Housing shortage chimera rises

ScreenHunter_07 Mar. 20 20.55

By Philip Soos and Paul D. Egan

Over recent weeks, commentators have repeatedly claimed Australia’s high housing prices are due to a supply shortage. Former Treasurer Peter Costello blamed surging housing prices on a shortage, as did Alan Kohler. Treasurer Joe Hockey has a similar perspective, claiming:

It is just an infinite mantra for international commentators, for analysts based overseas to say ‘well, you know, there’s a bit of a housing bubble emerging in Australia’. That is rather a lazy analysis, because fundamentally we don’t have enough supply to meet demand. That doesn’t suggest there’s a bubble; there might be a price increase of some substance, but you’d expect the market to react and produce some more housing.

For over a decade, the common refrain is a shortage of dwellings has driven up housing prices. It is a mantra repeated endlessly by government, industry and academia. While it is easy for vested interests to claim a shortage exists, the data paints a different story. A good way to examine whether an adequate supply of housing exists is to compare the flow of new dwellings to new net population. Many analyses simply look at the relative or absolute change in dwelling stock, which is pointless without first considering changes in population.

Also, comparing the flow of new dwellings to existing population says little as new supply matters most to the net flow of new people, rather than the majority of the population who are already housed. It is important to note there are factors that are not captured in the ratio that require additional consideration:

  • The total population measure is used, although only adults should be considered, for children don’t purchase homes, make mortgage payments or pay rent.
  • An increase in the natural population through births doesn’t automatically necessitate new dwellings be built, though it may result in families upgrading to larger dwellings.
  • Renovations and extensions of existing dwellings are overlooked, but generate additional housing capacity.
  • Many immigrants arrive in groups, requiring only one dwelling per family/shared household.
  • Building completions do not take into consideration dwellings that are demolished, condemned or held off the market.
  • The slow rise in sole occupant households, divorce and/or childless couples (demographic change) may drive a long-run trend toward lower occupancy rates in general.

A total housing stock series adjusted for demolitions would be better than using housing completions, but there are no long-term housing stock series available for the states and territories on a quarterly basis. The series for building completions, however, provides a reasonable measure to illustrate general trends. Overall, the factors above probably have the net effect of understating supply. Due to the volatility of these data series, a 4-period moving average (4PMA) trend line is used to clarify the trends.

Egan_Soos_01 Egan_Soos_02 Egan_Soos_03 Egan_Soos_05
Egan_Soos_04 Egan_Soos_06

Between 1996, when real housing prices began to boom, and 2006, just before the onset of the GFC, Australia built, on average, one new dwelling for every 1.5 new net persons. The ratio then surged during the GFC as uncertainty, debt deleveraging, fraud and insolvencies swamped property developers, leading to a reduction in the rate of building completions. The rising ratio was boosted by the government’s foolishly high population growth policies via immigration as they sought to lift the weakening economy.

This appeared to create a genuine housing shortage between 2007 and 2010, as both the nominal rent to inflation and rent to income ratios strongly increased, and the ratio of new people per new dwelling exceeded the overall occupancy rate (2.7) for the first time in over four decades.

After 2010, nominal rents tracked the rate of inflation, and are now falling steeply in Perth and Canberra, with Brisbane likely to follow on the end of the mining investment boom. This indicates the GFC-induced shortage has abated, and supply has resumed its trend, even in the face of higher population growth.

It should be noted that most demand for housing comes from buyers, not tenants. Thus, a rise in imputed rents on owner-occupied housing, not actual rents on the investment property stock, signals a shortage in the housing market. Unfortunately, data series of quality-adjusted imputed rents are not available, and would still technically require the ‘user cost of capital’ method to properly assess the trend in imputed rents.

Nevertheless, the long-term residential price to rent ratio, which combines total imputed and actual rents, experienced a steep surge beginning in 1996. Economist Dean Baker, who identified the US bubble back in 2002 and predicted the GFC, noted “No one can produce an explanation as to how fundamental factors can lead to a run-up in home sale prices, but not rents.”

Egan_Soos_07

From the trends identified in the graphs, it is clear the supply of housing has been more than sufficient to meet new net population growth. In some years, there has been more than one dwelling built per person, while at other times, there has been a continual growth of housing supply while population growth turned negative. Over the course of the housing price boom beginning in 1996, Australia has built, on average, one new dwelling for every 2.0 new net persons. This is in line with the post-WW2 average of 2.0 between 1946 and 2012.

The inadequacy of the housing shortage argument is apparent for the trend in the NSW ratio. Sydney, which dominates the state’s housing market, experienced a massive price boom between 1996 and 2004, yet over this period, one new dwelling was built for every 1.4 new people. At the peak in 2004, the ratio decreased to an insane 0.2 (the trend line removes some of the visible precision in the ratio). In other states and territories, the ratio turned negative, indicating negative population growth in the face of positive dwelling construction, even while prices remained steady or even rising.

The housing booms in both the US and Ireland was blamed on shortages, but the real cause of high prices were speculative bubbles. The graph below shows that between the mid-1990s (when prices began to rise) and the GFC, Australia’s supply was superior to that of the US, but below that of Ireland. The latter country had an epic building boom, with a ratio of 1.1 between 1995 and 2007, the trough and peak of real housing prices.

Canada probably has the world’s largest current housing bubble, but with a ratio of 2.1 between 1996 and 2014 (similar to Australia’s), it is highly unlikely this country has a housing shortage. Canada’s ratio closely tracked that of the US pre-GFC, and continued post-GFC while the US housing market crumbled.

Egan_Soos_08

No country better illustrates the utter absurdity of the housing shortage argument than Lithuania. This country experienced an insane housing bubble in recent times, with the real (seasonally adjusted) housing price index increasing from 25 in 2001 to 200 in 2007; a boom of 700 per cent! This is an average annual increase of 117 per cent between 2001 and 2007. The Lithuanian housing bubble dwarfs even the massive Irish bubble, approximately double the size in real terms from trough to peak.

Egan_Soos_09 While data from Statistics Lithuania are clearly not as reliable as the ABS or the statistical offices of other developed nations, it is sufficient enough to show the trends in housing and population during the boom and bust. Its population has been in constant decline since independence (Modern Lithuania).

Lithuania has a housing stock of around 1.3 million, which hasn’t grown. Unsurprisingly, between 2004 and 2013 (where data are available), the total housing stock declined by 0.2 per cent or by almost 2,000 dwellings. Population fell by 12.6 per cent or a net -427,000 persons over this period. Although both dwellings and population have fallen, this translates into an effective decrease of 214 people per net demolished dwelling!

Even though the housing stock declined slightly, there was a constant flow of building completions of a couple thousand per quarter, likely replacing old dwellings in prime locations. Comparing the ratio of net population change to building completions yields a persistently negative ratio, given the extreme net emigration. In 2007, the Lithuanian population fell by 40,000 while the housing stock increased by 6,000 dwellings – as prices boomed to its peak.

Egan_Soos_10

It is clear dwelling shortages were never the cause of the international housing booms, but Australian commentators continue to blithely make this assertion. The most authoritative body on this issue, the (now abolished) National Housing Supply Council (NHSC), made these claims in numerous reports. Their comprehensive analysis is well worth reading, given the wide-ranging study of Australia’s residential property market.

Unfortunately, the NHSC analysis is identical to those authored in the United States, during the build-up to its largest housing bubble on record. The conflicted NHSC produced questionable analysis to arrive at a preconceived conclusion. As one of the authors previously stated:

Take the US as a case study. Leading institutions such as the Federal Reserve, National Association of Realtors, California Building Industry Association and Harvard University’s Joint Center for Housing Studies produced sophisticated studies to show that the $8 trillion housing boom was caused, in part, by dwelling shortages. These studies were authored by professors, PhDs, and businesspeople, all with extensive knowledge and experience but with conflicts of interest that could fill a small book. Yet, their expertise was as illusory as the shortage when the housing market crashed. The same again occurred in Ireland and Spain to the point where these three countries are now bulldozing entire neighborhoods to reduce some of the massive oversupply.

The housing shortage argument is also used to claim Australia needs more investment into the residential property market, whether domestic or foreign, to increase supply. Strangely, the housing market functioned relatively well during the 1960s, 1970s and 1980s with a household debt to GDP ratio of around 10 to 20 per cent and a low proportion of property investors relative to owner-occupiers.

The ratio has risen close to 100 per cent in recent years, the result of debt-financed speculation – a primary cause of bubble-inflated prices. More of the same is not the solution, but this helps explain why the government refuses to take action to constrain accelerating debt. Despite the certain hardship and risk in allowing the trend to continue, the contribution to short-term GDP growth provides the illusion of prosperity and competent economic management.

Egan_Soos_11

The RBA refuses to implement macroprudential regulations, the FIRB is unwilling to enforce foreign investment rules, APRA allows the Big Four banks to use generous, opaque and manipulated internal ratings based models to determine wafer-thin capital buffers, ASIC declines to investigate serious allegations of subprime fraud, unfettered self-managed super fund property investment is booming, and government will not consider reregulation of the banking and financial sector or reduce leverage-inducing tax expenditures.

As noted in our forensic investigation of the banking and real estate markets – Bubble Economics: Australian Land Speculation 1830-2013 – the Australian economics profession has never managed to identify any growing asset bubble or predict the subsequent economic fallout. There is no evidence economists warned about or even noticed the real estate bubbles in the 1830s, 1880s, 1920s, mid-1970s and the late 1980s, or the stock market bubbles of the 1920s, 1987 and the Dot-Com.

Not only does the mainstream economics profession have a 100 per cent failure rate in forecasting, but economists across the board expend significant effort into denying bubbles exist, as was the case with the Dot-Com bubble, and the numerous housing bubbles in international jurisdictions. If elite Harvard/MIT/Chicago economists not only missed the largest housing bubble in US history, but also denied there was one, what hope do Australian economists have?

As history patently reveals, the answer is ‘exactly none’. Ignorance and/or denial are standard fare, and we should not expect anything different. Treasurer Hockey may wish to review his position, for the easy and lazy analytical path is actually being trodden by those economists and policymakers claiming that high housing prices are caused by a mythical shortage.

Confronting the real causes would require our compromised legislature to proactively respond, instead of rigging government and market outcomes to benefit the growing power, profit and authority of the horde of private monopolists, usurers, speculators, rent seekers, free riders, financial robber barons, control frauds, inheritors and the indolent rich.

Hockey’s comments should come as no surprise, for he owns a home and four investment properties, and is involved in a family real estate agency. His home in Canberra, purchased for a bargain basement price of $320,000 in 1997, is now worth an estimated $1.5 million, having increased in price by 369 per cent in nominal terms.

There is an obvious incentive to oppose any analysis and/or policy that could potentially reduce the mountain of unearned wealth and income flowing from surging land prices (economic rents). The conservatively estimated $300 million in real estate owned by the federal politburo means this bias is widely shared by all in parliament.

In conclusion, there is no housing shortage as is commonly claimed, though a temporary shortage did emerge during the GFC. Australia is a mirror image of other countries where high housing prices were also blamed on a shortage, always revealed, in hindsight, to be a chimera.

Comments

  1. I respect and agree with what you have written, however the cocktail of toxic policy has created a homelessness crisis that is apparent particularly in the regions.

    While technically you are likely correct, the reality appears inconsistent at least for the most vulnerable families.

    My opinion is we need more and more affordable housing in the regional cities. Using the proceeds from a NG rollback to finance these projects.

    • Exactly: I keep pointing out that an oligopoly in food could be “producing enough food”, and yet selling it at prices that mean that some people starve because they cannot afford it, and the oligopoly claims that “because some of the food goes unsold and spoils and has to be dumped, the supply chain that we are manipulating is nothing to do with the high prices or the starving people”.

      • Oh sod off building a million apartments sold to non inhabitants solves nothing for the homeless, popping the credit bubble will.

      • Mig; what about your comment, is actually in disagreement with my comment? Can you read and think? You say something in agreement with me while your whole attitude and tone is that you are disagreeing? I can’t make you out, what are you smoking?

      • Nonsense, the allusion to food is a canard, all oligopolies work that way, even the ones in Texas Phil, you know the lone star state, head quarters of Free Mansonry, the ones you keep imploring everyone to emulate.

        You keep talking about production and control of the output as though that is where homelessness stems from.

        Rubbish it stems from easy credit, declining wages and lack of opportunity not because some landlords are throwing out food ffs

      • average. [11] Once the U.S. housing price bubble burst, national prices moved down closer to those in Texas, and the median price in Texas ($135,000) is now about 75 percent of the national figure ($180,000).
        There is some debate about why housing prices did not soar in Texas along with the rest of the country. Whether it was because Texas was the last state to allow homeowners to borrow against their homes through equity loans and placed strict controls on the amount they could borrow, or whether it was the plentiful land or some other reason, there is no doubt that Texas did not face the boom and bust in housing that preceded the 2007-2009 recession in many states.[12]

        Something else any fool can do…

        http://www.cbpp.org/cms/?fa=view&id=3739

      • Go hang out in the favelas of Sao Paulo or the barros of Buenos Aires if you want to see what it’s like to build anything, anywhere.

    • Sure. Some regions have homelessness. That’s clearly not because of a lack of homes though is it? Has that really ever been the cause of homelessness, or is it more an issue with how we distribute resources to society’s most vulnerable.

      Also, the stats shows that the homelessness rates has fallen in QLD, SA and NT in the past decade. So it is not at all clear that some recent supply phenomena is related to this issue.

      • I have consistently argued that it is not necessary to have a “shortage of homes”, to have a distorted market in which extractive economic rent exists versus consumer surplus. The key to understanding this, is the subject of “supply quotas” and their mechanisms.

        I have also consistently argued that it is quite possible to have a bubble with oversupply as well as inflated prices.

        But affordability and consumer surplus ALWAYS exist ONLY where “supply” is potentially superabundant, there are no barriers to new entrants to compete in the supply process, and there are no quota schemes in the supply.

        I recently found an academic paper on the Spanish housing bubble, which stated that from the start of the bubble to when it burst, the government progressively increased supply of land for development, to a peak of 30% higher than what it had been at the start of the bubble. The author interpreted this to mean that this increase in the land quota was a bad idea, because it led to “overbuilding” and did not reduce the prices.

        But it is patently obvious that in all the NON-bubble markets, there IS NO QUOTA TO START WITH, TO INCREASE BY THIRTY PERCENT, or ANY percent.

      • Phil, you are not leaving yourself much o a leg to stand on. You’ve been defending the shortage argument, and that need for supply side intervention, and now you are argument that supply is irrelevant!

        Now you are left with the argument that the existence of any rationing scheme (despite the fact that private property IS a rationing scheme) will cause a price bubble INDEPENDENT of its actual effect on supply.

        That’s really getting into fantasy now.

        Regarding you comment about ‘superabundant’ markets, take a look at what’s happening to prices in Houston these days – up 11% last year, same as Australian capital cities.

        http://www.har.com/mls/dispPressRelease.cfm

      • In the early days of Macrobusiness, the discussion was much the same as on the current thread.

        My analogy (although I never articulated it) was that if India and that demand for housing SHOULD mean that INDIA should have the most EXPENSIVE housing in the world.

        But it doesn’t because there are LAWS of economics and our current woes are due to neo-classical economics suggesting there are no laws of economics LIMITING consumption, growth etc.

      • tonydd,

        You don’t think housing in India is expensive compared to incomes for the quality? I think you need to read up on Indian housing markets.

      • Now you are left with the argument that the existence of any rationing scheme (despite the fact that private property IS a rationing scheme) will cause a price bubble INDEPENDENT of its actual effect on supply.

        In Phil’s defence – and it’s not often I’d say that, nor do I actually agree with his “build anything anywhere” philosophy – I’m pretty sure that’s been his consistent message for a couple of years now.

        Regarding you comment about ‘superabundant’ markets, take a look at what’s happening to prices in Houston these days – up 11% last year, same as Australian capital cities.

        It’s a brave man who draws a trendline from a single data point.

        A 10% increase on damn cheap, is still cheap. No-one has ever argued Texas doesn’t have short term fluctuations, but that over the long term housing remains cheap.

      • Sure, Phil has been on message, but by his logic I could promise to implement a policy in 30 years time to make housing affordable, and prices would magically plummet on this expectation. Because it is not supply that matters, but the fear of future supply… or something.

        Also, Phil and Hugh and Leith for that matter have never established that housing in cheap in Houston. As I have said many time prices are determined by rents, interest rates, taxes and other costs.

        The cost of housing is not the price alone.

        Many indicators show that Houston housing is not uniquely cheap. In rent to income ratio it is much the same as Portland,

        http://seattlebubble.com/blog/2013/03/29/top-30-cities-price-to-rent-price-to-income-ratios-2011/

        I’m sure with a bit more googling I could find a time series showing this to be the case.

        There are also many affordability metrics now that consider transport costs as part of the locational cost of housing.

        http://htaindex.cnt.org/

        And Houston doesn’t do well on that either.

      • Much of this passion seeks a single cause for The Great Australian Land Bubble.

        However there are four:

        1.Speculative appetite

        2.Willingness to lend

        3.Restrictive Planning

        4.Bad taxes that advantage property

        If in the crash we repair the first three and leave bad taxes untouched, we will be right back here in a few short years. This nonsense can be permanently remedied with universal nil-exemption land taxes.

        If we reform tax in the way the Henry Review suggests and do nothing else, the other three lose their driving power.

        We haven’t run out of dirt. We haven’t run out of houses. We have come to a financial and cultural dead-end.

        No one wants to be responsible for this appalling state of affairs – perfectly understandable. Resolution will be delivered by Mr Market. He will pick off the scab and expose the running sore of debt. And boy, that’s going to hurt.

      • Thanks, DrSmithy – you have nailed it.

        I have noticed newer contributors to these discussions not crediting me with my actual position on these arguments going back many years. Rumplestatskin should know better than to accuse me of being a defender of the simplistic “shortage” argument.

        To respond to him specifically; yes, a quota scheme can enable undersupply and price inflation, and it can enable price inflation and temporary oversupply, after having restrained short-term supply elasticity sufficiently to start the speculative price mania. In the LONG run, the price fall will be greater and the recession longer, if there has been oversupply meanwhile.

        In NZ in the early 1980’s, a quota auction system was devised for car import licenses. Car assembly in NZ largely shut down at this time. The quota system was abandoned after having its quantities expanded year on year as the government saw revenue to be had from it – the price of imported cars did not fall, but in fact rose even as the successful bidders for quota bidded higher and higher to out-bid each other for the available supply, even as this supply was increased.

        Then there was a spectacular glut of used cars on lots and in storage, owing the importers a higher cost than the buying public could stand, and the largest importers all went bust. The government abolished the quota scheme, anyone could import cars, and the prices stayed low from then on.

        “Private property” is not a rationing system in the sense that zoning is. The amount of land able to be put to use by an urban economy IF it was allowed to, is so abundant that it does indeed have the effect that truly competitive absence of barriers in any market, has. There is nowhere this is more starkly obvious than in countries that are 1% urbanised yet have house price median multiples up to 9 in some cities.

      • Portland has a “vent” market just across a river in an adjacent State, which helps ameliorate the fully toxic affects that it SHOULD have incurred from having a UGB. That is the city of Vancouver, Washington State.

        “Housing Plus Transport” cost indexes that purport to show savings in house-price-inflated cities are rigged, fraudulent and dishonest. Any young couple looking at location decisions here and now could tell you that. Those young people feel like young North Koreans being told they are not starving, by the elite scum.

      • Phils argument about quotas correlates wit making customers captive.

        The point of speculative acquisition is to be an intermediary, ultimately sell along the path to the final buyer and take a margin on the way.

        The final buyer displays greater urgency if they are captive. In the absence of captivity, then the acquisition is valued only on utility,….. a yield.

        No one can be captive is the supply response is potentially unlimited… or superabundant.

        A quota, no matter how large, places a limit on the supply response and has the potential to make consumers captive

      • Sure Rus if you ignore the consumer is captured by ability to earn income. I.e live a reasonable distance from income source…

      • Nup, we don’t even have that here.

        If it was all a location premium, wed have extremely cheap houses in undesirable locations.

        Their effect would apply some arbitrage pressure.

        But we don’t, hence the high prices in Darwin (where there should be limitless arbitrage), and many other regional cities charging 7+times wages.

        Everyone is captive. To exert downward pressure on banana price, you go without bananas.

        To exert downward pressure on houses is to be homeless. That’s not plausible.

  2. Using Lego with kids to explain affordable housing and the Demographia Housing Survey http://www.demographia.com

    … clever teachers … clever kids … now they might teach the politicians with learning difficulties …

    Cameron Murray of MacroBusiness Australia clearly needs to attend one of these classes …

    Lego teaches about housing issues | Libby Wilson | Waikato Times

    http://www.stuff.co.nz/waikato-times/news/10536039/Lego-teaches-about-housing-issues

    … extract …

    Session leader Ellen van der Knaap, from Habitat for Humanity, said the build challenge was a good way to make kids aware of housing issues.

    Affordability meant housing costs left money in the budget for other expenses; habitability was about protection from the elements; and suitability was about location and access.

    The 10th annual Demographia International Housing Affordability Survey classified several New Zealand regions as “severely unaffordable” and Hamilton-Waikato was among the “seriously unaffordable” areas.

    • Hugh, I have two questions for you:

      1. Are you (or have you been) involved in the property development industry?

      2. What is easier to do, increase supply or reduce demand?

      • The Lorax … thank you for your questions … in response …

        1. I have extensive “grounded” (in contrast to superficially learning it out of books) experience as a commercial property developer, industry leader and international advocate. A short biography is at the end of the Annual Demographia Surveys http://www.demographia.com

        2. Increase supply with affordable land and infrastructure financed properly, along the lines of the Texas Municipal Utility District bond financing model. There is introductory information about this model down the left column at http://www.PerformanceUrbanPlanning.org .

        I do hope Leith responds with a break out of the detached / apartment housing build vols and trends … expressed as the build rate per 1000 population per annum … which clearly shows the gross under-building of detached over recent years / decades.

        I am actually quite shocked with the gross under-building of detached in Australia. Much of the apartment stuff really is bubble rubbish … which is not what people really want.

      • Yeah forget Hugh ‘Huge Profits’ Pavletich – he is a lost cause. He is top of my List of those who seek to divert attention away from real and immediate action on the demand side by derailing the debate with supply side waffle. Go away Hugh – you are a property industry troll, as much an industry shill as 3d1k.

      • 1. Would be true to say much of your career was spent developing property?

        2. Surely it would be easier to simply slow immigration or get FIRB to its job than completely reform the planning system in Australia?

      • Moderate Mole (in the “whack-a-mole” sense); Hugh is a rare example of a property developer with the integrity to walk away from a poisoned industry and go lobbying.

        The capital gains, zero-sum, made by vested interests in urban land rent, are orders of magnitude greater than the modest and honest profits made by developers who actually focus their entire business on building stuff in response to demand in a genuinely competitive market.

        When the planning racketeers enable the big land price gouge, developers have two options: get out, like Hugh has; or become hostages to the racket and risk spectacular bankruptcy versus potential “creaming it” in the event of out-surviving their competition. This is immoral – property development should not be a tactical game played at the expense of the young, renters, and the general economic interest. It should be like any industry, driven by demand, competitive supply, and honest prices and profits.

      • @ Phil

        No Phil, he (and you) is a shining example of self-interest and greed masquerading as the national interest. Even more disgraceful when you’re both from New Zealand. Just two property developers looking to milk the market for all its worth. You both make me sick.

      • Moderate Mouse … when abusing others with grossly inaccurate statements, it would be appreciated if you would refrain from being a coward hiding behind a pseudonym.

        Could you tell MB readers your real name and who you work for?

        I have been battling the industry protectionists for quarter a century … so that consumers can get market priced product.

        Be assured they don’t exactly thank me for it !

      • @ Hugh & Phil

        Here’s a link to yesterday’s most commented blog – the new rules proposed by Kelly O’Dwyer to clamp down on foreign purchasers. This matter is a huge issue at present, inflating the market further and driving prices far out of reach of the ordinary Australian (who you both claim you are advocating for).

        My point is this: for two guys who supposedly only have the interests of ordinary Australians at heart, and who both seem to find plenty of time to make multiple comments daily, why is there not a SINGLE comment from either of you on this thread? I would think this silence speaks volumes of your true motives. Again, you both make me sick. Your spruiking lies might fly in New Zealand, but not here. We’re onto you – and you stink.

        http://www.macrobusiness.com.au/2014/09/industry-groups-slam-proposed-new-foreign-property-laws/

        As for my real name Hugh – Mr Phuk Hu.

      • Moderate Mole,

        There are US cities where house price median multiples have remained stable at around 3, when within a single decade, they have grown in population from 4 million to 5 million, and you would claim that stemming the number of people demanding housing is the priority?

        For the period from 2000 to 2010, there are examples of cities in the USA that grew from 3.8 million to 5 million people (Houston); from 3.5 million to 4.5 million (Atlanta); from 900,000 to 1.35 million (Austin); from 760,000 to 1.25 million (Charlotte, NC); from 540,000 to 880,000 (Raleigh, NC).

        I have opinions on immigration, but “stemming the numbers of immigrants because they make housing unaffordable” is a deeply dishonest argument against immigration.

        I am in favour of QUALITY barriers to immigration, completely unrelated to the issue of housing affordability. Immigration can be and has been in the course of history, massively beneficial to many nations. Getting immigration wrong now, is due to stupid internal politics, not to the virtue or otherwise of immigration.

        I am a non-PC person myself, but I condemn housing unaffordability being used as a fabricated basis for xenophobia. Australia welcomed waves of immigrants from Italy, Holland, Dalmatia, etc in a past golden age and no-one had a nervous breakdown over where they would all live or the locals they would “price out”. A lot of them joined the building industry……! Their descendants are fully integrated Australians.

        Taken to its absurd extreme conclusion, no-one should have come to Australia in the first place, the Aborigines should have had urban growth boundaries and colonial settlers should not have been allowed to build anything even if they financed it and the infrastructure for it, themselves.

      • @ Phil:

        “stemming the number of people demanding housing” is a priority!

        populationparty.org.au/

        Get around it

      • and don’t take it to “absurd extremes”, as you put it…. just get your head around carrying capacity, sustainability and let go of your aspirations for endless limitless economic growth

    • Others are right that Hugh has a vested interest.

      He has repeatedly ignored how the mythical shortage can affect prices but not rents in the Australian cities where shortages apparently exist.

      • Rumple … I’m as pure as the driven snow … having since the creation of the first Demographia Survey late 2004, put in some 10 years / 30,000 hours of voluntary time on these issues.

        And I have never been a housing or subdivision developer !

        The reason why rents have not escalated to the same degree, is because of the massive expansion of the rental market … as the Authorities have created the scarcity environment for the already propertied “stack up merchants” to hog in to the market, crowding out the real home buyers / occupiers.

        Break down the artificial zoning barriers and lower land prices and you will find the speculators losing interest very fast … as real home buyers opportunity to participate in the market is restored.

      • Hang on Hugh,

        You are now saying there has been a massive expansion of the rental market because investors are crowding out owner-occupiers.

        I really wish you’d look at some facts.

        Australia’s home ownership rate has been flat at 70% (give or take 1%) for almost 20 years.

        And you continue to ignore the massive amount of rezoning that occurred in the last 20 years, which in your model, should have crushed prices.

        You seem to hold Leith’s view that rezoning a little land won’t do anything for supply, but rezoning all land will suddenly have a drastic and immediate effect.

        I can tell you that in Queensland there is almost continual rezoning happening of many hundreds of thousand of potential new lots each year. And almost all of them are held off from development.

        In my suburb we had extensive rezoning in 2004, and again in 2007. The capacity of new housing under these rules is around 15,000 dwellings. So in the last ten years, how many have been built? Around 15%. This rezoning is a 70 year project at this rate!

      • It was Milton Friedman who said “You could teach some people economics for 20 years … and they still wouldn’t get it”. thats Rumple and the Mouse … as two examples.

        May I suggest these two (Rumple and the Mouse) read closely one of my most heavily read articles HOUSING BUBBLES & MARKET SENSE … taking particular note of Professor John Alexander Smiths famous words …

        http://www.scoop.co.nz/stories/BU0901/S00046.htm

        … excerpt …

        Within his Greenspan article – Michael Thomas – in speaking of what a sound tertiary education should be all about, quotes John Alexander Smith, Professor of Moral Philosophy at Oxford University message to new students during the early years of the 20th Century –

        “Gentlemen –you are now about to embark on a course of studies that will form a noble adventure…..let me make this clear to you…nothing that you will learn in the course of your studies will be of the slightest possible use to you in afterlife – save only this – that if you work hard and intelligently, you should be able to detect when a man is talking rot, and that, in my view, is the main, if not the sole purpose of education.”

        We have endured more than enough “rot” from Rumple and the Mouse. They would be well advised to come over to school in NZ … note how the kids here are learning about housing / economic with Lego … refer my top post.

      • @ Hugh

        “We have endured more than enough “rot” from Rumple and the Mouse.”

        You are aware that Rumple is Cameron Murray aren’t you? I doubt you even have a degree Hugh – just a typical wealthy boomer who’s still out to tilt the board in his favour til his dying day. You are the antithesis of what Macrobusiness stands for.

      • @ Hugh

        “One of NZ’s great advantages is that we do NOT have Land Tax, Capital Gains Tax and Stamp Duty. These are very risky, unstable and poor quality taxes Australia should have got shot of long ago.” Hugh Pavletich

        Go away you industry shill.

      • Rusty Penny … interestingly, we have a traumatized Loopy Left in New Zealand, with the thrashing they got with Saturdays General Election …

        A stomping win for National in NZ general election | | MacroBusiness

        http://www.macrobusiness.com.au/2014/09/a-stomping-win-for-national-in-nz-general-election/

        Christchurch was always referred to as “The Peoples Republic of Christchurch” … the East Germany of the South Pacific. While Labour collapsed to 25% nationally, it went down through the floorboards in Christchurch at 22%.

        And that’s after some elements in the Mainstream Media went out of their way to smear PM Key … constantly … and act as cheerleaders for the Left.

        The big lesson out of this was that the dying Mainstream media is largely irrelevant. Its all about the internet today.

  3. The shortage issue is really a red herring.

    On one side we have a group determined to prove that there are ‘enough’ houses out there and if the average person cannot rent or buy them at a reasonable price it is just bad luck for them and they shall have to suck it up until someone persuades someone to force or encourage all those “empty” houses and bedrooms on to the market.

    They love the fact that spruikers selling housing and treasurers who try to help them claim there is a ‘shortage’ because they are baddies who lie.

    Case closed – the baddies say something therefore the opposite must be true – NO SHORTAGE.

    They completely ignore the fact that the moment a spruiker detects the faintest whiff of a well supplied market the ‘over supply’ horror stories are trundled out to make sure that supply improvements are stopped in their tracks.

    Oddly, the shortage deniers seem more than happy to drape themselves in those particular ‘vested interests’ announcements.

    The problem of course is that real people – who rent and buy houses – know full well that finding low cost rental properties and low cost housing is extremely difficult.

    Bad luck chumps our graphs tell us that you are no worse off than people back in the 1980s. Suck it up and wait until we convince people of the one real truth – it is all demand side.

    The worst part is that many in this group fancy themselves as being progressive!

    Contrary to the base less claims of the “Houses are out there” crowd the “Better supply for our children” crowd are not proposing tract housing from here to the moon.

    They are proposing two simple things.

    In ADDITION to action on the demand side (NG, CGT, MP etc) we should:

    1. Reduce unnecessary red tape, delay and restrictions on changing the use of land from one use to another.

    2. Remove the “first user pays all” approach to financing the development/servicing of new land.

    Both demand and supply actions had they been introduce 7 years ago would have allowed Australia to use the China boom to remove the dead hand of high land prices on the economy.

    But the way things are shaping up – judging from the panicky comments on BS articles from the IP and SMSF crowd – the “Houses are Out there Crowd” are likely to get the bust they have been dreaming of and will be able to claim when population growth slows, unemployment rises, students stop coming, 457s go home, temporary residents leave, that they were right all along and there is NOW plenty of available housing at low cost to rent or buy.

    In the meantime, nothing a spruiker loves more than a bunch of BANANAs (red, green and golden) running around telling everyone we should work hard to maintain the complicated zoning system, red tape and restrictions and up front costs on anyone who wants to buy land and build their own home.

    • You’re definitely on the List now. Derailing the debate away from IMMEDIATE action on the demand side with supply side obfuscation and waffle. “GUILTY!”

      • Oh Mouse !

        Hasn’t it occurred to you that my ongoing and longstanding campaign to regulate certain capital transactions (off shore wholesale borrowing by the big 4) that affect the cost of debt for residential housing is directed straight at demand and beats all the MP, NG, CGT tinkering hands down (they they have their merits).

        Turn around – you see that super hero on your demand team?

        That’s me!

        It’s called walking AND chewing gum

        🙂

      • @ Pfh

        “It’s called walking AND chewing gum”

        Yeah, and the car crashed because the brakes failed AND because it was painted red.

    • “real people – who rent and buy houses – know full well that finding low cost rental properties and low cost housing is extremely difficult.”

      That has always been the case has it not? Or are you just comparing reality to a make-believe world where markets deliver cheap housing?

      Also, we know that you two proposals – decrease ‘red tape’ and decrease upfront costs to development – will not decrease housing costs, because these costs are not added to new sale price (if prices could be increased above their current level, they would be increased even without incurring costs). Such costs are subtracted from the price paid for development sites – the incidence is all on previous site owners.

      Changing these rules is a gift to land-banking developers who paid already subtracted these expected cost from their site purchase price, but will now not have to pay them.

      That’s the reality You can ask Hugh, our resident developer, and if he’s feeling in an honest mood he will tell you. I spent a long time working for developers trying to persuade government to relax such requirements in order to improve our bottom line.

      • Cameron,

        What about the farmer whose land is currently zoned rural ‘no dwellings allowed’ and is worth $10k an acre?

        What are the costs they have already accounted for and will become a windfall when the zoning is relaxed?

        Zip!

        What happens when that land becomes available to compete with product from your former employers.

        Your obsession with your former employers and your professional interest in town planning is clouding your vision.

      • I don’t understand PFh007.

        If a farmers land is worth $10k an acre because only farming is allowed, then what is on offer here is a property right to farm at this location.

        Why would a developer buy it unless they expected a rezoning?

        Say a developer buys the land a the $10k price (or a little over) and then lobbies the government to rezone his area for residential development.

        The government rezones the land for residential development, but on the condition that upfront infrastructure charges are paid, and an approval process allowing for community input is implemented.

        This increases the value of the land to $20k an acre.

        The continue to lobby for a reduction in upfront charges and for automatic approvals. They get it.

        Now the land is worth $30k and acre.

        As you can see, these costs are factored into the costs of development in order to determine the land value.

        If all these changes occurred while the farmer owned the land, they would get the gift of increased prices themselves.

        Of course, you can rezone land and charge land owners for the new rights, should they choose to use them. But no one is arguing for that either.

        I assure you I am not confused. From this comment section it is pretty clear that the supply-siders have no consistent evidence or logic as to how their proposals will work.

      • “….no consistent evidence or logic as to how their proposals will work…”

        ????????

        200 cities in the USA is not evidence?

        Or even our own several decades of pro-growth government planning associated with stable and affordable house prices?

        Pfh007 has nailed it – Cameron Murray is part Jesuit of the Gaia worshipping theocracy, and part enabler of the vested interests in land rent and bureaucratic empire building (on whatever grounds – career advancement, perhaps – I don’t assume him to be a heavily geared up specufestor himself, unlike some other racket-apologists on here).

      • Cameron

        “If a farmers land is worth $10k an acre because only farming is allowed, then what is on offer here is a property right to farm at this location.

        Why would a developer buy it unless they expected a rezoning?”

        The answer is straight forward remove the rural zoning on ALL rural land unless there is a desire to keep that land as farm land for perpetuity.

        I have no problem if people wish to keep valuable agricultural land within the Sydney basin doing the agricultural thang for any number of reasons – but lets make that political call and zone that land permanently as farm land.

        But unless land currently zoned ‘rural’ makes the cut it should have its zoning removed.

        Same thing should be done with heritage. If we really want to keep it – then zone it – not to be touched.

        In a sense what I am saying is zoning should be about preserving specific land in specific uses and not some blanket cover the field prescription of uses for ALL land.

        This approach would make it very difficult for the large developers to “corner” the market as they currently do.

        Having said that if you really are hooked on the concept of zoning specific uses for every chunk of land then you MUST have a role for government to acquire land that is current zoned for one use, change the zoning, and then resell it directly to end users, whether they be owner occupiers, businesses uses (light industry etc) at cost.

        By that I mean the cost of acquisition – the cost of servicing the land can be funded from a MUD approach.

        But the problem with this approach is simple. It is unlikely to be necessary if a more relaxed approach to zoning is taken and the government limits itself to a role of intervening in the market to ensure that there is always ample supply available to the end user (not some developer) beyond the supply produced by the private sector.

    • I agree of course, it does make me suspicious when commentators see this as a single problem requiring a single solution.

      When I was a 1st year plumbing apprentice I saw through the hollow arguments of simple solutions to complex issues.

      Why then can’t more sophisticated thinkers entertain two thoughts simultaneously?

    • “In ADDITION to action on the demand side (NG, CGT, MP etc) we should:

      1. Reduce unnecessary red tape, delay and restrictions on changing the use of land from one use to another.”

      Agree pfh. It’s not an either/or question.

      I see the urban growth boundaries and user pays up front for infrastructure system as cost amplifiers of the housing bubble but the cause is still fundamentally financial.

      There is no shortage of housing, just of cheap housing.

      When the state govs sell of the land inside the urban growth boundary, they create a situation where the (big) developers go into a bidding war with each other to lock up future development sites, or they’ll simply run out of land.

      Then of course the ridiculous changes to the system to force the young and low income people on the fringes to bear the costs of building new infrastructure up front !

      So I see these things as amplifiers of the bubble, which is essentially at its base a financial phenomena. But they help worsen the bubble in intensity and extend its life. I think the American data comparing those cities with and without urban land growth zones bear this out pretty conclusively. Also, MB has presented data that shows that housing construction in Australia is not as reactive to demand signals as it was twenty or more years ago.

      Oh, and yes, we need a crash to fix this, but we must change the tax and zoning settings, get rid of NG, cap gains, etc and urban growth boundaries (except for a very few special areas like the Upper Yarra – love my wine:)

  4. Cameron,
    Do you contend that (ceteris paribus) an increase in the supply of residential land would
    A. Increase the price of residential land
    B. Decrease the price
    C. Have no effect on price

    • And I have a question for you:

      What is easier to do? Liberalise land supply and build tens of thousands of new homes, or introduce measures to supress demand (MP, slow immigration, effective FIRB, reform NG, CGT, SMSFs)

      • What is easier to do? Liberalise land supply and build tens of thousands of new homes, or introduce measures to supress demand (MP, slow immigration, effective FIRB, reform NG, CGT, SMSFs)

        In today’s political environment ?

        The former.

        The latter is diametrically opposed to the desires of the elites running the Liberal and Labor parties.

        Of course, we should aim to fix both problems.

      • Agree with Patrician and Smithy. Of course the market needs fixing in the long run, and we need to work out what will do it. If trial and error are needed, at least advocates should be ready to admit they were wrong if and when their recommendations did NOT work.

      • Patrician, the question was not whether we should do one or the other. The question was which would be easier?

        Can you please answer the question.

      • drsmithy, do you really think slowing immigration and getting FIRB to do its job would be difficult and politically unpopular?

      • do you really think slowing immigration and getting FIRB to do its job would be difficult and politically unpopular?

        Do you think our current Government is placing a priority on things that are politically popular, or of greatest benefit to the wealthy and powerful ?

      • In the current environment probably the former.

        Now can you please answer my question?

        Why not do both?

      • drsmithy: All politicians everywhere are interested in doing what is politically popular. Its priority #1. Priority #2 is doing what benefits the wealthy and powerful.

        Patrician: Do you seriously believe that liberalising the planning process across thousands of local councils and eight state and territory governments, is easier than slowing the immigration intake which can be achieved with the stoke of a pen?

        Is the solution to Australia’s housing crisis really more houses, more sprawl, and more traffic jams, just so we can maintain the current level of population growth?

        Bluey, where are you? surely you don’t agree with this proposition?

      • All politicians everywhere are interested in doing what is politically popular.

        I guess that’s why everyone was so happy with the current Government and they didn’t have to rustle up some national security propaganda to distract from their popularity.

        Do you seriously believe that liberalising the planning process across thousands of local councils and eight state and territory governments, is easier than slowing the immigration intake which can be achieved with the stoke of a pen?

        Arguably both are equally achievable with the stroke of a pen.

        Is the solution to Australia’s housing crisis really more houses, more sprawl, and more traffic jams, just so we can maintain the current level of population growth?

        False dichotomy, straw man.

      • Bluey, where are you? surely you don’t agree with this proposition?

        Well if you don’t grow and hope you’ll have a whole heap of affordable and or unemployed builders and tradies hanging around. I’m happy with that.

        That would be my first choice, to just more or less rest on our laurels like a scandi country.

        But if you want to be a powerhouse like the US then you need people, and I would also enjoy the schadenfraude of sticking up unit blocks next to mass immigration voting nimby arse holes.

    • How are we ‘increasing supply’?

      If you mean just rezoning some land for more dense development, this will do absolutely nothing. To content that it will ignores the systematically increased zoning of land that occurred in the past two decades.

      You can’t force land owners to develop. They will time their one-shot chance of development in a way that maximises their returns.

      So rezoning, decreasing infrastructure charges etc, will do nothing to change the rate of supply of new dwellings, and hence the rental prices.

      If you mean, for example, that a government authority stepped into the markets and said “we will sell enough land until the price falls in this city by 15%”, then perhaps it would temporarily. But what’s to stop Stockland, Lendlease etc buying all the land an holding off the market like any other land bank?

      • What”s to stop them buying all the land from the government agency?

        Are you serious?

        A regulation requiring that government land to be sold to owner occupiers and let them engage a builder.

        The only reason this is not happening is that government decided to jump into the land banking game and gouge profits.

        Fixing that is called fixing supply.

      • If you mean, for example, that a government authority stepped into the markets and said “we will sell enough land until the price falls in this city by 15%”, then perhaps it would temporarily. But what’s to stop Stockland, Lendlease etc buying all the land an holding off the market like any other land bank?

        Well the obvious answer would be for the Government land release to come with a condition of starting construction within 12 months or voiding the title.

      • Sure PHF, we can do that. But no one has proposed this as a solution. Also, those buyer who buy from the government agency won’t be buying from private developers, so there will be an offsetting effect.

        This is something I really would like to try though. Unfortunately it will only work in very localised areas.

      • “…..But no one has proposed this as a solution. …”

        That is the shortage denier equivalent of ‘no one could have seen this coming”.

        That is not a new proposal that was the model of most govt land bodies until the neoliberal maniacs pushed first user pays and govt as lander banker gouger in chief as the preferred model.

        Landcom in NSW used to buy land, service it and flog it cheap to young home buyers who then paid for a builder to build on it. Private developers hated it and rejoiced when it joined the dark side.

        Shelter is a primary responsibility of govt and the market for land and housing is too important to be left to the whims of a few large developers. The govt is in a perfect position to force a competitive market (note not free) in land and housing.

        I have a lot of time for almost everything you write on economics but I don’t understand why you are so willing to accept a status quo that is simply dripping with Neo liberal dogma.

      • Thanks for the reply Cameron. So you agree that (ceteris paribus) increasing the supply of new residential land releases could reduce the price of residential land as long as it is done properly?

        I think we might be in agreement.

      • I have proposed allowing “splatter/leapfrog” development with infrastructure financed by the developers (as is common in the USA) anywhere a developer wants to do it, in tandem with targeted land taxes.

        Instead of planners drawing a boundary and saying “no development outside of this”, development should be allowed anywhere, but the planners should draw a boundary inside which a land tax is levied on all undeveloped land.

        Alex Anas (SUNY Buffalo) calls this an “expansive boundary” – that is, a boundary within which development is SPED UP, in contrast to a blanket ban on everything else, which actually has the perverse effect of slowing development down as capital gains are held out for.

        As Patrician suggests, Cameron should be a whole lot more willing to agree, than what he has been in the past. Actually the academic literature on the “supply of land” brought into an urban economy by infrastructure expansion and the connection with economic land rent, dates back to Robert Murray Haig in 1926 and possibly earlier, and has been carried forward in the authoritative work of Alonso, Wingo and others. It has never been “rebutted”, just ignored and forgotten. I recommend a 1970 paper by Michael A. Goldberg: “Transportation and Urban Land Rents: A Synthesis”. I do not know of any more recent work that provides such a useful summary, which illustrates the economics profession’s parlous loss of focus.

  5. If politicians truly believe that we have a shortage of housing then they should restrict negative gearing to new buildings in order to encourage construction.

    If the government believes we have a housing shortage they should also restrict foreigners who do not reside in Australia from purchasing property.

    If Joe Hockey believes there is a shortage of housing in Australia he should increase land value tax on property that is not the owner’s main residence. Joe should be doing everything he can to discourage the growth in property portfolios.

    • Good points and never going to happen as the ‘vested interests’ (Banks, Construction companies, Politicians, etc) have an interest in keeping the status quo.

      Politicians collectively have a $300m property portfolio and the banks make their profits by churning transactions.

      Supply and demand analysis is mickey mouse economics and fails to adequately explain asset bubbles, their formation and end. Alternative analysis shows the Australian housing sector to be in a bubble.

      Lets see what an external shock to the economy does to the housing sector as the vested interests inside Australia will do anything to keep the bubble going.

  6. The one thing worse than a shortage of houses in a *land value bubble* is a shortage of shortages.

    Watching china unfold with a bit of interest :^)

  7. You present a compelling (but not convincing) argument at the aggregate level, but housing shortage should always be considered at the regional/local level. You would need to analyse where the population “actually” wants to live, but that would be an impossible task.

    • This from the guy who says things like: “be bold when others are fearful,” and “horns up!” when talking about recent iron ore movements. Conflicted much?

      Have another Red Bull Gordon Gecko.

      • Ha! You’d know all about Geckos wouldn’t you sticky
        fingers?

        You’re deliberately attempting to ignore credit expansion by bleating about population or what the fuck ever.

        Cretin.

      • Are you feeling lonely Mig and need to pick a fight? Or did you just forget to take your Ritalin again? Your comments have no bearing on any position I’ve ever taken, when have I ever bleated about population? And to argue I’m ignoring credit expansion shows you’ve completely lost the plot. I’m ALL ABOUT too much credit in the system. You’re a whacker buddy, a serious whacker.

      • Ratzinger Sure cramp except for all the evidence, huh?

        You think population is the driver and that if only that was slowed we’d be in Shangri-la.

        Keep wasting key strokes

      • @ Mig

        WTF are you on about? If you were paying ANY attention, you’d know that the whole population argument is a supply-side thing (too many people, not enough houses). My whole argument is that 1) there’s TOO MUCH CREDIT, and 2) Enough houses for people.

        You really are a whacker.

    • Are you really saying that not all people can live in the best locations? And that somehow that means that in aggregate people won’t substitute to inferior locations for lower housing costs?

  8. Price is the only true measure of scarcity or abundance.

    Just follow those structural numbers to ascertain the problems and solutions.

    Then ask the simple question … why isnt new starter housing stock being supplied on the fringes of the Aussie metros at or below $A1,000 per sqiare metre all up (serviced lot and construction). It really is that simple …

    Focus on Restoring Housing Affordability | Scoop News

    http://www.scoop.co.nz/stories/PO1305/S00325/focus-on-restoring-housing-affordability.htm

    Building Utopia: THE REAL DEAL: Housing in New Zealand

    http://andrewatkin.blogspot.co.nz/2013/03/the-real-deal-housing-in-new-zealand.html

    • “Price is the only true measure of scarcity or abundance.”

      LOL!! Scarcity of tulips was there Hugh?

      Go away you industry troll. You have no idea what you’re talking about, and seek only to derail the debate to further your own financial interests and those who you advocate for (developers).

    • “Price is the only true measure of scarcity or abundance.”

      LOL

      ideological propaganda in it’s purest form

      • The village idiot mocking a basic principle of some intellectual field that he is incapable of understanding. In this case, economics.

      • “Fairytale” – like Communist planned economies versus free market ones?

        “The invisible hand” is to economics what gravity is to physics. Denial is to display total ignorance of the subject.

        Even so-called examples of “failures” of free market economics, are examples of the invisible hand at work. Blaming the failures on the theory of the invisible hand, is like blaming plane crashes on the theory of aerofoil lift.

      • your “free market invisible hand” is exactly of the same fairytale kind as the communist “From each according to his ability, to each according to his need”

        there is no free market, there was never a free market and there will never be a free market

        saying something like “The invisible hand” is to economics what gravity is to physics” is display of total ignorance on subject of physics, economics or, as a matter of fact, any other subject.

        An axiomatic statement about human behaviour like this is a construct of an ideology, not science or reasoning of any kind.

        Such comparison between one of the inescapable fundamental forces in nature and an arbitrary human construct disqualifies you from any further discussion.

    • Hugh, c’mon, you know that prices reflect the capitalisation of rents after costs including taxes. So prices move up and down because of interest rates, expectations of growth, changes to taxes and ownership costs like rates and so forth.

      The only input into the price calculation that can possibly reflect the supply of housing is the rent. And all the data Philip and I have presented shows that rents have been stable relative to household incomes for decades, while houses have become larger, and household size has shrunk.

      • Hi @cam How did you account for the move towards dual income households without skewing for singles – that is, a near-doubling effect? Also how do you adjust for the quality of rentals – Most of the 2b rentals I see under $400/week have not physically changed in decades because the stingy scum landlords can offer a shit product in an under supplied market in the desirable
        SE inner city areas of Melbourne).

      • shit product in an under supplied market in the desirable
        SE inner city areas of Melbourne).

        Look up positional good …

      • And all the data Philip and I have presented shows that rents have been stable relative to household incomes for decades, while houses have become larger, and household size has shrunk.

        So, whereas fifty years ago it was possible for a family to pay for shelter from x% of a single income, now it takes the same percentage of two (well, let’s say something like 1.75 on average) incomes ?

      • Andy, by all measures the average home is far superior now than ever before. That some location are now much more attractive, and that the same dog box can command a higher rental, tells us nothing about the total housing situation. There are always good suburbs where rubbish housing is relatively expensive – that’s been the case in every city throughout history!

        As far as dual income homes, I think you are on to the reason so many people seem to think housing is more expensive. Back in ‘the good old days’ a family could buy a home on one income, though I’m sure it was never as easy as it seems in retrospect.

        But the dual income situation is not as clear cut as it would seem. Male workforce participation is down substantially as well.

        In any case, it is the unit of the household that bids up rents for superior locations. So when more household begin to have dual incomes, they can buy the better locations. But still, there will be sorting into inferior areas. You can always have a dual income house and live in the outer suburbs. But most people expect, at that level of income, to live in a fancy area, which means competing for housing with others in the same situation.

      • drsmithy,

        This dual income trend is real, though I don’t know what changing town planning rules is supposed to do about it. We could regulate that only one person per house can have a job. That would certainly decrease prices. But again, relative to the household income it would be much the same.

        I’m not really sure exactly what most commenters think a housing market should be delivering! Each seems to hold in their mind some different utopia, and have jumped onto the supply bandwagon as the way to get there.

      • This dual income trend is real, though I don’t know what changing town planning rules is supposed to do about it.

        Make houses cheaper, so it doesn’t require two incomes for shelter to be affordable ?

        We could regulate that only one person per house can have a job.

        Now you’re just being stupid.

        I’m not really sure exactly what most commenters think a housing market should be delivering!

        Cheap houses. Cheap enough so that even someone on minimum wage living alone doesn’t have to worry about their shelter costs.

      • @cam thanks for the response. The dual income household vs primary earner measures skew the analysis by 75-100% (?) and I do find it frustrating that unaffordability arguments are diminished by this amount because one can justify it as “that’s how it is now”.

      • Rents to household income is a spurious comparison.

        We don’t think its a good idea to pay double the price for food, electricity, cars or clothes because we have two incomes.

        It goes against the very core of improving standards of living, and how increased productivity increases wealth.

        My grandfathers generation, of one income would see him exert around 12 hours of average priced labour to afford the average house.

        The point of increased productivity is that 12 hours effort should ultimately reduce, just as hours exerted have reduced for claims on food, electronic goods, cars, etc.

        The fact even the more lucid here cling to 3x wages should be static, let alone reducing, shows how far our understanding of economics, doesn’t understand economics.

        Two incomes means we should buy twice as much, not pay double for the same thing.

      • Rusty, that is exactly freakin’ RIGHT.

        Except that so far in human history, people have banked the consumer surplus in housing, in better housing, once the median multiple is stable at around 3 (and it always had to come down from something much higher before mobility and infrastructure and rising incomes changed the system).

        Maybe in time, some of those systemically affordable US cities median multiples might go measurably lower than 3 as a kind of norm; but remember, the median is being affected by people at the bottom of society who don’t yet have the amenities of housing that they WOULD like as soon as they have the income. One of these amenities is always “location”, so possibly there is one element of housing that always will take up the slack.

      • @Rusty Penny: Excellent points, totally agree.

        @PhilBest: “Except that so far in human history, people have banked the consumer surplus in housing”. This is precisely why inflation should be mainly calculated on land price /m2 (say 70%) with the rest being CPI-related. We’ve had hyperinflation since late 90’s, without the commensurate interest rates to keep this in check… resulting in the unstable, inequitable, stressful and fkd up “economy” we have today. Congrats RBA, ABS, Gov, FIRE. Well done.

      • @smithy

        Make houses cheaper, so it doesn’t require two incomes for shelter to be affordable ?

        Ah, there in lies the conundrum. It has been a feedback loop. As more double income households arose, they got to bid up the positional goods leading to more people aspiring to have dual incomes and then indeed needing to.

        It is something i will concede is very difficult to change.

      • Ah, there in lies the conundrum. It has been a feedback loop. As more double income households arose, they got to bid up the positional goods leading to more people aspiring to have dual incomes and then indeed needing to.

        The point made here frequently is that the positional value of housing is in large part artificially inflated by planning and supply restrictions.

      • @Rusty: Most of the other goods you list aren’t positional. Rents are fairly positional. Positional goods can be expected to increase in price with ability and willingness to pay. I agree that doesn’t explain why there aren’t cheaper rents in the crappy locations, and why we should expect a linear response.

      • @smithy

        The point made here frequently is that the positional value of housing is in large part artificially inflated by planning and supply restrictions.

        And I don’t disagree with that either. I am in the “it’s a perfect storm in a teacup because of many stupid policies” group.

      • Mining BoganMEMBER

        Yep. Once upon a time it was socially embarrassing to be in debt. Let’s bring that era back.

        It may well be just around the corner anyhow…

      • Seoul has LVR’s of 50% and a median multiple of 15. Yeah, it’s the credit.

        Markets all over the world have most of the population who can’t get credit at all, and the housing that they can’t afford (and hence live in slums), would require them to save 20X their annual income. Yeah, it’s the credit.

  9. No shortage of homes to live in I agree. But there is a shortage of investment properties to speculate on…. If money weren’t free things would be different.

    • California actually did have a shortage.

      Ireland and Spain, probably not – which is why a bubble has not resumed in Ireland (except Dublin) and Spain, but it has in California.

      Bear in mind that median multiples in Ireland looked like THIS:

      2007:
      Cork 4.7
      Dublin City/County 5.4
      Dublin Exurbs 5.0
      Galway 4.6
      Limerick 3.5
      Waterford 4.1

      2008:
      Cork 5.4
      Dublin 6.0
      Galway 5.6
      Limerick 4.3
      Waterford 4.9

      2009:
      Cork 3.6
      Dublin 4.7
      Galway 3.2
      Limerick 4.2
      Waterford 3.7

      Heck, even at PEAK, that would look “affordable” to young Australians now!!!!!

  10. One of the stupidest comments in the entire history of economics:

    “No one can produce an explanation as to how fundamental factors can lead to a run-up in home sale prices, but not rents.”

    Rents have to be paid now, out of cash earned now. Obviously there is a limit to “how much” this can be.

    House prices, on the other hand, depend on the way credit and savings affect the interaction between supply and demand.

    It is also obvious from real life, that it is quite possible for many people to neither own nor rent a home, and exist in “informal” conditions – in such markets, the ratio between formal rents as they do exist, and house prices, is always far further out of line than in systemically affordable housing markets. And the mechanism by which rent stress is played out under actual shortage situations, is reduced space per person, not increased rents per dwelling.

    Next stupid question, please.

    • Phil, this reveals a complete lack of understand of markets.

      Rents can be paid from cash earned last year, or next month, of ten years ago, or the returns on leveraged asset speculation, or can be paid in arrears which is like a little loan from the landlord.

      How you can take the very obvious case, which applies to every single market for goods in the economy, that it’s price will reflect constrained supply, and somehow twist it around when it comes to housing really baffles me.

      Why not say the same for iron ore – I don’t take the iron ore price as reflective of supply conditions, I instead prefer to look at the bubble in BHP shares.

      • “……Rents can be paid from cash earned last year, or next month, of ten years ago, or the returns on leveraged asset speculation, or can be paid in arrears which is like a little loan from the landlord…..”

        And those ways of paying rents, is the norm, and the way I described, is the exception???????

      • Stats

        And need not be paid at all if you squat. The extension of this argument is that rents are unrelated to current incomes. Paid in arrears, yes of course but what is your point here?

        Its not that I disagree with you necessarily but I don’t quite get the points you raise and how they fit into your overall position on this topic.

    • how your equilibrium demand-supply theory expains “immediate after burst” situations? Situations when prices and rents fall (prices much more), rental vacancies increases (suddenly new rental properties appear on the market), average rental property size increases (these new properties are larger and come with low rents) while at the same time new supply collapses (construction activities stale) and population remains steady?

      • Obvious – the “after burst” was after distortions that were unable to be sustained indefinitely, that involved price inflation far ahead of rent inflation, speculative acquisition of empty properties ahead of rental demand, and actual operating losses by the said speculators, who were banking on an indefinite supply of Ponzi gamblers.

      • just to confirm that you are saying that “before burst” situation was caused by Ponzi scheme speculations – not shortage

        that’s exactly what Rumpelstiltskin is saying and you disagreeing

      • Same human nature, same credit availability, same tax policies, same low interest rates, yet stable prices; in approximately 200 US cities with a housing supply elasticity of higher than “1” – versus approximately 60 other cities with a housing supply elasticity of below “1”, and a price bubble.

        Hmmmm, that housing supply elasticity can’t possibly be a pre-condition for anything??????

      • … 1980s … same human nature, same credit availability, same tax policies, same interest rates, …

        Texas cities with housing supply elasticity of higher than “1″ – bubble

        hundreds of cities with housing supply elasticity of lower than “1″ – no bubble

        Hmmmm, can housing supply elasticity possibly be a pre-condition for housing bubbles ??????

      • 1980’s “bubble” – in TX, house price increases in real terms of next to nothing (netted out against quite substantial income increases), in CA, house price increases of nearly 100%.

        In TX there was an oversupply and crash, in CA there was a price bubble and crash.

        TX’s oversupply was fixed within a couple of years of population growth, household formation and relocations, and they did NOT repeat the episode.

        CA, on the other hand……… welcome to the GFC, thanks to people’s inability to learn about housing supply processes.

      • House prices in Texas increased (in late 70s) and than fell (in late 80s) by 50% in multiple income terms – that is more than during almost any of the bubbles in CA

        http://www.rclco.com/pub/photo/advisory-texas-affordability-risk-2013-10-17-image1.png

        In last couple of years (since 2005) Texas recorded house price growth of 30% in income multiple terms (still going up) and you can expect bubble to burst in next couple of years.

        it just seems that Texas has it’s own bubble cycles

      • In 2002, the National League of Cities put the total at 19,429 municipal governments in the US.

        Ooooh 200 cities 200 cities!! What’s that, like 0.1% of all the cities in the US?

        I bet I can find 200 brokeback cities in Australia that haven’t seen property booms….

  11. every tenth home in Australia is vacant (not used as primary residence), almost all of these are used to speculate on price increase (holiday homes in Australia cannot be financially justified without future price growth)

    An average holiday home costs to an equivalent of 50 years, 5 star hotel apartment 2-month per year holiday stay.

    • every tenth home in Australia is vacant (not used as primary residence), almost all of these are used to speculate on price increase (holiday homes in Australia cannot be financially justified without future price growth)

      Nonsense. What gives you this crazy idea?

    • An average holiday home costs to an equivalent of 50 years, 5 star hotel apartment 2-month per year holiday stay.

      But it provides sweet, sweet tax deductions.

      For whatever reason, Australians would apparently rather give money to banks and get nothing, than Government and get better public services.

      I blame thirty years of neoliberal brainwashing.

      • I blame thirty years of neoliberal brainwashing.

        I blame the feeling rich situation (everyone is a RE paper millionaire)

      • Mean spirited anti tax dickheads will do anything to avoid paying what they see as extortion.

        Remember the Commbank Swiss Franc loans to farmers buying stuff just to avoid tax.

        When the AUD shit itself these farmers shot themselves on mass.

        Investment based on tax avoidance seems to me to usually end in tears or worse.

      • I’m with doctorx, although when was the last time government bothered to provide services?

        You live in Melbourne, don’t you ? Ever take a tram ?

    • “An average holiday home costs to an equivalent of 50 years, 5 star hotel apartment 2-month per year holiday stay.”

      Isn’t that assuming it has zero resale value at the end, and that it sits idle when the owner is not using it? If we assume that a holiday home price increases with inflation, then the cost to the owner is just rates, insurance, maintenance, opportunity cost of capital, and transaction costs.

      • Do the math…5% on 500K is 25K a year…plenty of nice hotels will let you stay there for 2 months of the year for 25K…

        If it is not empty otherwise, then it is an IP pretty much….

      • That is true, the opportunity cost of capital alone is huge if you go for a $500k holiday house. Surely there are cheaper ones out there though.

        I wouldn’t say it’s an obvious line between a HH and an IP. You could buy it as a HH and let it out to mates for 6 or so weeks through the year. You wouldn’t call that an IP, but it would reduce the costs a bit. I know as a child our family had a few holidays in parents’ friend’s HHs. I was too young to know what sort of rents we paid though.

      • @commenter

        That is true, the opportunity cost of capital alone is huge if you go for a $500k holiday house. Surely there are cheaper ones out there though.

        Possibly. I know a few people that have some in the mornington peninsula, hotham etc. Bought back in the day, now worth possible more than a million each. 500K is on the cheap side for Sydney/Melb.

        Even if you were getting rent from friends etc, it wouldn’t make the numbers work. Just that values go up and you can NG (if you have it as an IP).

      • I don’t know Victoria too well, I’ve been a New South Welshman my whole life. The ones we used to stay in were on the NSW south coast or mid north coast. They were usually 1 or 2 bedroom firbo/weatherboard houses. I can see a 3 bedroom listed for $300k that looks much nicer than the ones I remember staying in.

      • Fair point. The ones I am talking about are on the upper end of the scale, beachfront etc. But yeah, even 300K is a fairly large chunk of money if you will not utilise the place.

  12. Confronting the real causes would require our compromised legislature to proactively respond, instead of rigging government and market outcomes to benefit the growing power, profit and authority of the horde of private monopolists, usurers, speculators, rent seekers, free riders, financial robber barons, control frauds, inheritors and the indolent rich.

    Hockey’s comments should come as no surprise, for he owns a home and four investment properties, and is involved in a family real estate agency. His home in Canberra, purchased for a bargain basement price of $320,000 in 1997, is now worth an estimated $1.5 million, having increased in price by 369 per cent in nominal terms.

    There is an obvious incentive to oppose any analysis and/or policy that could potentially reduce the mountain of unearned wealth and income flowing from surging land prices (economic rents). The conservatively estimated $300 million in real estate owned by the federal politburo means this bias is widely shared by all in parliament.

    Magnificently said – the words should be carved in stone somewhere significant…….

    It is also the reason why the moves at the moment with the KO’D FIRB inquiry and thought bubbles from all sides of politics about things which might address Australian housing should be taken with considerable salt – and that in every instance the bona fides and interests of people making claims should be looked at.

      • I’m with you chief.

        Only a crash brings about the circumstances where RE can be nailed.

        And every last skerrick of effort going into avoiding an RE crash is simply distorting the economy ever more grotesquely and denying us the competitiveness we (and our future generations) need.

        But it is just a matter of time…..

      • No a crash will make it worse in a few years after a period on inactivity in construction. Any fall in prices in the interim will be missed by the majority of buyers.

      • Only a severe crash will fix this! There is NO OTHER solution.

        Most suffering younger Gen X and Y readers of MB who cannot or will not buy the current such overpriced housing in Australia already know about this for some times.

        The 1 billion dollar question is how can we get the crash sooner rather than later ?

        Most MB readers also have same conclusion that the government and RBA will try their best to prop-up property price in Aussie. So, the key is to restrict their abilities to do that.

        My proposal will be:

        1) Increase savings, decrease spendings (at least locally) – by doing this you will reduce the money velocity which will have effect on the GDP and employment level. You will also starve the fed government with the ever important GST revenue which cannot be compensated by increased income taxes from additional taxpayer savings because interest rate has been repressed toward zero rate sooner or later (see the GDP problem above). Doing this also prepares you for when the sh*ts hit the fans.

        2) Do your best to pay less taxes (legally) – if you can’t beat the NG’s property speculators, join them with other ways to NOT paying tax legally. Contact your nearest accountants for this.

        3) If you have to spend locally (e.g. for foods/ groceries) then try your best to get the best bargain in terms of value. Have no loyalty for brands or suppliers (I always shop where the best value resides every week between Aldi, Coles and Woolies or Flemington market). By doing this, you will force the big corps and employers to be constantly worried and on their toes in hiring and expanding business plus you’d get the price deflation effect as a bonus.

        Anybody can contribute for more tips and I am sure many of you have. When younger people are persecuted by the oldies for one of the human rights i.e. affordable housing, then all bets are off and we should get back at them with all legal means.

      • @PF Totally disagree, things will not be worse after a crash. Many benefits will be had, especially respect of debt/leverage, equality and less worshipping of the FIRE God culture. Also please do not discount how horrendous it has been for several years and continues to be.

      • Utter nonsense Peter, credit would be repriced and a way forward off of asset value appreciation and into productive enterprise innovation, but if we do what Japan did then you’re right it will be worse.

    • There has been a genuine undersupply in many cities, but the supply response caused by the recent price increase has seem a massive construction boom.

      I think that supply issues are largely non-existent for the time being although the supply may not be in the form that everyone here wants – ie 1000 Sqm land with a cute house 5 Klm from the CBD. Those are in short supply.

  13. The article makes perfect sense to me, but then I don’t have a vested interest.
    In my experience it doesn’t matter how many times you prove that building has been responsive to new population or that supply has been responsive to consumer demand, the same bone headed arguments are trotted out.
    People like Phil Best want supply to be perfectly responsive to incipient changes in the stock/asset price of housing.
    Meaning, if investors wake up this Saturday and decide they are happy with half the yield they bought last Saturday, the government should ensure that the whole economy goes on a housing building bender so that the desired fall in yields comes about due to a fall in rents at the existing stock/asset price, rather than an increase in stock/asset prices at the existing rent. And this should happens in a matter of days.
    A sane person would identify a mis pricing of the financial asset and look to increase investors required return on capital – by abolishing negative gearing, macro prudential or through any other option on a long list. If investors change their mind a few weeks later, big deal, there will just be a few empty houses and a mis allocated labor force lying around. This is how some people on this forum define elasticity.

    • “…… there will just be a few empty houses and a mis allocated labor force lying around…..”

      To be quickly cleared by new household formation, and relocations. Exactly how it does work in the bubble-proof markets in the USA, and the many bubble-proof markets in the western world before urban planners started enabling a racket that made the “supply” chain from first gleam in a developer’s eye, to actual sale of a house, several YEARS long.

      The alternative is of course far greater total amounts of money in the form of malinvestment, purely in inflation of the “value” of millions of existing homes. Guesstimating; California probably had 5 million houses inflated in value by an average of $400,000 each, while “overbuilding” in the systemically affordable US cities probably involved 100,000 houses at an average of $200,000 each.

      • So to confirm:
        Say a housing market is functioning effectively – people are being housed at an affordable price (affordability hasn’t changed at all)

        Then one weekend all housing investors decide they are happy with half the yield they were happy with last Saturday; you are seriously suggesting the response is to go on a building binge?

      • Say a housing market is functioning effectively – people are being housed at an affordable price (affordability hasn’t changed at all)

        Affordability has changed.

        It used to take 15-20% of one income to rent a given house. Now it takes 15-20% of nearly two incomes.

      • Smithy,

        The period we are talking about is from the late 1990’s – when the bubble took off. Not from the 1950’s

        Secondly how do you explain a tripling in the price/ household income multiple from the mid 1990’s, while rent as a % of household income as not moved. The same household income is used in both measures?

      • The period we are talking about is from the late 1990′s – when the bubble took off. Not from the 1950′s

        House prices and rents were already well inflated by the late 1990s. The odd and infrequent graph we get plotting house prices or median multiples back further makes this quite clear.

        Secondly how do you explain a tripling in the price/ household income multiple from the mid 1990′s, while rent as a % of household income as not moved. The same household income is used in both measures?

        Renters don’t pay the rent out of mortgages.

      • Do you mean tenants don’t take out mortgages to pay rent?

        If so, that is almost as ridiculous as Phil Bests comment earlier:

        “Rents have to be paid now, out of cash earned now. Obviously there is a limit to “how much” this can be”.

      • Do you mean tenants don’t take out mortgages to pay rent?

        The upper limit on rents can’t really rise any faster than incomes. Which it has done, to help “investors” cover those massive mortgages.

        The upper limit on mortgages has risen much, much faster than incomes due to the combination of loose credit and low interest rates.

        Further, investors and owner-occupiers assume future income from significant capital gain which renters generally do no benefit from.

  14. And here we go again, pointing fingers and one upmanship. Why not just agree that supply and demand side changes, whatever they be and however difficult or easy will have a positive impact on housing affordability and as a group we advocate for changes in all of the above.

    Once we are back to mean, we can think about how to prevent this from happening again.

    • +1 It is a disincentive to reading through the comments here.

      Sure there is a demand side issue and a supply side issue. Both need address. The answer in addressing either side is not to say it is an issue for the other side.

      • It’s about priorities, not one-upsmanship. Giving equal billing to both allows people like Joe Hockey to state there’s no bubble and that “Australia fundamentally doesn’t build enough houses.” It also keeps punters coming into the market because “there’s a shortage, property only goes up.”

        It clouds the message and allows inaction to persist.

    • Good comment, FlyingFox.

      There are actually no good options now. The real time for reform was before 2007.

      The arguments we are having now, are really about the next house price inflation after the coming bust. Of course they are also about the causes of the current debacle.

      Instead of endless trial and error within our own borders, we could look at real life examples of each policy and its impact, elsewhere in the world – that has been my position all along. Cameron Murray’s theoretical ruminations are “angels on the head of a pin” exercises stuff, and if anyone has ideological grounds to want things to run a certain way, it is him.

      • Lets not loose touch with the consequences for our most vulnerable. Sure there are FHB waiting and waiting I concur this is wrong, but the bubble is causing inter-generational disaster for many living in caravan parks in tents etc.

        I’m back with Hugh P on this as its all about shelter, repeat, its all about shelter.

      • +100, TonyDD

        You can make the financial system more resilient with macroprudential policies, and make the economy more cyclically stable with the right tax incentives, but the fact remains that there are countries with a severe “shelter” problem that comes back to whether “housing” is priced according to a “gouge” of “what people can stand when they have to”, or according to the principle of consumer surplus in competitive markets.

        It makes no difference whether these people can’t get a loan or can’t save the price; their only option is to accept whatever rental “space” they can get with a proportion of their income that still allows them to feed themselves with the balance – or accept a cardboard box under a bridge. Even the UK is heading back towards the third world in this regard.

        While we are talking about a nation, Australia, with a housing market in transition to an “extractive rentier” one, this situation is not yet so obvious, because there are still a lot of people who were on the housing ladder before the prices inflated, and there are still a lot of housing areas that were built in happier days. Once there is no-one alive who got on the housing ladder under conditions of consumer surplus in their housing choices, there will indeed be a crisis of “shelter”.

        See especially the links in this:

        http://usa.streetsblog.org/2014/09/03/wowza-scale-maps-of-barcelona-and-atlanta-show-the-waste-of-sprawl/#comment-1575050279

    • Yes, why can we just not agree at the very least that the inability of supply (given land use restrictions) to more liberally meet demand is a critical factor, but given that dynamic, that it is therefore critical to address the taxation driven investment demand for existing housing stock.

  15. A good way to examine whether an adequate supply of housing exists is to compare the flow of new dwellings to new net population.

    This is an enormous blunder. Can any readers explain why?

    • I’m sure you’ll set us straight Claw. Not that you’d have any interest whatsoever in perpetuating the belief that there’s a shortage.

      • I can explain it.

        The trouble is that if people here are too stupid to see the blunder then there is not much point getting into more technical things like ChinaBob does down the page.

        Can anyone see the blunder?

    • This is an enormous blunder. Can any readers explain why?

      It assumes adequate supply at the starting point ?

  16. Ireland and Spain to the point where these three countries are now bulldozing entire neighborhoods to reduce some of the massive oversupply

    That is an interesting claim to make about Ireland.
    Here are some articles about the Ireland situation. Can you guess in which year they were written?

    Dublin house price rises are not a bubble but are cause for concern
    http://www.independent.ie/business/personal-finance/property-mortgages/dublin-house-price-rises-are-not-a-bubble-but-are-cause-for-concern-3047
    House prices in some parts of Dublin are up almost 40pc in just two years … Now, rents are rising just as rapidly as house prices… This chronic lack of housing is at the root of most of the housing difficulties we see currently, from homelessness to rising rents, from the student accommodation crisis to dramatic turnaround in house prices…If building is not happening now, when both prices and rents in Dublin are near their limit relative to incomes, then something has gone horribly wrong with our planning and regulatory system.

    Lack of supply of housing fuels new property bubble
    http://www.independent.ie/business/personal-finance/property-mortgages/lack-of-supply-of-housing-fuels-new-property-bubble-30462143.html
    A lack of supply of housing is driving up house prices in the capital, with the cost of buying a house in Dublin surging 25pc over the past year…With the Government blaming the lack of supply, economists have also called for incentives to encourage older “empty nesters” to downsize, vacating big family homes for a younger generation of parents. Trinity College Dublin economist Ronan Lyons said incentivising older people to downsize to “luxury apartments in good suburbs” would free up the properties most in demand: decent three and four-bedroom homes.

    Property shortage to last for four more years – bank boss
    http://www.independent.ie/business/irish/property-shortage-to-last-for-four-more-years-bank-boss-30473349.html
    The massive shortage of family homes in Dublin is being blamed for a surge in asking prices, with the cost of buying a house in the capital rising about 25pc over the past year…a lack of infrastructure – including water and sewage treatment plants – means that in some places desperately needed homes cannot be built

    Higher rents mean young people can’t afford to move out of home – report
    http://www.independent.ie/business/personal-finance/property-mortgages/higher-rents-mean-young-people-cant-afford-to-move-out-of-home-report-30469639.html
    The sharp fall in rents at the start of the housing market collapse made it affordable for those under the age of 30 to rent. But rents have begun to rise again…And rising property prices will encourage more young people to switch from renting to attempting to buy a home, despite a chronic shortage of homes for sale

  17. I reckon you need a REALLY simple infographic to get your point across. People can then embed on their sites, and you can just point to it, rather than a big long TL;DR article.

    Just my 2c

  18. OK I’ll ask a silly question:

    If Land Supply is not a big part of the problem then how do you account for the existence of Housing markets where brand new McMansions can be purchased for about 3 times a single income? (Yea it’s that Texas outlier problem again).

    Are you suggesting that there was insufficient credit available to Texans (what like capital was all reserved for East and West coast land??) ….Hmmm that argument doesn’t seem to pass the laugh test.

    The problem is that most people believe (with every fiber in their body) that RE prices will raise and therefore they overbid to obtain limited supply, unfortunately as long as supply is constrained the positive feedback effect of belief in increasing prices will guarantee the prices increase. It’s that simple.

    I get the feeling that most people here simply dont understand the feedback effects that can make systems hysteretic. So talking about housing supply/demand price curves (as if they are linear, monotonic and time invariant) is the real problem. The housing supply/demand curve is clearly multivariate and probably hysteretic.

    Would it help if I constructed a simple java script of Hysteretic system so that you’all can study the effects of positive feedback within the simulation? I think I can modify a non linear magnetics model….if it wont help then I wont waste my time….

      • Yea I think we’re singing from the same song book, so I guess I shouldn’t be surprised, given my abysmal singing voice, that few are bothering to even stop and even fewer are bothering to listen.

      • I think we are on the same page, CB.

        I admire some of the commentators for their tirelessness and patience to reiterate their points and get their message across. I often throw in some comments for fun or occasionally post in length to sharpen my own thinking, but my time is limited and I am far too lazy to do the preaching in any case. Besides, my primary objective to visit this site is to make money and/or mitigate investment risks by staying ahead of the curve.

      • Yea it’s definitely possible to have markets surge simply because there is a perception of supply constraints.
        If you have ever lived on the East coast (US) and had a big winters storm warning you’ll find that the supermarket shelves completely empty of bread, milk and eggs long before the storm hits. The only explanation for this is people stock piling ahead of the storm…it does not seem to matter how much extra supply the supermarkets get in before the storm the shelves still empty just as quickly, I remember reading an article about this some years back where the supermarkets had figured out that they would sell out regardless of how much they ordered (or what price they charged) what’s more interesting is that future supply is not effected (meaning if the storm does not effect supply consumers still buy their usual amounts after the storm as they would have in the absence of the storm (meaning logically they either ate more or they threw out the excess)

    • Bob I think that the Texas scenario is largely explained by high punitive land taxes, high property insurance costs, tendency to be flood affected, and generally a fairly crappy place to live. The sum of all of that is that no one will pay a high price for land there and construction costs are low due to often illegal labour.

      None of our cities can compete price wise with that, but in lifestyle terms they probably excel.

      • Ya wanna bet that if any TX city ever enacts a UGB, they won’t get a price bubble?

        It is a funny thing, but plenty of places have been dissed by the utopian nurby planning types as “bubble proof” because of what awful places they are – and then set some records for bubbling – Phoenix and Las Vegas, for example.

        Or there are all those cities in Pommie-land that are shite-holes to live in, and yet are unaffordable, and we are talking about unaffordable shite-box housing, too, not “too much high end stuff”.

      • I agree Land taxes play a role in suppressing Texas property values, Personally I see this as an excellent reason why land taxes should be the corner stone of any vibrant economy, because the lazy money “rent” industry is taxed, as opposed to taxing productivity as happens with most tax codes.

        As for the “crappy place to live” yea well that’s all relative and a matter of opinion (most Texans consider Texas to be to be the best country in the world) and does not explain very over-priced housing in Australia’s equally crappy-places-to-live ( think Dubbo or Roma)

        High Construction costs are also definitely an issue but as Leith has pointed out many times the portion of land cost to building cost in the new residential house package has flipped from the traditional 1/3 land 2/3 house ratio to today’s 2/3 land 1/3 house ratios….this kinda suggests that construction costs are not the problem.

      • I don’t disagree re the land tax, that would curb price growth. What I question is our ability to apply that to our housing without causing a major economic issue as well as a political one.

        Some towns like Roma have been inflated due to gas exploration or mining in the area.

        Texas having cheap fuel (gasoline) also allows them to live further out than what our preference is. A machine is the sum of many complex small parts.

        Cheers Bob.

      • @PF

        Texas having cheap fuel (gasoline) also allows them to live further out than what our preference is. A machine is the sum of many complex small parts.

        Given the current state of things, I suspect that it is a minor cost even over 50 yrs and 2 cars compared to what we have.

      • Texas having cheap fuel (gasoline) also allows them to live further out than what our preference is. A machine is the sum of many complex small parts.

        Fuel in Australia is not expensive.

        Further, when a boring 3 bedroom house on a tiny 400m^2 block of land 30km from the Brisbane CBD costs $350-400k, the argument that we have a preference to be “closer in” is laughable.

      • drsmithey – lets get a bit of perspective on your statements – “fuel in Australia isn’t expensive”

        In fact it’s about double the cash price right now in Houston. I would call a 50% reduction pretty good, wouldn’t you. It would certainly make me feel less intolerant of longer drives to work.
        http://www.houstongasprices.com/

        “Further, when a boring 3 bedroom house on a tiny 400m^2 block of land 30km from the Brisbane CBD costs $350-400k, the argument that we have a preference to be “closer in” is laughable.”

        You are right – what you said is laughable – take your pick of these –
        http://www.realestate.com.au/buy/property-house-with-3-bedrooms-size-600-between-0-350000-in-brisbane+-+greater+region%2c+qld%3b+/list-1?maxBeds=any&includeSurrounding=false&source=location-search

        Why bother making an argument that is false and demonstrably so.

        @ FF – not correct – the cost of both vehicles and fuel is so much cheaper in Texas – Not sure why you bothered to make that argument – clearly incorrect. The difference in cost over a lifetime would be huge.

      • In fact it’s about double the cash price right now in Houston. I would call a 50% reduction pretty good, wouldn’t you. It would certainly make me feel less intolerant of longer drives to work.

        http://www.aip.com.au/pricing/internationalprices.htm

        In Australia, your typical car uses 10L/100km and covers 14,000km/yr. At $1.45/L, this represents about $2000/yr in fuel expenses, or about 3.3% of a $60,000/yr income.

        In Texas, your typical car gets 23mpg (actually that’s the overall USA figure, and probably a bit low for texas, but whatever) and covers 9,500 miles/yr. At $2.90/gal, this is a total annual fuel cost of $1,200, or about 2.9% of a $41,000/yr income.

        So, yeah, I’d say fuel in Australia is pretty cheap when it’s only marginally more than one of the cheapest places in the western world. Certainly compared to, say, most of Europe (or even our Bros across the dutch, paying ~$2/L).

        You are right – what you said is laughable – take your pick of these – […]

        That’s my point.

        When moving another 10, 15, even more, kilometres out of the city delivers so little benefit because prices on the outskirts are so absurdly high, arguing we have a “preference” to live closer is ridiculous. If I can choose between Springfield Lakes or Zillmere or, heck, even Inala at $350-400k, which do you think I’m going to take ?

        If people could buy a house on a quarter acre 20-25km from Brisbane for a couple of hundred grand (or less), I imagine you’d see more people taking that option.

      • @PF

        Not sure why you bothered to make that argument – clearly incorrect

        Ugh smithy’s figures would beg to differ … even if you allocated an extra 2K per year in traveling, you owuld need an extra 100K.

        what does 350K buy you in Tx vs 450K in Brisbane.

        BTW your re search of Brisbane is an absolute joke! Sorry, it had to be said! For similar coin you can get a McMansion in Tx. Also try that in Melb or Sydney…

    • @cb,

      Don’t know if seeing the curves would help or not, but bubbles in places like Ireland and Spain do seem to exhibit hysterisis. They also seem to behave like a badly tuned PID controlled system – overshooting the set point by increasing amounts over time, judging by the some of the recent press about Irish RE.

      A little while ago, Steve Keen wrote a piece suggesting that economists in general were hampered in their understanding of market dynamics due to their lack of understanding of ordinary DE’s, which seems a point you might appreciate.

      • Personally I’ve never been a Steve Keen fan because he wants to throw out so much valuable economic theory just because their simplified models have no explanation for the dynamic (cyclic) behavior of typical economies. There is plenty of work being done on extensions to neo-Keynesian theory to include dynamic and time variant effects. Personally I’d much rather read/understand Noah Smith than try to decipher Steve Keens.

    • It might not pass the laugh test but it passes the research test…

      average. [11] Once the U.S. housing price bubble burst, national prices moved down closer to those in Texas, and the median price in Texas ($135,000) is now about 75 percent of the national figure ($180,000).
      There is some debate about why housing prices did not soar in Texas along with the rest of the country. Whether it was because Texas was the last state to allow homeowners to borrow against their homes through equity loans and placed strict controls on the amount they could borrow, or whether it was the plentiful land or some other reason, there is no doubt that Texas did not face the boom and bust in housing that preceded the 2007-2009 recession in many states.[12]Something else any fool can do…

      http://www.cbpp.org/cms/?fa=view&id=3739

  19. Confirmation bias perhaps, but we only have the facts backed by anecdotal evidence to go by. I think this article is correct. There does not appear to be any fundamental lack of supply.

    Excessive house price increases are brought about through ill conceived policy and tax structure which permit a high level of immigration relative to our size, and foster intense competition for those properties close to the major cities or desirable lifestyle areas. Some of this price uplift is logical, but it is exaggerated by investors who have no need to reside near the cities, but seek the historically guaranteed uplift arising from capitalised economic rents which occur in those well-serviced areas.

    Much of the talk about supply shortages is typical redirection and obfuscation by those who are keen to maintain the status quo. They are generally owners of property in privileged locations who know full well that any increase in supply without addressing the systemic demand side issues will have no detrimental effect on their wealth, and will in fact likely underpin the existing increases they have enjoyed.

    Sadly as usual, it mostly boils down to the reliable human tendency for greed and selfishness. It is worse when it comes from those who already have so much, but still take a beggar thy neighbour attitude.

    • Excessive house price increases are brought about through ill conceived policy and tax structure which permit a high level of immigration relative to our size, and foster intense competition for those properties close to the major cities or desirable lifestyle areas. Some of this price uplift is logical, but it is exaggerated by investors who have no need to reside near the cities, but seek the historically guaranteed uplift arising from capitalised economic rents which occur in those well-serviced areas.

      Well said. Pay attention and you will see that this is the type of shortage that PhilBest and I are upset about.

  20. Mmmmm, 21% of all our homes are lone occupants and we have the most spare bedrooms per house on the home planet. 10% of our homes have 5 or more people in them.

    I can see no shortage.

    On aside, I find it odd the trolls all sing from the same songbook.

    • 21% of all our homes are lone occupants and we have the most spare bedrooms per house on the home planet. 10% of our homes have 5 or more people in them.
      I can see no shortage.

      Your definition of shortage is wacky absent a law to force sharing. Are you proposing such a law?

    • The Poms are talking about a “spare bedroom tax”.

      If you are not advocating that, what use is the oversupply of spare bedrooms owned by people with no intention of moving out, to young people priced out of the housing market?

      • I made no mention of a bedroom tax at all, so thanks for the troll.

        I said a land tax, of which a large house would pay more because one can assume it would be worth more, would provide incentive for lone occupants to downsize.

      • I said a land tax, of which a large house would pay more because one can assume it would be worth more, would provide incentive for lone occupants to downsize.

        The assumption of a “large” house implying a large block and a “small” house implying a small block seems… questionable.

        All of the inflation of prices is in the land, not the structure.

      • If they’re empty nesters, by definition they are approaching a point where they may be forced from their house by infirmity or death. Virtually everyone in a nursing home today once had no intention of moving there.

        If they have relatives, for example offspring, who are in the ‘young people priced out of the housing market’ category, then with rising unemployment, the young people may end up sleeping in those bedrooms.

        Supply and demand for housing are both more elastic than people commenting acknowledge.

    • Mmmmm, 21% of all our homes are lone occupants and we have the most spare bedrooms per house on the home planet. 10% of our homes have 5 or more people in them.

      You repeat this all the time like it’s important.

      Why ?

  21. Absolutely spot on Cameron! House price in Oz are largely driven by easy finance and people seeking easy/lazy dollars in property.

    • House price in Oz are largely driven by easy finance and people seeking easy/lazy dollars in property.

      Exactly. And the number of families missing-out on housing is largely driven by the shortage.

      Which “problem” would you like to see solved?

  22. During the London Blitz they lost 1/2 the houses due to bombs and many slept in their neighbours house. They averaged 8 people per dwelling then. By comparison there is no shortage of housing in Australia.

    Relevance? None.

    Our shortage is different and it causes a different kind of suffering.

  23. Rent Seeking Missile

    Great article.

    I especially enjoyed the hammering of the regulatory agencies, and the economists.

    Speaking as an economist myself, having been trained to focus on the ‘real’ economy rather than the financial system, I was among the many surprised by what happened in 2008.

    Since then, I’ve paid a lot more attention to it. And I am neither surprised by what is happening now, nor will I be when it all collapses in a fireball.

    I just hope I can boost my meagre savings by going short the disaster.

  24. Reading through all the comments, it is pretty clear to me that certain commentators are not arguing in good faith and are deliberately trying to confuse.

    Eg. Phil Best won’t admit that there is any difference in consumer demand for housing – where demand is driven by income and utility.

    And investor demand demand for housing – where investors are effectively just buying a yield, and choose housing as a financial asset out of a smorgasbord of other financial assets.

    That is pathetic.

    • And investor demand demand for housing – where investors are effectively just buying a yield, and choose housing as a financial asset out of a smorgasbord of other financial assets.

      I’ve argued on several previous occasions that the real problem is the dearth of other good individualized lowish risk investments, especially in post mining boom period.

      Why for instance arn’t Sydney’s well to do establishing small businesses with good cash flow? What better investment can there be? but its not happening.

      When you contrast the two business proposals
      – Buy an IP at 90% leverage
      – Establish a good small business absorbing 100% of my free cash flow with ZERO credit leverage

      you’ll understand why the RE IP wins out in most cases especially while the bubble is still expanding.

      The only fix, for this problem, that I can see, is for the tax / political environment to be deliberately rejigged in favor of the small business case. Since this is not about to happen there is no fix, so it’ll be business as usual until it isn’t.

      • Yes, agree that lack of alternative investments is likely part of the picture.

        I have preschool children, so I don’t have the problem of needing to places to park spare cash, but surely in this day and age, crowdfunding sites can provide a way of linking smallish investors with smallish entrepreneurs?

      • I agree, and that is exactly the problem.
        The cost of capital for housing investment is disproportionately low versus other assets.
        Phil Best and others don’t even touch on this point, they treat demand for a yield as the same thing as demand for a roof over your head. It’s ridiculous.

      • @Stat Sailor
        Crowd-funding is an interesting idea but it’d be a disastrous investment for the inexperienced.

        Typically VC’s paw through 100’s if not 1000’s of proposals before they even put one penny down. The underlying problem is that 99% of the small business proposals are absolute rubbish with very low chance of success (for that VC). VC partners are usually only successful when they have real world industry experience in the proposed business area, without this experience (and the value they therefore add to the team) most VC’s are lucky to break even.

        For me the phrase: A low risk portfolio of diverse startup investments , is definitely an oxymoron.

        Means for me crowd-funding is definitely no place for the faint hearted or the inexperienced.