Who’s to blame for the housing bubble?

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By Leith van Onselen

Tony Cahill, general manager of wealth management at Bank of Queensland (BoQ), has rushed to the defence of self-managed superannuation funds (SMSFs), claiming that they are not responsible for Australia’s expensive housing. From The AFR:

SMSFs have traditionally gravitated towards commercial property to boost their investment portfolio.

Many DIY fund trustees are small business owners and current rules allow them to invest in a property where their businesses operate.

Yields – or investment income – from commercial properties are also usually higher than those netted from residential assets.

…residential property has [actually] declined as a proportion of SMSF assets in the three years to June…

SMSF borrowing to invest in property contributed to only a fractional 3 per cent of system growth in residential lending.

Similar arguments could be made with respect to foreign buyers, whereby despite rapid growth in the purchases of pre-existing dwellings (see below table), they represent only a “small” proportion of total property sales.

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While it is true that SMSFs and foreign buyers add to demand and help to inflate Australian house prices, they are minor players in the scheme of things. Rather, the blame for Australia’s expensive housing should be aimed squarely at Australia’s housing quango, whereby policy has conspired to pump demand and choke supply.

Specifically, Australia’s tax system makes investment into housing a relatively attractive proposition via a combination of high tax rates on savings, as well as tax generous concessions like negative gearing and capital gains tax discounts. As a result, demand for housing is higher than it otherwise would be, resulting in too much of the nation’s capital being tied-up in housing, chocking-off productive areas of the economy.

At the same time, a myriad of constraints on housing supply such as urban consolidation policies, cumbersome planning approval processes, and high taxes and charges on new homes have forced-up the costs of development, impeding the market’s ability to supply affordable housing and significantly dampening the supply response (see below charts).

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It is government policy, beyond anything else, that is the primary cause of Australia’s housing malaise.

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Comments

      • At least Bananas are consistent (if misguided) in their opposition to development.

        Nimbys are just a bunch of hypocritical, self-interested, [insert preferred negative descriptor here].

      • The great contradiction (hypocrisy?) with your typical BANANA is that they want a cushy retirement with perks funded by taxpayers but they don’t want increased immigration required for the increased tax base. Or if they do support higher immigration they expect the new arrivals to live “elsewhere” and leave their neighbourhoods alone.

        I know this because I work with a few and dammit they’re a selfish little lot. Forget little things like reality, just make it all about ME ME ME!!

      • Torch,
        High Immigration = Higher Tax Base is Ponzi Logic and has already been discredited.

        What matters of course is not the ABSOLUTE size of the tax base, but the RELATIVE size of the tax base to the welfare burden.

        All these “new Australians” will eventually grow old and draw a pension like the rest of us. At best, all a sudden influx of immigrants does is kick the can down the road a little further. Its not a solution to our problems and indeed contributes to housing unaffordability.

      • I think you’ll find a decent chunk of BANANAs simply don’t think people should have to live out in the middle of nowhere with no services, etc, just so they can afford a house.

        That most jobs aren’t in the city centre, and that cheaper housing out in the fringe will leader to cheaper housing everywhere, doesn’t occur to them.

      • BANANAs should be given a simple choice.

        Here is a young family that requires a house. Do we:

        A) Build a new house for them?
        B) Give them your house?

  1. The campaign against NIMBY’s is a red herring.

    Why should people not be able to preserve their neighbourhoods from obtrusive deveopment?

    Part of the price paid for a house is based on the amenity of the area, including the quality of transportation links and when that is being destroyed by developers (based on government policy or the even more dubious spot re-zonings) why should people not object?

    The amenity of my childhood home was destoyed by a rezoning to light industrial of the opposite side of the originally full residential street.

    The people who sold for industrial made a motza, those who were now stuck in residential facing industrial were screwed.

    More power to the preservation of neighbourhoods.

    • The amenity of my childhood home was destoyed by a rezoning to light industrial of the opposite side of the originally full residential street.

      The people who sold for industrial made a motza, those who were now stuck in residential facing industrial were screwed.

      How can people not see the genius of metlfund?

      This is it right here? This is only framed in ‘someone else got paid, I got nothing’.

      When making a “motza”, the gain is planning gain which Philbest keep iterating. Tne you’re doubling up pointing to “planning loss/impairment” for ther other side of the street.

      If rezoning incurred a implementation levy, so the body thaty rezones captures the gain instead of the loand owner, then it’s a break even point terms of sellers and non-sellers.

      Conversely, the residential side of the street… has the potential for vastly reduced commute times.

      So above, will be a person who votes against the overall best interest.. as melty points out.

    • Part of the price paid for a house is based on the amenity of the area, including the quality of transportation links and when that is being destroyed by developers (based on government policy or the even more dubious spot re-zonings) why should people not object?

      Their behaviour is understandable.

      When land is sold it would be great if the contract specified everything else that was guaranteed.

      My old man bought land where he could view EH holdens passing on the road. Some @#$% then went and bought Falcons and Hondas and dad lost the amenity he had paid for. Is that fair?

      • “My old man bought land where he could view EH holdens passing on the road. Some @#$% then went and bought Falcons and Hondas and dad lost the amenity he had paid for. Is that fair?”

        Your old man should have learnt from the (apparently spectacularly successful) NIMBYs and fought harder to keep the Holdens.

    • The population it growing. Where are people going to be accommodated?!

      If Nimbyism is legitimised, we end up in a situation where all current landowners can oppose any development with the result that nothing gets built anywhere because the people living in those places don’t want it – oh wait – isn’t that nearly the situation we already have.

      Under such conditions the only way for people to be housed is to then wait for people to die and thus vacate their houses – this isn’t workable since at current fertility rates new families will form faster than old ones die out.

      Nimbyism is nothing but anti-competitive behavior.

      • “The population it growing. Where are people going to be accommodated?! ”

        Let’s rephrase that.

        There are a lot of NIMBYs who oppose new developments. Why are we allowing our population to increase when we don’t have the accommodation for these new people?

        Our birth rate is below replacement level so we could easily stop the population growing just by reducing our immigration levels.

        Am I allowed to be a NIMBY if I also support a stable population?

      • Even if immigration is stopped immediately more houses need to be built all the time.

        It takes approximately 80 years for people to die. It only takes approximately 30 years for new families to form (30 is the approximate age that people get married in Oz (using marriage as a proxy for family formation)). I suspect that birth rates would have to be much lower in order for the current housing stock to accommodate the future housing needs of new local families.

      • Look, in the affordable cities in the USA, they have long since worked out the solution.

        Preserve nice leafy suburbs with low traffic congestion and plenty of undeveloped space: LET FREAKIN’ GROWTH HAPPEN SOMEWHERE ELSE!!!!!!!

        It ain’t rocket science!!!!!

        And we like to kid ourselves that we are more sophisticated than those gun-totin’ bible-bashin’ rednecks in Southern USA?

        It IS the BANANAS who are the cause of housing unaffordability. Not the NIMBYs. Affordable cities in the USA are FULL of NIMBYs. That’s WHY they “allow sprawl”, STUPID!!!!!!

    • Explorer, the suburban amenity you enjoyed as a child probably destroyed someone else’s idyllic rural or bush amenity.

      Today’s leafy established suburbs were yesterdays sprawl.

      • Mining BoganMEMBER

        LOL, time for another useless anecdote.

        Once upon a time I had a job where I had to drive to work. Beautiful motoring in the morning through the cane fields with the sun just up, looking over the cane towards the mountains. Then one day I saw it. A nasty scar up the hillside. Then another. They ruined my view with ugly houses! Bastards!

        Had a bit of a whinge at work about. Okay, a big one. One of the boys starts laughing. He’d just signed a contract to build there. Reckoned I was jealous. No, just peeved.

        Move on a few years and this guy came in whinging about the new shopping centre being built below him and how it was ruining his views.

        Never said a word…

    • I agree.I live on the edge of Melbourne right next to one of the green zones because I dont want to live in a heavily built up area. Whats in it for me if there was development?
      1) Traffic congestion on old rural roads at the edge of town
      2) A beautiful valley with rolling hills turned into an eyesore of thousands of 500m2 blocks or less
      3) More pollution of every description
      4) Nothing of any use whatsoever.

      I hope it stays zoned that way. If that makes me a NIMBY so be it. I didn’t ask for high levels of immigration and economic “growth”. We should let the electorates that support this model get the high density living they deserve?

      • +many.

        I’m in a similar location for similar reasons and hope for the same zoning outcome.

        I’m strongly against the growing population that is being forced upon me so why shouldn’t I oppose increased development in my area?

      • I understand the desire to maintain your lifestyle but don’t agree with the way you expect it to be achieved. The expectation the owner of the neighbouring land not be able to make whatever use of their land they choose because it provides you amenity the way it is is the heart of the NIMBY problem. I say if you want the land to stay undeveloped you should buy it and be responsible for the cost of holding it.

      • I’m strongly against the growing population that is being forced upon me so why shouldn’t I oppose increased development in my area?

        Probably because you have greater vehemence about paying more taxes to build the infrastructure that would be needed to have the increased population forced on gren title.

      • “The expectation the owner of the neighbouring land not be able to make whatever use of their land they choose because it provides you amenity the way it is is the heart of the NIMBY problem.”

        Why? The zoning hasn’t changed since my neighbours moved in and they presumably knew about the zoning when they moved here.

      • “Probably because you have greater vehemence about paying more taxes to build the infrastructure that would be needed to have the increased population forced on gren title.”

        I’m not sure what “gren title” means so forgive me if I’m not answering what you actually said…

        I’ve been around long enough that you can easily check that I’m not opposed to paying more tax, particularly if it’s going to be used to build infrastructure.

        I am against a rapidly increasing population though.

    • If people have gone through hell to buy at these prices I don’t necessarily blame them. If I had paid $1m for a bogan box I wouldn’t a block of units stuck up next to me either. I have a lot less sympathy for people who bought for half or less the price in real terms given that they’re nearly always quite smug or apathetic about it.

      We need to have a proper debate about immigration, to see whether or not these levels are actually democratically approved. But the media and the politicians deliberately keep it off the table.

      • If I had paid $1m for a bogan box

        What about where an Italian pays top lira for a wog chariot only to have a Nazi-mobile, nip-car, frog-vehicle or yank-tank park beside him in the shopping centre?

      • That’s why they’ve got 4WDs so they can squish us like the irrelevant and annoying peasant scum we are.

        Anyway, if you live in Sydney you’ll know that $1m bogan box is extremely far from being lavish.

        If we’re going to go all in on the mass immigration I think we should destroy nimbys asap and create 100 story unit towers like stink. I can just vaguely respect where some of them are coming from. But probably not, I don’t think there’s much excuse for ignorance anymore.

      • “If we’re going to go all in on the mass immigration I think we should destroy nimbys asap and create 100 story unit towers like stink. ”

        That’s pretty much what’s happening here in Melbourne.

  2. More BS statistics to try and discount the fact that for every house an “investor” buys, an owner-occupier misses out.

    • UE also talks about supply issues but I thought the article was pretty clear on the fact that government policy and tax heavily subsidises investors which is a key cause of our high prices?

      I don’t see where the article disagrees with your point about investors crowding out owner-occupiers?

      • The downplay of investor activity by using terms such as minor is what sh!ts me, like the defence of SMSF mentioned above.

      • Ah, that makes more sense.

        Although the major investors in the residential market are the Baby Boomers/other small investors. Foreigners and SMSF and other Super and investors are also a problem but it’s the ‘ordinary Australians’ that make up the majority and also make any political solution hard/suicidal.
        I like to remind any (usually older) friends being smug about their investment property that they are the reason my younger friends might never own their own home.

  3. “It is government policy, beyond anything else, that is the primary cause of Australia’s housing malaise.”

    +1

  4. Every specufester apologist comes out of the wood work to defend their particular vested interest cash cow. Conveniently ignoring they along with every other vested interest combine to make up the whole festering heap of rotting manure that makes housing unfordable.

  5. Table 2.8 is a record of the foreign buyers that self-reported to the FIRB….Let’s not dress it up as anything more than that.

  6. they are all to blame, and thats the problem. Because there are many factors everyone can point the blame somewhere else or minimise the significance of their particular extortion. who was to blame for the second world war?
    – hitler?
    – weak appeasement policies?
    – communists?
    – the german people?
    – allies treatment of Germany after WW1?
    – the depression?

    • Mining BoganMEMBER

      All of those ran on fear. Fear is the best friend of any politician.

      The fear being used now is either the fear of missing out or the fear of prices falling.

      Fear is the enemy.

  7. SMSFs, and foreign investors may not have caused the bubble, but they are surely helping keep it inflated by adding to demand.

  8. As anyone living in Melbourne’s golden triangle – between Glen Waverley and Balwyn, can see there is only one reason why prices have exploded in the past year.. foreign investors

    It goes as follows.. house listed for sale in Glen Waverley/ Mount Waverley

    Auction comes, asian buyers agent on phone during the auction, bids $20-$50k above the highest bid at the time, house sells for $200k above advertised price after asian buyers agent bidding frenzy

    Three months later house is flattened, new McMansion built, inhabited by 20 something asian kids, parents nowhere to be seen

    • OMG – bang on. Here’s my story.

      Last May I attended an auction on this house http://www.jelliscraig.com.au/property/SURREY-HILLS-5-Newton-Street/5381125/
      It went to a person who spoke with a foreign accent and was of oriental persuasion (sorry i am not allowed to say Chinese investors) for 1.16.
      Last week, across the road a lesser house on slightly more land in the same street went for 1.505m, >300k over the reserve of 1.2m, and 500k over the ESR. http://www.domain.com.au/property/for-sale/house/vic/surrey-hills/?adid=2010978606 There were 5 bidders in the race once it passed reserve, and ALL bidders spoke with a foreign accent and were of oriental persuasion (sorry i am not allowed to say Chinese investors).

      GUESS WHAT. Today, the house that sold last year for 1.16m is back on the market again!!!! less than one year after sale. Will be interested to see what it goes for as it will show how much an already inflated market has ballooned over the past year … and all becasue of people of Oriental persuasion with foreign accents (sorry i am not allowed to say Chinese investors)

      • The vendors must be laughing, only thing is they now have to pay these crazy prices to get back in the same area, so I wonder where they end up?

        I have been to a fair number of auctions over the past year as friends have been looking to buy in my area, have yet to attend one where a person of non asian background has won the bidding, and I’ve seen some bidding wars of run down homes, obviously there is no interest in renovating or living in that home as the buyers are required to knock down and build

        My area now resembles a building sites, anything over 600sqm is selling for $1.2 million plus

        While not too far away there are suburbs where prices haven’t budged due to a lack of interest from this particular group of investors

      • OMG, I wouldn’t be too concerned about the vendors paying crazy prices to get back in the area if they are of Oriental persuasion. The fact is that many (not all, but many) have access to corrupt funds back in the old country, and there’s plenty more from whence it came, so they are easily able to pay the crazy prices. We can’t possibly compete as we don’t have anywhere near the same level of corruption here.

    • The ‘golden triangle’ in Melbourne and similar areas in Sydney are not the “Australian property market”. Further, auctions account for up to 2.5% of all stock on market (excluding that for sale but not publicly listed).

      Curious to know what is the attitude to foreign buyers who are not ‘Chinese’? One would think it is only ‘Chinese’ who buy property, with undertones of ‘dodginess’?

      If people in state capitals i.e. Melbourne and Sydney, don’t want foreign investment fine, but don’t throw the baby out with the bathwater, but send them to regions where they will be welcomed, and their investment too.

      Meanwhile, as we approach the downsizing and declining permanent population (i.e. PRs and citizens, ex temp immigrants who inflate population), with increasing supply or bubble of apartments (according to AFR), we will be grateful for any investment in property.

      • Agree, they aren’t the Australian proprerty market, but they are the two with the most growth in median price over the past year

        I agree that we don’t want to deter foreign investment, but I think it should be only kept in place for new apartment builds and not for buying existing homes

        Not sure where you are located but over the weekend there were five homes that sold in Glen Waverley for between $1.3 million to $1.6 million, to put that into perspective, GW is almost 30kms from the CBD of Melbourne and until recently the median price had hovered around $700k

        I’ve lived around the area for a long time and am shocked by the level of demand from foreign/local Chinese buyers

        So this does benefit those that can off load their homes in these areas, for the rest of those living here it means their chances of buying a home in the middle ring Eastern suburbs are now slim to none

  9. I don’t know if Sydney has a golden triangle but the rings around it are effectively zones of exclusion for many folk who will never be able to buy there. This site seems to be Melbourne centric but in Sydney’s outer SW an average house is about 500,000 and million dollar places are common. The half million joints are at the ” cheap” end of the scale. In a country with so little land as Australia this is ridiculous. Seriously,it’s no joke. The policy response– import more people.

    • It is probably a similar situation in Sydney in areas like Chatswood, Ryde and Surry Hills, hope I have those right, where a particular group of buyers are taking all that is in their path

      Anything outside of the triangle in Melbourne has seen stagnant prices since 2011, while the ‘in demand’ suburbs have increased 10, 20, 30 and even 45% (balwyn)

    • You know who are the true losers in this country? The “journalists” who have to continually come up with more and more idiotic topics for these real estate articles.

      Edit: How easily I forgot the morons who are happy to publicly display their stupidity in return for their fifteen minutes of fame.

  10. OMG I don’t know the suburbs of Melbourne all that well. Here prices are going up just about everywhere. An example- someone very close to me bought a three bedder on a good size block in Bradbury near Campbelltown some 55 Kms from the CBD 11 months ago. The price 330,000. The agent who sold the house says it would now go for 380,000. This is entry level territory and she is a FHB. GUESS WHAT. She was bidding against Chinese.Prices are becoming decoupled from incomes so that will be a major factor in the overdue correction. By inclination I am a Malthusian so I see the big picture from a population viewpoint.

  11. Yeah, yeah let’s again pretend not to see the elephant in the room. Monetary system? No no look this way! Nothing to see here.