Who’s to blame for Australia’s housing bubble?

ScreenHunter_24 Jun. 20 19.46

By Leith van Onselen

My buddies over at Prosper Australia have appeared before the Senate Inquiry into Housing Affordability and given the politico-housing complex a big serve. From The AFR:

[Prosper] called on the inquiry to “critically reconsider” any “simple” claims that high housing prices are the result of a housing shortage. “If we are faced with a genuine mismatch between supply and demand, rents would have risen dramatically,” its ­submission said.

“They have not, except for a short period between 2007 and 2010. A solitary focus upon supply and demand is a convenient distraction from the twin determinants of land market bubbles: liberal lending standards and non-taxation of land.”

The current tax regime – low property and land taxes and inefficient stamp duties – encourages land-owners to extract an economic rent from their property by capturing the uplift in land values, it said…

“Investors perceive rental income as secondary to expected rises in capital prices, while first home buyers over-leverage themselves to enter a bubble-inflated market.”

I obviously agree with Prosper that Australia’s peculiar tax laws makes investment into housing a relatively attractive proposition via a combination of high tax rates on savings, minimal taxes on land, as well as tax generous concessions like negative gearing and capital gains tax discounts. As a result, demand for housing in Australia is much higher than it otherwise would be, resulting in too much of the nation’s capital being tied-up in housing and inflated values.

However, I strongly disagree that supply-side factors – such as urban consolidation policies, cumbersome planning approval processes, and high taxes and charges on new homes – have not also played a major role in making Australian housing unaffordable.

These supply-side barriers have forced-up the cost of development, impeding the market’s ability to supply affordable housing and significantly dampening the supply response.

One only has to view the below chart showing a clear reduction in the rate of dwelling construction over the past two decades to see that housing supply has become increasingly unresponsive:

ScreenHunter_4094 Sep. 09 13.58

And this despite the biggest house price boom in the nation’s history which, under any normal market, would have generated a large construction response.

Alternatively, one could look at the 500%-plus surge in vacant lot prices over the past 20 years (see next chart) and wonder why fewer lots were produced in response to the rising prices?

ScreenHunter_1683 Mar. 14 07.59

It is government policy – on both the demand and supply-side – that is the primary cause of Australia’s housing malaise.

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Comments

  1. arescarti42MEMBER

    Leith, I wonder how relevant the dwellings constructed per 1000 population measure is.

    I’d understand if it was comparing dwelling construction to population growth, or total dwellings to total population, but dwelling construction to total population doesn’t make a lot of sense to me.

    If population growth had gone down substantially since the 1980s, then you’d expect a falling rate per/1000 without implying any supply problems (granted population may not have fallen, I just wonder about the measure).

    • Pop growth looks to have been a little higher in the 80s vs 90s, but has increased over the last 10 years to the highest rate since the early 70s. On that basis I would have expected the dwelling construction rate to have been increasing since the early 2000s.

      • Mining construction squeezed out housing construction, there is no doubt about that.

        But if you think the infamous “Chinese buyer” isn’t driving price in this market your probably not worth much as an analyst.

        When I was a kid there was a back lane downtown near my school were every so often for a week or a two a bloke would turn up with a truck and flog stuff off the back of it.

        The crowd would gather around, and he’d get the point where he’d say the price and sometimes he’d sell nothing. That crowd would move off, and he’d do the whole thing again as the next crowd came. He wouldn’t try it a second time on the same crowd, he’d just wait.

        What he had though was a couple of mates who would jump in a buy enthusiastically when he got to the offer.

        What I noticed was that it didn’t always work, but when it did it seemed to generate an avalanche of buyers.

        The “Chinese buyer” that pays $100k over the top of the market revs the whole thing up.

      • Analysis of the population growth vs construction rate time series is at best incomplete without an explanations of what assumptions have been made with respect to how population growth relates to household formation viz babies, one source of population growth, don’t form new households for 20 – 30 years in this country. The other source, adult immigrants, form households on arrival, or nearly on arrival. The lag time between new population and household formation should lie somewhere in the middle. 10 years? 15 years? Regardless, until a value is stated, interpretation of UE’s graph is moot.

      • “As the population and housing stock grows over time, more dwellings are required to merely replaced dilapidated stock, let alone grow it.”

        But presumably that would be replaced at a similar rate of total stock each year (think RBA has said 8% annually), so maybe you’d look at something like: Dwelling Completions – (Total stock x .08) / Population Growth

      • There’s probably a few factors you need to account for, such as dwelling durability and household size/formation rate for a start.

      • I agree with UE. There is an equation that has some measure of current housing stock, some measure of the age of the housing stock, and net population growth as its factors in order to calculate the required construction rate. It may also contain information about rooms per person, area per person, and other factors. Each of those factors will have coefficients in front of them, and possibly be raised to some power.

        I have never seen anyone attempt to even write the equation, let alone calculate the coefficients or powers.

    • +1

      It’s a bogus metric for a bogus theory.

      Assume population starts at 10,000 and grows at 1,000 per year for 10 years. Assume dwelling construction equals 1,000 per year also. In year one, you have a ‘rate’ of 0.1 and in year 10 of 0.05.

      Meaningless.

      • I don’t think its meaningless.

        To find out the change of dwellings over time you need to fix one variable. As a result they have fixed the number of people per dwellings at 1000. (they could have chosen any number but 1000 is more manageable)

        Population growth rate is a factor in the results, but just not represented in the graph.

        In any given year you take the population number, divide it by 1000 (the fixed number). You then use that number to divide from the total dwellings.

    • Lets say, Stephen, that people voted themselves a direct democracy — is there any evidence Australians would even, in that event, vote in policies that promote centrifugal effects?

      I expect the vast majority of city dwellers would stay city dwellers, and vote to suck money into the centres they inhabit — like they’ve pretty done via proxy so far.

      • “I expect the vast majority of city dwellers would . . . “

        Maybe. Maybe not. As I have said on countless occasions, I (unlike some other people here) claim no Monopoly on Wisdom. The Almighty hasn’t granted me a “Charter from Heaven” to decide these matters on behalf of everyone else.

        But I do know an easy way to find out!!

        Call a referendum on the system of government:

        Do you wish to reform the system of government with the details of reform to be determined by a subsequent series of initiatives and referendums.

        See what The People have to say.

        It is, after all, their country?

        Isn’t it?

        – – –

        p.s.

        “like they’ve pretty done via proxy so far.”

        The People haven’t done anything by proxy. That’s the Fallacy of Dictator’s Defence (purports to infer aggregate preference of set of individuals from observation of adopted strategies without establishing that conditions of Prisoners’ Dilemma do not prevail).

      • Far be it from me to suggest you have infinite wisdom, though I’m certain you have finite wisdom; in light of which, is it really so difficult for you to reason about the motivation and postulate a plausible, rational outcome?

        In the long run I agree all bets are off, but within the time of the generation that enacted such a change – very little of substance would vary, just that the control would flow from corrupt duopoly to broader base.

        I likewise do not claim a Charter from Heaven, or even Lockean empiricism — though I will note that it has been a long standing tradition within our Law to declare man divine, and created in His image; ergo, though I lack a Charter from Heaven, I have nonetheless possess one I bestowed upon myself — nor do I relate this with bumptious aplomp — and it reads

        γνῶθι σεαυτόν

        EDIT: P.S yes you keep saying that, and yet in their droves they shuffle off the mortal coil without ever having resisted it…

      • . . . it has been a long standing tradition within our Law . . .

        Argumentum ad vercundiam doesn’t create a Charter from Heaven. To confer a Charter from Heaven upon oneself, one would need a Charter from Heaven.

        Like most anti-democratic arguments this one is circular.

        The only logical solution to Buchanan’s “problem of infinite regression” is the Democracy Eigenfunction.

        p.s.

        Fallacy of Irrelevance doesn’t nullify Fallacy of Dictator’s Defence.

      • Eigenfunctions (for example, the method of Legendre polynomials) may used to solve problems of infinite regression.

        I’m off to play tennis. No more answers today.

      • Oh I see your thing is to cut the tail off by declaring the higher order polynomials approaching zero…

        I can do that too, but then I was made in His image so…

      • Beware!!

        Opinion polling is not Democracy.

        Opinion polling differs from Democracy in (at least) four important ways:

        a) unlike referendum questions, opinion poll questions are often loosely formulated rather than being specific proposals to approve or veto a specific piece of legislation. Accordingly, different respondents may interpret the questions in different ways;

        b) unlike referendum questions, opinion poll questions are often put in the absence of an intensive public debate focussing on a specific proposal. At best, the question will be one of several more-or-less topical issues floating around, and it may not have received the full consideration of those people suddenly called upon to answer it. Respondents’ initial responses are not necessarily those that they would give after several months of intensive debate over the consequences of a specific proposal;

        c) unlike referendum questions, opinion poll questions are not binding. As a result, responses may not accurately reflect the responses that voters would give to a serious binding referendum question. Under a non-democratic system of (so-called) “representative” government, respondents may behave like the children of overbearing parents who know that their views will be ignored anyway: they have nothing to lose by making outrageous claims; and

        d) when compared with referendum questions, opinion poll responses are more susceptible to the way in which the question is framed: a quick response to a totally non-binding opinion poll question may depend heavily on the wording of the question and the immediate context within which it is asked. For example, capital punishment questions may receive a higher positive response in the immediate wake of a gruesome murder, and gun control questions may receive a higher positive response in the immediate wake of a gun massacre.

    • Wrong..

      Some people just want to simply proivide for their young family – and often that means not playing the rental market game.

      These people are merely pawns in a game that treats them with utter contempt

      • A bubble price requires a buyer to pay it – It cannot exist without this event. Justifying it, as per your example, is another story.

      • Edit: And many buy more than they need (i.e. 1) – it is a horrid activity in a known undersupplied market of a basic human need. I have zero doubt that specufestors and illegal foreign buyers would control the air we breathe if they could.

      • @Mining Bogan,
        What’s arrogant about someone wanting to put a roof over their head, without the hassle of dealing with a landlord…?

        Being an investor in the current climate – whilst having the gall brag to people about how you bought your first home for 10% p.a.. Well, that’s another story.

      • @KEK

        Do you rent? Any friends or colleagues that have bought in the last five years?

        Just mention to someone randomly that you rent but are on a good salary and await response….

      • Mining BoganMEMBER

        KEK,

        I used to think like you but I’ve swung the other way through experience. Quite a lot of kids ask me for advice. They know what I think of high prices. They agreed with me until they bought their own places. Their attitudes changed towards the have nots. Lazy. Wasteful. Not making a big enough sacrifice.

        They can’t believe that as a home owner I’m wanting prices down. The greater good doesn’t appeal to them. They’re just like the rest.

        They’re into the greed and excess I despise so much.

      • @flyingfox
        I’ve own the apartment/shoebox I’m in now, but hope to upgrade some time soon. However, by upgrading to a livable sized house, where I would have a chance to raise a family, I’m effectively consigned to mortgage slavery – too poor to even afford to have kids. So what’s the point of moving?

        Some of my friends rent, some also own. No one have investment properties (we’re 30 years too young for such absurd luxuries).

        Who’s better off? None of us in particular. Whether you rent or own, it’s unimportant. The clear outcome for myself and my age cohort is that housing has become little more than an expensive form of contraception.

        My age cohort (those considering family/home ownership) no longer works to better its own condition – or the condition its future offspring. We work to pay for the inflated lifestyles of our parents generation – in the vain hope that it will somehow allow us to live the life led by our elders.

      • @KEK

        The Mrs and I both earn pretty good incomes (nothings fancy but we’re either side of thirty). Been in Melb for a couple of years. Job security in my line of work is almost non existent. Also I don’t think I will be in Melb (or Oz for that matter long term). That and my stand against this absurdity is the only reason we are not buying.

        However, most people, even randoms just look at you as if you are a thief when you say you rent and have no idea of our actual financial situation.

      • KeenEyeKen

        There is a difference between putting a roof over your head (a basic human need) and then using that same vessel as a tool to build *bogan* wealth at the expense of everyone else and future generations.

        If the majority of the population understood the concept of time-value-money, (a basic business concept) they would understand that housing is not a investment to create wealth. People don’t so we are where we are.

  2. Leith could we find some common ground and discuss the monopolization of land via land banking.

    I feel there is a genuine need to address urban sprawl as part of an infrastructure driven process to avoid satellite ghettos in economic downturns – an inevitability.

    Your focus on the long term costs (as opposed to upfront costs) of development combined with a more relaxed (on your part) view towards rail transport would see a much more balanced view towards opening up restrictions.

    Unfettered development, is an absolute blight, and well considered development is a long term economic boon even if temporally restrictive.

      • Huh? What’s so uncertain about it? It’s going to hell in a handbasket or haven’t you noticed skip?

    • “Leith could we find some common ground and discuss the monopolization of land via land banking”.

      Land banking is a symptom of planning, as explained here. Greater competition and contestability from landholders would help mitigate it (as would better land taxes).

      “Unfettered development, is an absolute blight, and well considered development is a long term economic boon even if temporally restrictive.”

      Do you consider the planned mess that we have now – shoe box apartments and big houses on expensive tiny blocks – “well considered development”?

      • “Do you consider the planned mess that we have now – shoe box apartments and big houses on expensive tiny blocks – “well considered development”?”

        It worked for the Japanese….until it didn’t.

      • Aha! Japan is a case in point. Very high population density. Shortage of land.

        Guess what. The land price has fallen for 20 years.

        So, based on the 20 years worth of data, one may conclude that land shortage leads to falling land prices!!

      • Spot on dumpling.

        We have a Japanese friend living in Australia for 20 years.

        Her parents bought a block of land on the waterfront at the height of the boom in 1989.

        Each year since then it’s value has receded.

        Her parents died about 6 years ago and the taxes and maintenance costs are really telling now.

        Even now it is difficult to sell.

        For our childrens’ sake, I hope it falls swiftly here… Another argument against QE and extremely low interest rates.

        Inordinately low interest rates allowing people to borrow huge amounts of money is the simple reason for the ever-increasing cost of property here.

        Our RBA can’t help but follow the Japanese economy into the abyss.

  3. Q: “Who’s to blame for Australia’s housing bubble?”

    A: Those of us who actively celebrate the calculated and deliberate theft of opportunity and future prosperity of our offspring – for the sake of inflated asset prices today. Done in the name of a the mythical ‘wealth effect’, when in reality it is merely using you the lives of your offspring as a fukn credit card.

    Welcome to the Australian economic model

  4. Just saw this:

    39 Brown Street Newtown NSW sold for $1,030,000 in May 2013 after not getting a single bid at auction a few days prior (the house itself was a total reno job)

    Apparently the same house sold yesterday prior to auction, in exactly the same condition, for $1,421,000.

      • Like so many have been trying to tell you, this credit bubble steered into houses is all iceberg no tip. You won’t see it, you’ll just sink.

      • MIg we need a new name for this credit bubble… ummm something like Bill Blacks “control fraud” w/ C – suite bonus remuneration orders of magnitude free market multiplier.

    • Strange Economics

      Yep –
      Its our own govt taking away homes from our youth and leaving them to couch surf (as described in the SMH today) – and taking our mojo –
      govt subsidised banks with a credit bubble, tax breaks, and negative gearing is !

      And why does the govt need to spend $ 600 million of the budget emergency for the friends of ASIOds to add 300$/year to your internet bill to find those idiots – when those exported ex bikie enforcers send their awful details direct to TV stations?.

  5. “Prosper] called on the inquiry to “critically reconsider” any “simple” claims that high housing prices are the result of a housing shortage. “If we are faced with a genuine mismatch between supply and demand, rents would have risen dramatically,” its ­submission said.

    “They have not, except for a short period between 2007 and 2010.”

    This is exactly the point I can’t reconcile with the supply side argument.
    If prices have been driven higher by supply constraints, then why hasn’t the consumption price of housing (rent) increased dramatically as a % of disposable income? Even during the 2007 – 2010 period rents only really tracked household income.

  6. Having had another heated discussion about this with relos on Sunday I say almost everyone is to blamne. About a million stories of some shit head someone knew who bought for $20k and sold for $2 million.

    Absolutely zero concern for the kids there who were sitting there glumly.

    When you say numbers like 10k turns into one million everyone thinks they’re Michael pascoe or kochie or something.

    Just crash the fucken thing. The innocent are so small they may as well not exist.

    • Although their predecessors are also equally to blame, the difference is these 3 have been empowered (required) to do something about it for some time, but choose to make it worse.

  7. “critically reconsider” any “simple” claims that high housing prices are the result of a housing shortage. “If we are faced with a genuine mismatch between supply and demand, rents would have risen dramatically,” its ­submission said.

    I suggest that Prosper are a bunch of prize @#$%holes for denying the shortage in such a fashion.
    Take the example of Sydney a house that used to rent for 1/3 a normal wage in the 1970’s and was affordable to say a schoolteacher with a stay-at-home wife, now rents for 1/2 an ordinary wage and is unattainable to the schoolteacher unless the wife also works. That is the dramatic rise that Prosper denies.
    An increase from 1/3 wage to 1/2 a wage is a HUGE increase. This is a 50% increase. And it is a 50% increase on a family’s largest expense. Ordinary families simply cannot afford to pay this much extra rent.
    In response families of ordinary means have been forced to compromise on size, quality, backyards and on commuting time and/or send the wife to work. In other words the family cannot afford to pay $800 per week for a house like their parents had, so they rent a unit for 40% of a wage, or rent a house with no backyard for say $500 per week AND commute much further paying more in petrol.

    Shortage-deniers like Prosper do no wish to see the dramatic rise in rents for what was once a ordinary home. Since there is a shortage of these ordinary homes, the market rations them by forcing price up beyond what ordinary families will pay. A simple cottage on 1/4 acre 20kms from the CBD is no longer ordinary. Due to shortage of such it is now considered a luxury.
    Ordinary families now are forced to pay a higher rent + higher commuting costs for a dwelling with less utility than previous generations had.
    Supply shortage – tick.
    Higher price – tick.
    Less for same price – tick.
    Dramatic rise in rents – tick.
    Shortage-denial – tick.
    Prosper wrong – tick.

      • So what Lorax?

        He is advocating an increase in supply, which one would have thought would have reduced prices and rents. Hardly what the average thinking person would expect a property investor to be advocating.

        You should comment on Andrew Bolt’s site. They appreciate silly ad homs there.

        Here not so much.

    • he doesn’t call himself “The Claw” without reason… clings onto anything. Where’s inspector gadget?

    • Claw factor in decades of stagnate wages.

      skippy… supply and demand… the silliest bi polar marginalist world view ever….

  8. reusachtigeMEMBER

    Prosper? Aren’t they that mob with the “Don’t Buy Now” slogan? LOLOLOL If you bought when they first said that you’d be rich! LOLOLOLOL

  9. “However, I strongly disagree that supply-side factors – such as urban consolidation policies, cumbersome planning approval processes, and high taxes and charges on new homes – have not also played a major role in making Australian housing unaffordable”

    Wrong.

    Go talk to any homebuilder. They will tell you that if that have the land to build, they will sell everything.

  10. In a nutshell, human nature is to blame; fear, greed, folly, sense of entitlement, arrogance, etc., – you name it.

    Of course, there are several supporting factors such as; chronic inflation and stealing of purchasing power by the central bank that encourage people to borrow and spend or invest, but not to save; easy credit, supply side constraints, tax system, etc.

    But these supporting factors alone are insufficient to push an overpriced asset class to stratosphere.

  11. “Who’s to blame for Australia’s housing bubble?”

    1. Glenn Stevens
    2. Joe Hockey
    3. Brian Wilson

    These 3 gentlemen could individually and/or collectively significantly deflate the Australian housing bubble within 60 days. (Although I have my doubts Brian “God only knows” Wilson is capable of writing his own name without assistance)

  12. However, I strongly disagree that supply-side factors – such as urban consolidation policies, cumbersome planning approval processes, and high taxes and charges on new homes – have not also played a major role in making Australian housing unaffordable.

    Even if supply-side factors were significant (and I have my doubts) they are so much more difficult to fix quickly than demand factors. You could kill the investor market stone dead overnight by quarantining NG, removing the CGT discount, disallowing IPs bought through SMSFs and getting FIRB to do their job. No rate rise required. But you can’t produce 100,000 houses overnight.

    • You could lower prices a lot by insisting that all purchases are funded by genuine savings from Australian wage income. No debt.
      This would lower prices, but if there is a shortage of great houses it would not get all families into great houses.
      If there is a shortage of decent houses it would not get all families into decent houses.
      Why not shoot 80% of people who attend each house auction? This would reduce prices. Is that the problem? High prices?
      Or is the problem that many families cannot attain decent housing?

      • “You could lower prices a lot by insisting that all purchases are funded by genuine savings from Australian wage income.” – claw

        Again claw – there has been a decades long war on wages, by the usual suspects and their not done yet, so, wtf are you on about.

      • The worst part is to slavishly adhere to the IS-LM group think, like in a wage depressed economy savings has anything to do with expenditure, discretionary or other wise.

        Only those fattened up during the boom have any PPP and they are addicted to yield now and not socially productive long term investments e.g. M – M for lifestyle accoutrements. Even then 400k of those had their ass raped by criminal financial advice – caveat emptor!!!

    • Yep – exactly what I have argued in the past. Even IF supply were an effective policy response, it would be the SLOWEST and MOST EXPENSIVE way to do it.

      Demand factors are exactly what shortage spruikers like the Claw and Saint Bob don’t want people to focus on.

      Supply is a convenient distraction. It’s a diversion from true action.

      • Why not shoot 80% of people who attend each house auction? This would reduce prices. Is that the problem? High prices?

  13. Property developers run the governments which run this country.

    Do you think the property developers are going to give even a touch of the football to some backbench committee who shoot the breeze about housing affordability?

    Look, hats off to Harry. We vote in liberal democracies bordering upon capitalist jungles. Even Bob and Paul when kicked out went straight to their colleagues in the property game.

    If you are younger and without money and want a house, vote social democrat. If you want to take your chances in the housing specufest, where housing is only another investment chip, stay voting liberal democrat.

    The whole housing story has become a dry and somewhat tedious argument.

    PS. There is still affordable housing in the bush where I went for over 20 years too.

  14. There is another Senator who said this last week, and he doesn’t come with the right-wing social-conservative baggage you get with Family First:

    why not tweak negative gearing to encourage affordable new housing. It’s crazy to have a blanket tax code that rewards debt over equity.

    The Grattan Institute estimates that $2 billion could be saved if negative gearing was slowly phased out. In the interests of full disclosure, I should say that a phasing out of negative gearing would impact on me personally, given the four properties I own. But if it means a balanced budget and a more affordable housing market for young Australians to enter into, then that is a price I am very willing to pay.

    Why doesn’t this Senator get the same hero worship as Saint Bob Day Leith?

    • That’s the core of the issue right there; the tax preferred status of debt over equity.

      In housing it has been more pronounced due to the high LVR’s (compared to other assets) and deregulation of mortgage lending.
      If the tax code was changed to level the debt/equity playing field, this problem would be solved over night.

      • Poor credit underwriting [fraudulent – criminal fiduciary behavior] has goosed more than RE – IP asset classes imo…

  15. The constant “loser confuser” approach to the serious housing issue in Australia sure gets tiresome.

    Thank heavens we don’t have to deal with this muddled thinking in New Zealand. The major Government announcement October 2012 by Deputy Prime Minister Bill English ( refer http://www.PerformanceUrbanPlanning.org ) following years of debate and research is properly focused on …

    * land supply
    * Infrastructure financing
    * process … and …
    * construction costs

    Do read the New Zealand political progress with Leith’s article of yesterday … with the extensive comments …

    NZ shows Australia how to address housing policy | | MacroBusiness

    http://www.macrobusiness.com.au/2014/09/nz-shows-australia-how-to-address-housing-policy/

    … and what Senator Bob Day said as well …

    Bob Day slams Australia’s housing rentiers | | MacroBusiness

    http://www.macrobusiness.com.au/2014/09/bob-day-slams-australias-housing-rentiers/

    • What part of 3.0 don’t they understand ? …

      2014 10th Annual Demographia International Housing Affordability Survey

      http://www.demographia.com/dhi.pdf

      DEFINITION OF AN AFFORDABLE HOUSING MARKET … http://www.PerformanceUrbanPlanning.org

      For metropolitan areas to rate as ‘affordable’ and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer Demographia Survey Schedules for guidance).

      The critically important Development Ratios for this new fringe starter housing, should be 17 – 23% serviced lot / section cost – the balance the actual housing construction.

      Ideally through a normal building cycle, the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7 – to ensure maximum stability and optimal medium and long term performance of the residential construction sector.

  16. ‘Who is to blame?’

    Deregulation of banksters. I was reading the other week how these algo traders were not doing well this year as not enough volatility and markets too stable. Shocking but seems like they benefit from rocking the boat. So just pump out easy credit creating bubbles, wait for them to pop… and repeat.

    • It surprises me why so many people here are complaining about bubbles. These are the greatest money making opportunities.

      Stop whinging people and ride the wave.

      • Well, yes and no.

        George Soros once said “when you see a bubble forming, jump on”

        He did not say it is a good idea to jump onto a clearly visible bubble which everybody is already on.

      • In this supposedly democratic society, most people don’t want to ride waves (and be dumped by them) to make money.

        They seek family and friends, secure, functional housing, simple pleasures, good education, meaningful work, satisfying recreation.

        Our capitalist society, and insane housing market, makes their lives unnecessarily insecure and worrisome.

        And there is NO envy working here because, through good fortune, “I am doing alright”.

        I really cannot understand why young Australians don’t vote social democrat, instead of liberal or Labor. It is in their own interest. I guess you have to suspect they are becoming more American. They are after “the jackpot”, the big one and see themselves as “temporarily embarrassed millionaires”.

        One doesn’t have to be Buddhist to see how delusional this is.

      • I don’t think our problems can be solved by becoming social democrats. There are many good things about America which I admire, such as…….

        They are not afraid of experimenting. Even though pretty much everyone will think Prohibition is not going to work, they still did it in the 1920s. Of course, it didn’t work. Silly? Probably. Gutless? Of course not!

        They lifted the short selling ban on their wobbly banks just a month after its introduction in the aftermath of the Lehman collapse. Contrast that gusty move to Swan’s timid action.

        There are competitions among their states. Small states can prosper by attracting big name corporations that drop big bucks to their states. Contrast that to our oligopoly states and collusion. If I were running one of the states, I would release land to lower the costs of business and reel in filthy rich corporations. I may as well set up a corporate tax free zone in the middle of nowhere if the potential members are willing to pay for the infrastructure…….

      • Dumpling… Americas politics are corporatist driven… hence the problems they are currently suffering imo…

        skippy… the theocracy for this metaphysical religion is also known as neoliberalism, both legacy party’s currently subscribe too it, as well as the neocons.

      • Dumpling as per the ABC Q&A show the other night… I beg to differ… get private money out of electoral politics and root out egregious corruption in both public and private spheres of society.

      • Sorry dumpling pay wall…. that you can’t address the issue out side of linkage is your problem not mine.

  17. There seems to be a semantic confusion between the word investor & speculator.

    According to Warren Buffett… an investor wants the price of an asset to go down so he can purchase more ‘income’ for less capital outlay. A speculator wants the price of an asset to rise so he can ‘flip it’ for a capital profit (presumably a speculator is unconcerned about the assets income generation at any capital price).

  18. Anyone write to the ACC about land developer price fixing? That’s what the supply side dynamics comes down to. Well that plus government stupidity.

  19. How can the argument that there is a shortage of housing be taken seriously when so many Australians own multiple properties. There are also lots of houses for sale each week. I don’t see a shortage of rentals either.

    The problem I have is that I don’t believe I am getting good value as a buyer or renter. Everything is bloody expensive for what you get!!!

    My issue is value.

  20. Sadly it seem noone understand the mechanics to Americas last RE/CE boom i.e. deregulation and securitization e.g it had nothing to do with supply and demand – en fin~

  21. I am sitting in my hotel room and outside there is a bogan looking at a sign which says

    201-230 ->
    231-250<-

    He has asked 2 people now where room 234 is… it doesnt matter about supply/demand, foreign buyers, neg gearing etc with people like this most likely owning 5 IP's and stealing oxygen from the productive class we are all fucked anyway..

    • I wouldn’t worry too much. Sooner or later, the tide will go out.

      The tide hasn’t gone out in Oz for 22 years.

      We’ll get to see everyone’s exposed bits in time. And it’s not going to look like a sports-illustrated shoot either.

  22. Q: “Who’s to blame for Australia’s housing bubble?”

    A:
    Keyboard warrior speaks!

    – Low interest rates combined with easy credit

    A couple on $75,000/year income each would be able to borrow up to $1+ million.

    • In 2006 I got a mortgage of around $260,000. There were banks that would give me $1.2 million at the time.

      That was when I concluded it was all insane and could not end well.

      With hind-sight, I should have taken the $1.2 million. However, if I had hind-sight, I would have sunk it all into AAPL and GOOG in the late-90s/early-noughties and be far richer than I would be if I had bought property.

      My point still stands… the lending standards were insane. I wouldn’t lend me $1.2 million at that time.

      I generally agree that both a lack of supply and loose credit feed the bubble, with the proportions of each being debatable. However, without loose credit, it is impossible for the bubble to become as large as it has.

  23. Widely distributed internationally by General Email …

    WHEN WILL THE AUSSIE HOUSING BUBBLE BURST ?

    Peter Martin, Economics Editor with The Age (Fairfax) Melbourne outlines the extent of Australia’s housing bubble and vulnerabilities … and asked when the bubble will burst …

    (Australian) house prices are inflated and a fall seems certain – the only question is when … Peter Martin …The Age & Sydney Morning Herald

    http://www.smh.com.au/comment/house-prices-are-inflated-and-a-fall-seems-certain–the-only-question-is-when-20140908-10drmx.html

    The extraordinary bubble behaviour of Sydney buyers (current Median Multiple in excess of 9.0 refer Demographia Survey) …

    Home buyers line up for three days to buy property … Eryk Bagshaw … Sydney Morning Herald

    http://smh.domain.com.au/real-estate-news/home-buyers-line-up-for-three-days-to-purchase-property-20140903-10btc7.html

    Local Government inflation (causing them to strangle land supply and plunder the development / construction sector) leads to housing inflation which in turn leads to general inflation … which explains why Sydney families are “struggling” to live on $A245,000 a year …

    Feeling the pinch? Take part in a cost of living survey … News Com Au

    http://www.news.com.au/finance/money/feeling-the-pinch-take-part-in-newscomaus-cost-of-living-survey/story-e6frfmcr-1227041183279

    • Housing is going in to “bubble territory if it exceeds 3.0 times household income or about 1.2 times Gross Domestic / State / Metropolitan Product …

      2014 10th Annual Demographia International Housing Affordability Survey (data 3rd Qtr 2013)

      http://www.demographia.com/dhi.pdf

      There is about $NZ400 billion of excess bubble value in the New Zealand housing market and in excess of $A2.5 trillion of bubble value in Australian housing to be wiped out at some stage.

      Irelands overall metro Median Multiples tanked from about 4.7 Median Multiple in 2007 (refer 2008 4th Edition Demographia Survey) to 2.8 Median Multiple (refer 2013 10th Edition Demograhia Survey), wiping a quarter trillion euros out of bubble value out of its housing market and putting its Banks to the wall.

      New Zealand and Australia’s metros are currently in excess of 5.5 Median Multiple (this year’s Demographia Survey … adjusted).

      New Zealand’s Bubble Economy Is Vulnerable | Hugh Pavletich | Scoop News

      http://www.scoop.co.nz/stories/HL1404/S00166/new-zealands-bubble-economy-is-vulnerable-hugh-pavletich.htm

    • The New Zealand Authorities have started on the path of subduing its housing bubble … while the Australian Authorities have chosen not to …

      NZ shows Australia how to address housing policy | Leith van Onselen | Macrobusiness Australia

      http://www.macrobusiness.com.au/2014/09/nz-shows-australia-how-to-address-housing-policy/

      The Chinese are desperately attempting to reform their economy, with a shift from excess investment …

      Credit Crunch Is No Reason to Resort to Old Ways – CaixinOnline

      http://english.caixin.com/2014-09-03/100724738.html

      Will the rapid falls in commodity prices, trigger the bursting of the Australian and New Zealand housing bubbles ?

      ENDS

  24. Great ‘vacant land price’ graph!

    Although even that isn’t indicative. If the land required per square metre of dwelling is decreasing (e.g. everyone is subdividing their quarter acre blocks into town-houses), then it is natural that the vacant land price will go up.

    It’s my belief that in order to describe this scenario, you need a multi-variable equation that is not trivial to understand.

    It is also my belief that it doesn’t much matter. If you are at risk of cancer, and your doctor identifies a number of lifestyle risk factors, you work to reduce ALL of them. This is the approach needed for property.

  25. If there is a shortage in housing then why are we still allowing people to purchase multiple investment properties using negative gearing and foreign investors instead of allowing Australians to be able to purchase a home to live in, which is, after all the Australian dream isn’t it? If housing was not spruiked and speculated to this ridiculous prices then people wouldn’t be having to rent and instead paying off a mortgage. Is my view too simplistic?