi” schemes are valid ways to “create wealth”. What they do, is “create wealth” for the earliest entrants to the scheme, and destroy it for the later “suckers” and anyone playing the market on credit, who fails to “get out” at the right time.

    The analytical connection with INCOMES and GDP are VITAL. ANY ponzi scheme has to run out of “buyers-in” at some stage. Maybe property bubbles will burst at a “property to GDP ratio” of 3. Maybe 4. Maybe 5. Why would you rationally only ever want it to go higher? The bigger the bubble, the bigger the mess.

    • India and China have seen their government sponsored black money driven housing ponzi schemes create the most absurd bubble and median multiples (in the hundreds) in the history of the world for the past 30 years. Even Hugh Pavletich from Demographia acknowledged that recently as the “mother of all bubbles”…Let us see if you turn out to be right on the bigger the bubble, the bigger the mess…

      • Rob
        Even in India and China house price bubble bursts can get messy as Japan had shown . It is not as if Asian countries are immune to the problem. Also Australia does not have the luxury of the Asian countries of having a highly diversified economy where other sectors of the economy can keep the economy humming along.

        In Victoria it seems Buying land, building house and buying stuff to fill it is the main contributor to the GDP.

  14. Texas never had much of a PRICE bubble in the 1990’s, Lefty. The bubble consisted of “over-production” of houses, which actually kept PRICES low.

    Simple mathematics: a few thousand “too many” cheap new homes at $150,000 each: COMPARE THIS with hundreds of thousands of homes with an average inflated bubble price component of $150,000 OR MORE. (California was more like $300,000 per home). Which will do the most damage to an economy?

    Did any of the houses from the Texas boom, stay empty for long? HINT: low house prices encourage in-migration. Low land prices encourage new business start-ups, business expansion, and relocations. The reasons that Japan is not (yet) Texas or even Germany, is cultural and geographic. Note that Germany is one of the least recession-affected nations in the world today.

    If you want to know why, Oliver Marc Hartwich and Alan Evans did a series of excellent papers comparing housing “supply” mechanism across nations. Germany’s allowed far more elasticity than many other Euro nations, especially Britain.

  15. If you simply “allow development”, the “brake” on property price inflation is of exponentially more BENEFIT than the alleged COST of a bit of “sprawl”. The best papers on this subject are from the London School of Economics; Paul Cheshire is the main author. In fact, there is growing evidence that even the alleged BENEFITS of “urban containment” have been REDUCED by the high land prices. Where land prices remain low, MORE redevelopment at higher density occurs in efficient locations and comparatively little occurs at the fringes. Where land prices are forced up, the population is forced outwards towards the fringe, because the cost of land overwhelms the “cost of transport/ travelling time” factor in location decisions.

    It is easy to see on Google Earth, that cities like Los Angeles, London, Sydney, and Auckland, have ridiculously HIGH density dozens of kms from their CBD’s. In cities where “sprawl” is allowed, the actual numbers of people living at longer distances from the CBD is very much lower.

    NOTE: I also strongly condemn certain US cities regulation of “minimum lot sizes” and “maximum height”; which obstructs efficient and natural re-development at higher densities at efficient locations. Eliminating these regulations would do wonders to the efficiency of urban form. Imposing constraints at the fringe that drives up the price of all land, though, undoes the beneficial effect of those de-regulations and preserves the artificially low densities nearer the CBD. Land 10 times the price it should be is a far tougher barrier to re-development than “save our suburbs” movements.

  16. ROB asks:

    “The Demographia survey is completely meaningless because of one main reason. It never defines what the median home itself is. Is it a 100-sqft tent, a 200-sqft cabin, a 300-sqft trailer, a 600-sqft apartment or a 5000 sqft individual house with 5 acres of land?”

    The median multiple is a perfectly valid means of comparison simply because there IS a vital connection between “what people pay for housing”, and “what they earn”. The more they earn, the more they spend on housing. This is why it is perfectly valid to compare Bill Levitt’s small, cheap houses of the 1950’s USA, with the typical Texas home today. Incomes rise, the 3X median multiple home grows and improves.

    The difference between a 3X median income price house in a free market in a developing country and a 3X median income price house in a free market in a developed country, is ENTIRELY explainable by the income differences. People cut their cloth to suit their incomes.

    REGULATIONS powerfully distort these outcomes. Hernando DeSoto, Alain Bertaud, and others, have been pointing out for years that “informal” housing and “illegal settlements” and so on, in third world nations, are because regulatory barriers REMOVE the “housing choices” that these people COULD afford. A good short read on this subject is “We house, you are housed, they are homeless”, by Colin Ward.

    The way things are going in over-regulated housing markets in first world countries, we really should be experiencing an explosion in squatting, illegal settlements, tent cities, trailer trash, and overpass and doorway dwellers. Sure enough, Californian cities and even Vancouver, have experienced increases in these things to accompany their housing bubbles.

    The “AudaCity” organisation in Britain is threatening to build an “illegal settlement” on legally bought farmland, and to defy the authorities to tear it down; to focus some honest attention on the real problem (the media over there, as here, are a bunch of cheerleaders for the “conservation” racket). Apparently “AudaCity” have quite a list of young people willing to participate, as this represents their ONLY chance of a home of their own in their lifetime.

  17. “The United States never had a bubble in home prices, and neither does Australia.”


    I have watched the value of my rather humble house appreciate by around 150% since building it around 11 years ago, with few value-enhancing additions.

    My wife and I would struggle to afford to buy the exact same little shoebox today, even though our income have increased significantly.

    As a household in the average-earning income bracket (the REAL average earning income bracket, not the measurements that insist that I take home hundreds of dollars a week less than the lowest income earners in the country and that a university trained senior teacher of 20 years experience doesn’t take home a huge amount more than a checkout chick), if we use some of the LOWEST average house price estimates (such as those released by AFG) we see that the average couple buying today need to part with something approaching 60% of their combined income.

    If going from a little more than 20% to 60% of income for the same house in 11 years doesn’t define a bubble then I don’t know what does.

    • define a bubble? I will tell you what a real bubble is….a THOUSAND times (100000.00%) in 30 years…that is what has happened in India and China

  18. It is really rather simple. Just as a basic problem with price controls is that they have quantity effects, so quantity controls have price effects.

    Thus rent control starves investment in rent-controlled housing (a quantity effect which also becomes a quality effect). While restricting the land able to be used for housing when demand is growing (due to population growth and shrinkage of household size) drives up prices.

    Everything else is just special pleading.

  19. One last point I forgot earlier; for ROB’s benefit.

    The rising prices paid by the British for their homes over the last 50 years, has been accompanied by a FALL in the size of these homes and increasing LACK of modern amenities. Homes that are as much as hundreds of years old are not being condemned and replaced; in fact many of them are being partitioned internally and occupied by multiple families.

    The floor space per person in Britain is the lowest in the OECD. Their first home buyer average age is 37. They have social pathologies due to overcrowding, lack of regular exposure to grass and trees, and hopelessness affecting more and more youth who cannot afford housing.

    The “cyclical volatility” of house prices has steadily increased while the “supply response” to each boom, has dropped. The actual shortage of homes in Britain is now estimated in the millions. This is what “Smart Growth” will do to your society. Meanwhile, no “efficiency” gains are identifiable from all this “compact urban form”, for the simple reason that high land prices obstruct efficient location decisions by households and businesses (not to mention “leapfrog commutes”). Paul Cheshire and colleagues at the LSE estimate a “net cost” of 50 years of growth limitation equivalent to a 4% income tax.

    Britain is not “running out of land”; these studies show that Green Belts actually contain more land in Britain than the cities they surround. Location convenient to the Green Belt is monopolised by those who can afford it, while the least well off are entirely deprived of “green space” in their daily lives.

    Cheshire comments that planners need to be able to “ration land” per person, in square meters; because limiting the “total” and then leaving the market to sort it out, is producing massive inequalities; worse, in fact, than “INCOME” inequalities in the first place.

  20. I have 2 sons and 2 daughters in the 16 to 26 year age bracket. My daughter is the only one to buy a new 3 bed unit so far…

    I am advising my sons to do research and to look at ALL newsletters before taking the very serious step of burdening themselves with a massive mortgage…My advice…wait and see what eventuates..

    I think another 1% on bank rates (they will raise without RBA anyway) will unfortunately be the last nail in the coffin for many young families who bought during the hype.

    I trade the currency markets (which are similar to all other markets) and these are driven by Fear and Greed…the fear being the most volatile.
    So when cracks start to appear (a few more forced sales, fear will kick in an all hell will break loose)

    And off course fear markets will over correct, so offering very good opportunities to buy back in bulk.

    Just a matter of watching and waiting..

      • Maybe a property tax for unoccupied investor houses would be a good idea, thereby encouraging investors to put tenants in, or if they didnt want to do that, invest in an income producing business

  21. Rob talks about house size and features but that is irrelvant. The only thing that matters is if someone can afford the repayments.

    For the same reason I don’t think planning restrictions matter that much either. If no one can afford it the land won’t be sold until the price comes down although I agree that the swings will be more pronounced due to speculation.

    • Like Sam, you are totally missing what “affordability” is and confusing it with people buying homes way beyond their means. For example, if you have no way EVER of earning even a single dollar in your whole life, but if you buy a home that costs exactly ONLY 1 dollar on a mortgage given by an unscrupulous bank, is that 1 dollar home “expensive”? It is sure unaffordable to YOU, since you will never earn enough to afford paying for it. But to say that the home is unaffordably expensive and should only cost much less than 1 dollar is the wrong conclusion.

      Unlike the authors of Demographia, I have repeatedly stated what I consider should be base home in doing affordability calculations. I specify this as a 600-sqft apartment for a family of 4 (150 sqft per person). If the median price in a city for this 600-sqft apartment is more than 3 times the median annual income, I agree that housing is unaffordable in that city, as a family of four cannot even afford the 600-sqft apartment.

      I do not have a problem with Demographia using median multiples to calculate affordability. I agree that is a faily good measure. All that I have repeatedly asked them to do is define the home first and apply it consistently across the board to compare across cities.

      • Actually, I think you are misreading what I have said. What I am trying to say is that the size of the house and its facilities is irrelevant. What it cost to build is not necessarily what it is worth. What it is worth what someone can and will pay for it. The builder (or previous owner) will have to take a loss and not pay so much for the land and build such an extravagant house the next time.

        Maybe we are talking about different things?

  22. Several trends over past years related to household income and household formation have worked together to excessively and unsustainably force up property prices to unfair levels. These factors are combined with unchecked commodification of shelter for the population. This is caused by misguided governments who omit to regulate house prices, while unfairly allowing over-leveraged bidders to force up housing costs so they, the government, can benefit from vast streams of land tax, stamp duty, and council rates revenue. Australia’s dangerously unregulated property environment includes many unfair elements that are described well in this blog on Australian housing affordability…..

    Sadly this means every spare dollar of household income is spent on overpriced housing and capitalized into ever increasing house prices as young families battle for decent shelter while speculators unfairly hoard the available housing stock! Quite unfair really.

  23. Many of you are totally missing what “housing affordability” is and confusing it with people buying homes way beyond their means. For example, if you have no way EVER of earning even a single dollar in your whole life, but if you buy a home that costs exactly ONLY 1 dollar on a mortgage given by an unscrupulous bank, is that 1 dollar home “expensive”? It is sure unaffordable to YOU, since you will never earn enough to afford paying for it. But to say that the home is unaffordably expensive and should cost much less than 1 dollar is the wrong conclusion.

    Unlike the authors of Demographia, I have repeatedly stated what I consider should be the base home in doing housing affordability calculations. I specify this as a 600-sqft apartment for a family of 4 (150 sqft per person). If the median price in a city for this 600-sqft apartment is more than 3 times the median annual income of that city, I agree that housing is unaffordable in that city, as a family of four cannot even afford the 600-sqft apartment.

    I have been challenging Demographia to define this “median home” for years, but they are not ready to do it…

    • Single digit is more than 9 ??? My “generation” certainly is not that bad at math….LOL….

      Well, single digit means 1-9x and less than 10x (double digit) and Sydney is at the 9.x level as per Demographia survey.

      While you think you know your math, you prob need a new glasses to read properly, grandpa.

      • That was pathetic, Deo. You would have earned more respect if you had acknowledged your total flub on missing elementary math. To try and fudge your earlier flub and twist it into something else to save your face just made it more embarrassing for yourself. Go back to kindergarden and don’t show your silly face on this blog again…

        • Well, talking about pathetic excuse. I actually did say single digit to refer to Sydney multiple of 9.x which you said quite low. If your eyes can’t read properly, don’t blame others and I am getting tired of your arrogance telling me not to show myself in this blog. Just go back to your cave in the US, old man.

    • The notion that there has to be benchmark “median” home across markets and across time makes no sense. Comparing median household income (ignoring average size of household, which also varies across time and across markets) to median house price in that market provides a ratio which allows you to compare across markets. Trying to impose a particular benchmark median house (why not also imposed a benchmark household size also?) is not merely complicating, it actually tells you less of what you want to know.

      • Exactly, good to see someone else on here with some common sense.

        Rob seems to have ignored what I said yesterday (the 24th) at 9.53 and also at 11.06. Good to get your confirmation, Lorenzo.

        Actually, the regulations themselves are severely distorting what people CAN buy, either in India or in Britain, or in California. I’ll say more for Rob’s benefit below.

      • So you don’t care about the size of the home, right? I have a simple solution that also tests your integrity. Let Australia build millions of 200-sqft studio apartments in the metros where the multiples as calculated by Demographia currently are over 5. Let Demographia have the integrity to include these millions of new “homes” in their median multiple calculation. The median multiple will then collapse to 1x or 2x. Since you do NOT care about the size of the house, let us see if you have the integrity to accept the multiple for what it is then.

        • The logical conclusion to your argument is this. As incomes rise, and population rises, and no further land is released by regulators, the size of homes needs to become smaller and smaller, at higher and higher prices per square foot, just to ensure that 1) “affordability” is maintained and 2) a minimum amount of land is used.

          Interestingly, this is somewhat like what IS happening in Britain. Have you bothered to read my comment about Britain, Jan 24 at 11.06AM?

          The papers produced by the LSE Urban Economics team led by Paul Cheshire, point out that as incomes rise and population rises, yet land supply is not increased; the “cost of space” as well as the premium for efficient location, rises and rises. The result, Rob, is NOT 4-child families living in 200 sq ft studio apartments because that is all they can afford; the result IS dramatic inequalities in the “rationing” of space by market forces. The solution you are mentally envisaging as oh so nice, would require the suspension of land markets altogether; a totalitarian “planned economy”.

          What happens is that “space”, and efficient locations, and amentities; are increasingly monopolised into the hands of a smaller and smaller percentage of the population at the top of the wealth pyramid. The 200 sq ft afforded by the family with 4 children, if that is what they can afford, will NOT be your utopian studio apartment; it will be a couple of rooms in a slum tenement house, divided off by sheets of cardboard, from several other families living in the same dwelling. It will be insanitary, drafty, leaky and unhealthy. This “home” will be the most inconvenient distance possible, from employment opportunities, schools, retailing, “green space”, and amenities.

          At the bottom of the wealth pyramid will be increasing numbers of homeless. The actual shortage of homes in Britain has been calculated in the millions by numerous agencies; the only disagreement is “how many millions”.

          Here is another point to consider in all this. The value of agricultural land worldwide is ROUGHLY similar (within a factor of single digits); and if converted to new subdivisions WITHOUT artificial boosts in the price of the land, would result in similar lot prices per square foot. See Robert Shiller, “Unlearned Lessons From the Housing Bubble”.

          This low priced land becomes the “denominator” from which the price of all urban land should derive according to premiums for LOCATION. The “market” takes care of the rest. People buy what they can afford, the size they can afford, in the location they can afford. The “median multiple” historically ends up at about 3.0. There is nothing illogical about all this, or about the historic ratio between property and GDP.

          In the event that the world ever began to run out of farmland, this low land cost denominator would rise. But even if it doubled or tripled, it would not have anything like the effect that artificially rationed markets for urban land have been demonstrated to have.

          As I said before, Cheshire and colleagues slam the intellectual class of people who “plan” society top-down, rationing “total quantity” of land, with nice mental images of how THEY think society will live as a result; and do not have the first clue about economics, markets, and prices.

          • Phil,

            Your posts are increasingly wordy, drawling and have so many conflicting thoughts that I am not even sure if you are trying to say anything concrete.

            My reply was to Lorenzo, asking if he would accept Demographia’s multiple if it hypothetically mainly came from sales of millions of 200-sqft studio apartments and if the survey then showed the median multiple to be 1 or 2.

  24. I wouldn’t mind betting that there are some very big names waiting in the wings for the correction, then the over correction to buy into the residential market..maybe property funds??

    • One of the “interesting” things surrounding all this, is that the smart hedge fund guys who made a killing on derivatives in the USA when their bubble markets collapsed, have been trying to find ways to do this in Australia. Google “shorting Australian housing market” and some fascinating stuff comes up.

      Christopher Joye has actually been advertising for “takers” of these derivative bets.

      By the way, if you read “The Big Short” by Michael Lewis, you will learn that the smart hedge fund guys were specifically shorting mortgages in the bubble cities only. These guys knew years ago that there was no such thing as “the US housing bubble”. It was confined to cities that had growth controls.

      We are fortunate indeed that a good number of cities in the USA and Canada have not succumbed to this madness, because they provide working models that allow us to compare consequences.

  25. In country towns across Australia it is still possible to buy an investment property and have a POSITIVE return on investment. After a few years the average appreciation in rental income makes the property fairly immune to price fluctuations. In towns near a mine they are a “gold mine”. For all you investors, sell out of the big city while you can, the real money is in country towns.

  26. I would very much like to know Rob’s academic or political background. He wants a 600 sq foot apartment to be the yardstick everywhere in the world, for “housing affordability”.

    Rob, do you know anything about urban economics or land markets? Are you aware that land prices slope up from the fringe to the inner suburbs, by a factor of about 10, in a typical large city? So “WHERE” is your 600 sq ft apartment located, that is going to represent your guideline?

    Have you any idea that in typical cities (absent regulatory distortions), a 600 sq ft apartment is usually more expensive than a large house on the fringe, simply because the apartments are all located close to the CBD? This is a perfectly natural consequence of land prices reflecting convenience of location.

    Metropolitan growth constraints force land prices up, which forces people into smaller homes FURTHER AWAY from efficient locations. This is why the alleged objectives of the regulations are never achieved; i.e. reduced petrol consumptions and emissions.

    Some benefits might be claimed by the planners; anyone who understands urban economics can quite easily grasp the principle I am describing; that these “benefits” will in fact be LOWER than if land markets had been left free to allocate the most efficient locations to the highest density uses, in line with people’s incomes.

    The distortion to natural free market “churn” and allocation of land to “best use”, actually increases congestion, reduces “demand enabling” and interpersonal exchange, and reduces economic efficiency. Ultimately, this will be “all about the economy, stupid”. Cities are the most important part of our economies; not agriculture or mining. Mis-managing our cities basic “factor” of LAND has consequences that “labour”, “capital”, and “entrepreneurship” cannot overcome. (In fact, these things are themselves affected negatively as the entrepreneur class chases “rents” and “capital” is diverted into property ponzi).

    This is all another CLASSIC example of what Hayek described as planners “fatal conceits”, and “unintended consequences”.

    Rob, you would do yourself a massive favour if you’d read a bit of serious stuff on urban economics by the likes of Colin Clark and Alain Bertaud. In fact, the entire “planning” profession should be sacked unless they have passed an elementary exam on this subject.

    The LSE papers I refer to (Paul Cheshire is the leading author) are very blunt on this point: urban planners limiting a resource – “land” – without having the first clue about how land markets and price signals will work out a result that is different to that intended.

    • I have Master’s Degrees in Computer Science and Applied Science. I have no political background, but am strongly conservative in my political and economic beliefs.

      All the theory in the world that you guys preach about low home prices and all types of homes being affordable to every citizen of the country has never been put into practice in India and China. Yet those countries are flourishing, while the developed world is collapsing. I am a very dedicated and proud US citizen that thinks out of the box to see what is really going on instead of blindly following the masses. I post on many blogs and have to confess that I am always outnumbered by the clueless herd. This blog is no different. My prediction is what I stated already. With the self-destructive mentalisty espoused by Leith, Demographia and their ilk, the collapse of Australia has already begun.

      • Rob,
        Do you buy a car expecting it to appreciate in value? Same thing holds for a house. Only difference is house will depreciate slowly. High inflation and other variables like negative real interest rates are creating an illusion that home prices will appreciate. No. A house will start rotting as soon as it is built and one day it will have to be rebuilt. So a house cannot appreciate more than inflation in the long run. It will be good for the country, if property price depreciates slowly. The losers will be banks and real estate agents in this model. So they teach false assumptions.

        • Ken,

          All that I have repeatedly said is that all those kinds of theories should be pointed mainly to India and China, where those theories that you all preach have failed miserably. A thousand times (100000.00%) is what homes have appreciated in India and China in the last 30 years. In the USA, it has not even tripled in the past 30 years in most parts of the country.

          • Rob,
            Over the same past 30 years, Inflation in India was at average 8% per year. Also the Indian currency depreciated to less than 20% of USD. A better measure will be to compare real inflation adjusted returns.

          • Rob,

            I appreciate that you are obviously a highly intelligent person. But you obviously have no intuition for economics. My explanations seem to be going over your head.

            I stand by what I say: even in India, misguided government regulation has resulted in hundreds of millions of people being unable to afford a “legal” home. Here is a recent definitive study on the subject by Alain Bertaud:


            People who know what a “Ponzi” scheme is, certainly are not a “clueless herd”. The prices of ALL assets in an economy HAVE to be derived from INCOMES. At some point, a class of assets that are being flicked on at ever-rising prices, HAVE to exceed the capacity of the INCOME of the suckers buying in, even if the suckers buying in do not back off BEFORE then. At that point, the process goes into reverse. You can expect a dramatic bust to follow a dramatic bubble.

            Besides this, as the bubble inflates, you get less and less people “buying in” – even if this means, as in India, that legitimate seekers after a “roof over their heads” go homeless. Ultimately, the last phases of bubble inflation is supported mostly by “repeat participants” using their capital gains ON PAPER as collateral to finance yet more purchases that they may never find a legitimate occupant for. This just adds to the size of the mess when the bust comes.

            I will say more about Britain and your “size of home” argument above.

  27. Housing affordability in The Netherlands (I leave it to you guys to compare this to your own situation):

    “Tenants spent 25% of their disposable income on housing on average in 2009. Owners were even better off, they spent 16% of their disposable income on housing on average.

    Dutch government routinely monitors housing affordability to assess whether measures taken are effective…”

    Translated from:

    (Google Translate offers a decent way to read this stuff for those willing to do the Oz-Netherlands comparison)

    I would like to add that The Netherlands is big on planning because there is no land left which isn’t already being used. That said, Dutch government didn’t hesitate to convert huge amounts of agricultural land to residential land to decrease housing shortage.

    Also, there are few non owner-occupiers in The Netherlands compared to Oz.

    • Thank you very much for that, you don’t know how much I appreciate that information, AnonNL. I will add it to my list of information.

      The NL has some very good academics specialising in this subject. The following paper is one of the best:

      “Housing supply and land use regulation
      in the Netherlands”

      By Wouter Vermeulen and Jan Rouwendal

      The authors are from:
      : CPB Netherlands Bureau for Economic Policy Analysis

      : Free University Amsterdam, Department of Spatial Economics
      De Boelelaan 1105, 1081 HV, Amsterdam

  28. In ref to a few posts back…. is there/has there ever been a fund that invests directly in Aus Residential? I’d be interested to see how it is travelling?

  29. I think there is a bubble in Australian housing and have held off buying since my return here while I wait for the market to correct. To me there are many interrelated reasons why there is a bubble, but I am more interested in what will burst the bubble here in Perth.
    I expect that correction will be triggered by a sharp contraction in employment. I know we have very low unemployment right now….and everyone forecasts the resources boom to continue for another decade or more. But I do not think employment will hold at present levels for that long. Aside from the potential for demand to slump, given China’s penchant for building infrastructure nobody uses, there is also the fact that much of the current demand for people on the large resources projects is demand for construction workers as the infrastructure is expanded to increase export capacity. Once that infrastructure is in place, the operational workforce required is much smaller….typically only 10-15% of the construction workforce. I work for a company that is benefitting handsomely from that construction boom, but we can already see the end in sight here in the West…and it’s about 2-5 years away. I am in a highly specialised field and when I came to Perth 4 years ago, we had a team of 7, and now are 60 strong. When the construction ends, I doubt there will be full time work here for more than 3-5 of us…seriously…I left this city in the early 80’s because there was no work, and was only able to return 3 years ago because this construction boom created the demand for my services at a salary level attractive enough to entice me back. So what will the 50-55 people we currently employ in that specialised field do once their services are no longer required? We are looking for opportunities elsewhere in the world now, but it’s highly unlikely we could keep our team together, and located in Perth. I believe our specialist group is a reliable indicator of the long term employment prospects of many of the specialist groups that have been assembled for construction of infrastructure on these large projects. Many of the younger, local members of those teams have done what anyone would do in such times of plenty and leverage themselves up into large debts which they can easily service while employed.
    As recent estimates suggest the average household could survive for about 4 weeks without an income, I’d suggest that when employment contracts as all the infrastructure is commissioned, then many of the over-leveraged are going to crash badly. Even if they find other work, it won’t be here in Perth. House prices will then fall just as dramatically as they rose and this is also likely to compounded by an increase in retiring baby boomers quitting rental properties that were only useful as tax breaks.
    There are many locals here who will be bitterly disappointed when the apparent value of their $1-2million house evaporates as geography reasserts itself and Perth subsides once more into a sleepy backwater.

  30. As the co author of the Demographia Survey, readers may like to know the Median Multiple as a measure is recommended by the United Nations and World Banks Urban Indicators Programmes and employed by Harvard University Joint Centre on Housing.

    It is DEFINITELY NOT RECOMMENDED by the Australian Banks or the local property hucksters. The Annual Demographia Surveys are bad news as far as these guys are concerned.

    Housing should not exceeed 3 times gross annual median household income, with mortgages not exceeding 2.5 times gross annual household income.

    Another measure is that total housing stock value should not exceed 1.5 times GDP. On that score there is about $A2.2 trillion of bubble value to vaporize – and the speculators too of course.

    It would appear there are a number of posters here who are understandably concerned when this bubble wealth vaporizes and they get wiped out with it.

    It will be good news for first home buyers when the bubble bursts – which is actually happening now. They are the ones that matter as far as Im concerned.

    Hugh Pavletich
    Co author – Annual Demographia Survey
    New Zealand

  31. PhilBest,

    Thanks for keeping our debate on this very civil. Your post from Jan 26, 12.11pm actually makes most of the same points that I have been making, especially about India. I have repeatedly called out India and China for creating and running the greatest real estate PONZI scheme ever in the history of the world. See my earlier posts. I have repeatedly called those markets as the most ABSURD bubbles ever. I totally agree with you that the top 1% in this ponzi scheme is using their massive returns to acquire even more wealth and expand the ponzi scheme. What I am stunned by is the fact that this ponzi scheme has been going on for 30+ years, and has not shown signs of bursting. There are many that justify the median multiple of high hundreds to low thousands that exist in India’s and China’s metros. I find it extremely ironic that most bubble watchers in the world are solely focused on the multiple being greater than 5 in the developed world and want to bring that down, but they are NOT interested in this bubble in India and China where that multiple is just plain ABSURD. Despite all the theory preached everywhere, what I have seen in practice is that the developed world is collapsing completely (USA, UK, and Australia very soon), while the extreme bubble in India and China is keeping those countries flying high. My posts are mainly to change the perspective of bloggers and make them realize where the real bubbles are, and save the developed world from self-destruction.

    • The Case-Shiller indexes from the past year show that in most of the 20 American cities surveyed in that report, 2010 prices, adjusted for inflation, are LOWER than where prices were in 2000. The USA continues to be undervalued, offering remarkably superior housing at extremely low multiples. Many Indians and Chinese can buy ten luxury homes in the USA with the money they get from selling off their small apartments in India or China. The effects of globalization in reverse is a high possibility.

      • Rob, thanks for those last comments. I can see you have true intellectual curiosity. I am fortunate to have read the results of a discussion on this very point you raise; between 2 people I regard as among the top experts in the world; Alain Bertaud and Wendell Cox.

        Median multiples DO present difficulties when attempting to compare developed nations and developing nations. You really need to look at China and India in a different way. Assume they both have around 300 million people who are roughly as well off as any cross-section of people in a first-world country; AND they have, in addition to this, 700 million people who are the equivalent of “homeless people” in the first world.

        Do you start to see the problem?

        Only the “top 300 million” have real estate property with legal title. The “bottom 700 million” do not participate in any LEGAL market for real estate at all. Yet they DO exist to some extent in “income” statistics. They drag the “median income” down, while not affecting the median “house price” at all.

        IF we WERE able to include THESE people’s “house prices” in our median multiple calculations; we would have to include hundreds of millions of “homes” less than 100 sq ft; built with no safety standards, with cast-off or extremely cheap materials, illegally on property owned by someone else (the govt, farmers, property developers). OR we can regard “the top 300 million” as a self contained, self sustaining market; if we calculated THEIR median income and used THAT to divide the median house price, we would get a result much closer to first world countries.

        No-one has good enough statistics to actually work this out conclusively.

        It doesn’t matter if the figures are 400 million to 600 million; 500 to 500, or even “the other way”; we simply have to take into our reckoning, the distortions introduced by the existence of a massive de facto “homeless” class.

        I am saying that countries like Britain and Australia almost SHOULD now have a large “homeless” class of people who simply cannot afford a home. The reasons would be the same as in India: the “bar” of what constitutes a “home” is simply set too high by the government and its regulations. Maybe people SHOULD be allowed to build smaller homes and skimp on materials and “safety” and “sanitary” standards. That is one issue, but the PRICE OF LAND is just a no-brainer; paying too much for it is like paying ten times as much as we need to for our wood, or masonry, or glass, or labour charges; we GAIN NOTHING for our over-payment. “Bubble values” are payments for “nothing”.

        Imagine if we’d imposed a fee on all first home buyers, of $200,000; “to build roads”. Imagine how many new roads we could have paid for. Imagine the political outcry against this suggestion. So what is so clever about having effectively “paid a levy” of that sort of money, for “nothing”. NO new roads. Only a priveleged class at the top of a Ponzi pyramid laughing all the way to the bank.

        Oh, do read Robert Bruegmann’s essay, “The Housing Bubble and the Boomer Generation”. He calls this “the greatest inter-generational wealth transfer in history”.

        • It is not completely accurate to refer to houses at median multiples of 2 to 3 in the USA, as “under valued”. As I explained earlier, this IS what you get, when you CAN convert farmland to residential. There is hundreds of times as much farmland as residential in the world, so it is impossible for this relationship to be changed under free market conditions. We could double the total residential land, and not push farmland prices up more than 1 or 2 per cent. We could STILL convert farmland into LARGE $40,000 sections, and if we built your suggested 200 sq ft homes, the “land price” for this SHOULD be about $4,000.

          How cheaply could you put up 200 sq ft apartments? I reckon $6,000 each. So there we are, $10,000 apartments on the urban fringe. AH; now consider what the result is when your urban planners have forced the land prices up; tenfold. Oops-$6,000 apartment; $40,000 piddly little bit of land. $46,000 instead of $10,000.

          Do the calcs again, for London, where land prices have been forced up by a factor of 600: a $6,000 apartment on a $2,400,000 piddly little bit of land? Now do you see why low income earners in London are reverting rapidly to living in Victorian era style slum conditions?

          There is another problem I already touched on; when you force your “bottom” income earners out towards the fringe where the “least unaffordable” land is, and they live there in increased densities; what happens to “average commuting distances”? This is what I was going on about before; “the spatial distribution of density”. Alain Bertaud deserves a Nobel Prize for this extremely important insight.

          Bertaud’s studies reveal one primary reason for the sheer ineffiency of the former USSR’s cities; they got denser and denser at the EDGES as they grew, instead of the natural free market way where they get denser and denser at the centre as the fringe expands. Sickeningly, what OUR urban planners are doing to OUR cities is merely a “lite” version of that.

          • PhilBest,

            Another extremely wordy reply from you !!! But I see that perhaps unintentionally, you are making the same point that I have made repeatedly about needing to define the “home” first. You are spot on when you say that the bar on what constitutes a home in developed countries is too high. I repeatedly ask why a luxury home (palace of gold as I term it) is being expected to be priced at just 3 times the median income in developed countries? This is exactly why I suggested using a 600-sqft apartment as the base home to calculate if a family of four can afford to live decently.

            You are also spot on about the majority of India living in homeless illegal makeshift tents. You, like many many others on this blog and others, are also trying to justify the huge multiples in India and China by saying that the median multiples are distorted by this homeless base. I have addressed this in my replies to all those blog posts. Even the United States has very cheap tents, trailer homes and manufactured homes and apartment dwellers. Are these included in the median multiples? If 90% of the population has no chance whatsoever of buying the “legal” home in their lifetime as is the case in India and China, where is the “demand” that bloggers claim there exists in those populated countries? And how are these “legal” homes in India and China even more expensive than the ones in the developed world?

  32. Rob,

    The only thing that I think you have not “got”, is my point about the correct price of LAND, undistorted by regulatory interference. I reiterate: there is hundreds of times as much farmland as there is urban land. Therefore, land on urban fringes should be the same price as farmland; it is IMPOSSIBLE to “run out of urban land”.

    Everywhere the median multiple is inflated much above “3”; there IS regulatory interference that means that people are denied “freedom to build”. (Generally there are oligopolists cornering the available land and conducting bidding wars for it).

    Yes, there are trailer parks and even tent cities in the USA; the numbers of people in them will increase unless the regulators of land back off. Luckily for Americans, there are parts of the USA where you still can “build where you like” and more decent housing options are available. Why live in a trailer when land is available at the correct price in many cities? (Inner suburb land in the free cities is one-tenth or one-twentieth the price it is in the regulated cities precisely because the fringe land is one-tenth or one-twentieth the price. That is why a CBD Condo in Houston is so affordable, unlike in any Australian city).

    The whole point of the MEDIAN multiple, is that it captures the “middle of the long statistical tail”. It does NOT get distorted by gold plated condos in Manhattan.

    You still have not got my point about the significance of the LAND price curve; the condo in the CBD costs dozens of times as much as a decent fringe home because of LOCATION, not because of size or fittings. If you insist that people must live in 600 sq ft homes on the fringe so as to gain low land costs, imagine what that will do for travelling distances to the CBD and everywhere else. (Funny enough, this is why cities in the former USSR were so inefficient).

    I think I have explained enough; if you can’t grasp the analytical framework even after re-reading all my posts, you are far from alone. The entire planning class in the former USSR didn’t understand these realities; and it looks as though the entire planning class in most Western cities today do not either. More’s the pity for our economic future. Free markets actually work, and central planning mostly doesn’t; it must be something about the kind of mind that is attracted to the planning profession.

    • By the way, If you read the Alain Bertaud paper I referred you to before, you would know why these “legal” homes in India and China are even more expensive than many of the ones in the developed world. Same reason that the equivalents in Los Angeles, London, Vancouver, or Sydney, are far more expensive than the equivalents in Houston or Jackson or Salt Lake City or Indianapolis, or even Paris or Hamburg.

      • PhilBest,

        It is very common knowledge that the CBD in a city generally (not always) costs a lot more than the fringes because of location. I don’t need to read LSE articles for that, or blindly follow their theories on changing that cost structure.

        You are basically, again perhaps unintentionally, throwing mud on surveys like Demographia’s. I questioned the size/type of home, and you are now talking about the considering the location. I have talked about all those factors too in many blogs. Shadow put it very succinctly to lead off this thread, pointing out the many factors not considered.

        I did not say that the 600-sqft apartment should be priced the same across cities. Even within a city, I do expect it to vary significantly amongst its suburbs. I meant “local” price to income. If this apartment is priced at more than 3x the local median annual income of that suburb, then it is perhaps one indicator of unaffordability.

        Do Demographia and other such surveys describe what CBDs and suburbs are included in each of their “city” figures? As sprawls continue to occur in many urban areas, who is keeping track of the new fringes?

        I really think Shadow nailed it. We have just come a full circle in this thread.

  33. Rob,

    “Moving fringes” work in favour of “Demographia”, not against them; because these introduce new low cost lots into the metro area. It is the absence of this effect that forces prices up, and up, and up; in those cities that do not allow the fringe to grow freely.

    This is what this argument is MEANT to be all about; what do YOU think it is about?

    I see you and “Shadow” as apologists for this kind of urban planning; that forces land prices up and denies people the chance of a home; whether a young couple in Sydney, or in Bombay. The reasons are the same; the urban planners do not give a stuff for these people.

    Neither do you or Shadow; you are saying “let the Sydney young couple find a garage to live in”, and let the Bombay ones live under 2 sheets of corrugated iron. You seem to regard the fact that there IS always more rough ways people CAN live, as a moral basis to deny them ANY AMOUNT OF land at a fair free market price, wherever they live.

    Who gains, in Sydney and Bombay? A few well-connected property investors; the banks. Friends of yours, no doubt? Great.

    By the way, I strongly agree that regulations about “minimum” sizes and standards and so on are wrong too. People should be allowed to live in 600 sq ft anywhere if they wish. But with fair free market land prices, this would cost them $50,000 or less. With Sydney’s land racket, it would still be over $150,000 even on the fringe; and over $1 million in efficient locations. In a free market, the efficient location would be under $200,000, which is why far more people get to live in efficient locations under a free market, and far LESS people live in these locations in a “growth controlled market”.

    “Growth control” is a wicked fraud, for that reason. It has the OPPOSITE effect on household average travel distances to what it is claimed to have, even apart from “leapfrog commutes”.

    Urban planners ARE endeavouring to de-regulate and introduce incentives so that people CAN live in 600 sq ft in locations where it makes sense; BUT because of the land racket they are running at the same time, even then only a fraction of the people who might be prepared to live that way, can afford it. The planners questionnaires never ask the right questions; they need to include PRICE levels in their “options of how you might be prepared to live”.

    They often tell us “50% of respondents would prefer an apartment close to the CBD”; but they never find out how many WILL choose that if the price is over $1 million; and how many WILL choose that if the price is under $200,000.

    We seem to agree on a reasonable amount; but here is what I put down to you as a challenge. Do you agree or disagree that urban planners should deny people “freedom to build” wherever they can otherwise perfectly legally purchase low cost land i.e. from a farmer.

    Check out the “AudaCity” organisation in Britain, which is threatening to build a settlement on farmland (legally bought) with young subscribers getting a home at as little as one tenth the going rate otherwise; and defying the planning departments Gestapo to have them bulldozed. That is what is needed to actually get the point across when the issue is being obfuscated by so called experts.