More excuses for Australia’s expensive housing

By Leith van Onselen

Domainfax’s Matt Wade posted an article over the weekend blaming the high cost of housing in Australia on the concentration of the population in Sydney and Melbourne:

Sydney and Melbourne are among the world’s most successful cities. Together they generate more than 40 per cent of Australia’s economic output and both consistently rate among the most liveable cities on the planet. But their sheer magnetism has contributed to a pressing national challenge: the high cost of housing.

The demographic dominance of these twin urban giants helps explain why property prices in Australia are high when compared with most other countries…

The most recent population estimates by the Bureau of Statistics showed 9.3 million people live in Sydney and Melbourne, or four in every 10 Australians…

Japan’s two largest cities, Tokyo and Yokohama, account for less than 10 per cent of the total population. London and Birmingham, Britain’s two biggest cities, make up less than 20 per cent of the population…

What drivel.

Australia has a relatively small population of around 24 million people, or roughly 1/13th that of the United States. Moreover, none of Australia’s cities are large by global standards.

For example, Greater Sydney (population 4.9 million when outlying areas like the Blue Mountains and the Central Coast are included) wouldn’t even scrape into the top 10 largest metropolitan areas in the United States. It also pales in comparison to Greater London (8.6 million) or Tokyo (38 million).

And yet Australia’s residential land/house prices are absurd by global standards, running well above most other countries where land supply is genuinely scarce.

To make matters worse, it’s not just the big cities in Australia that are overly expensive. According to Gerard Minack, every city in the Anglo world with a population of less than 100,000 and house prices over five times median income is in Australia:

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The unfortunate truth is that Australian housing is ridiculously unaffordable across-the-board.

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Comments

    • The crime and legal system in US did it for me, 11 years between Boston and Raleigh was all I could take. Looked at moving to Valencia in Spain, but the unemployment there is unbelievable (circa 2008/9) so Brisbane it was. Came back to Sydney a little later.

      • Wonder if we ever crossed paths in Raleigh, I never lived there but sure spent enough work time in Cary NC to feel like a resident. I usually arranged to spend the weekend fishing off Hatteras with my brother-in-law, good times. I still like visiting but I’m not sure I could live there, the whole southern racism thingy is a little over the top, I’ve had some weird experiences in recent times.

    • Just had an offer for an internal transfer back to Oz. Back of the envelope my cost of living adjusted take home pay would have been 45% lower than Hong Kong. Ummmm….

      • Oh I can believe that! Unfortunately due to a cocktail of chronic health conditions I didn’t end up being the high flying successful expat I thought I was going to be. Staying out of debt, not killing myself, paying my bills and fighting for a certain amount of ‘life’ above survival mode has become my standard of success. I’m finally able to save some dough, and I’d like 2 more years of that, but boy, BJ can be tough to live in sometimes! Not sure I can hack it much longer (it’s already been 15 years).

      • Honestly, not exactly high flying myself! But the after tax difference is a killer. I am all for “money’s not everything”, but there also comes a point where the “no money, no lifestyle” immovable object looms pretty large.

        Sorry to hear it’s been so tough for you there, Popcod. I believe BJ is revealing itself to be the Tokyo of the 21st century (ie. a bit of a career graveyard, or at least a trap) but without being the awesome place to live that Tokyo is.

      • Thanks for the sympathy! It hasn’t been easy, but it is much better now than it was. I can actually contemplate leaving which is something I couldn’t before (needed really good, cheap acupuncture).

        I reckon you’re right about the BJ/Tokyo career conundrum (though the Chinese would hate to hear that of course), lucky for me I don’t really consider myself as having a career, at least not one I want to pursue away from here, so when I end up moving back I’ll probably have to re-skill. Something I’m not really looking forward to as you lose income during that time and starting a new career is always a bit risky. But it’ll be a new adventure whenever it happens, and walks along the beach count for A LOT 🙂

  1. Spot on UE.
    A perfect riposte to Wade’s frothy nonsense.
    If even half the people who read Wade’s silliness also read the MB perspective, the country would be in much better shape – both physically and mentally……..

    • I like Australians believing what they do, given that Australians wiped out their trade exposed sectors.

      The beliefs of Australians lock-in a once in a century downturn. Australians are unteachable and can only learn by facing the harsh consequences of their actions.

      So let Australians keep making excuses for, and actively supporting the very conditions that will induce the depression, I say.

      • For a little while this year, I did worry that I made the wrong decision staying out of the property market for the last 2 years and instead focused on saving and investing in stocks.

        Turns out I was right. If a particular market looks overheated, sounds overheated and when measured by every metric is overheated, it is bloody overheated and you should steer clear.

      • LD, I don’t necessarily disagree with your views but the spite in your tone is unhelpful and off-putting – especially given the fact you are nota current resident and therefore disassociated with our problems.

      • Awww boo hoo. Australians just destroyed my sector first. And I’m disassociated because I saw it coming. In that respect I guess I’m somewhat lucky. I did however hold my house until last year; I was worried I’d left it too late, but Australians’ willingness to feed everything to the bubble (no FIRB prosecutions) surprised even me.

        People were saying the same thing 6 months ago to me before any losses even materialized. It’s a bit rich attacking someone (me) for being too harsh when I and others have been warning for years, and the losses haven’t even happened yet. I’d call it fair bloody warning.

        People like me are useful; we make it clear that the current scenario is 100% the fault of Australians. When the shit hits the fan, and Australians are blaming everything but themselves, desperately trying to kick the can down the road one more time, and generally making things even worse than they could be, think of me.

      • “People like me are useful; we make it clear that the current scenario is 100% the fault of Australians.”

        Self awarded grandiosity, the personality disorder check boxes are starting to get full Lorddudley [nice heraldic symbolism imo].

        Skippy… do you also get a dopamine hit from watching burning buildings w/ people on fire running out?

      • Aussie1929MEMBER

        People are distracted by consumerism, pop culture and the current narrative of the Lamestream Media. You can’t blame them 100% however, I dont give a shit about people becuse they are ignorant, inconsiderate and impatient so I have my popcorn ready for the show.

      • You are wrong about a great many things, but your quasi – religious beliefs induce a self inflicted myopia.

        Never said you were a monster… just that you have a high baseline wrt personality disorder indicators e.g. Australia killed your sector i.e. glee at some sort of pay back… sick twisted puppy territory.

        Skippy…. the cog-dis comes in when you don’t realize your living in the biggest bubble of them all… the meta burns…

      • The problem is a media that does not function to its role – critical discourse and informing the public.

        The media is the nerve system of a democracy, when it malfunctions the democracy itself malfunctions.

      • Aussie1929; the term “Lamestream Media” is the perfect description for them.
        As good as the term, “Presstitutes” that Gerald Celente uses to describe all those working for and in the Lamesteam Media.

      • If my gloating is tiresome, then the reality hasn’t hit home yet, as the reality will be much worse. If you’re tired of reading my posts, just scroll past them. I don’t copy pasta reams of garbage, and I don’t post that much, so just scroll on by and ignore me if you don’t like me.

      • @LordDudley, I think some of the derision is the fact that you are right and it feels like you are rubbing it in for people yet to accept reality. Not that I’m complaining because I completely agree!

  2. That Wade article was lazy drivel on any measure of analysis. If Fairfax needs a case of why their product is no good, that is another example

  3. I remember Tina Arena on sunrise last week saying something like “Housing here is so expensive…people living beyond their means…nice place to visit but …”. Seems like it is obvious to everyone on the outside looking in.

  4. That great sucking sound we hear is the interest expense on our colossal private debt flowing out of the regions to the great rentseeking cities of Syd and Melb…

    • Yes, but it only channels through Melbourne and Sydney long enough to have its ticket clipped on its way out of the country to the international financiers our banks are using.
      If we’d amassed this amount of debt on the basis of domestic funding, i’d not be as concerned as I am right now, because at least then we’d have rock solid banks and savers who were still being somewhat looked after.
      The continuous printing of funny money since the GFC means that the funny money is always cheaper and savers are toast…

      • Actually no money is printed, M has not expanded, its just an asset portfolio swap with is just another way of amortizing all the poor quality credit issued pre GFC. Tho it has enabled large corporations in stock by backs et al which keeps the equity [moeny] pumped up and C-suite [productive class] bonuses increasing.

      • As Hudson points out, forcing governments into the bond holders paddock and increasing privatization of public assets.

  5. Blame Paul Keating for exempting housing from CGT – time to bring in CGT on houses sold for greater than $1million

    • sydboy007MEMBER

      The primary residence has always been CGT exempt. Maybe when we’re a nation of renters that may change, though by then over foreign owners will probably have full control of the political system so changes like that wont be possible.

    • Honestly until the issue of housing affordability is reframed in terms of housing being a place to live, less an investment, nothing will change. The real problem was Costello’s 50% discount – which should never have been implemented as it was (and still is) crappy economics.

      Although hell, I’m in favour of CGT being placed on PPOR fully, simply to constrain prices and reinforce the message that housing is an essential provision, not a luxury you make money off.

      • Although hell, I’m in favour of CGT being placed on PPOR fully, simply to constrain prices and reinforce the message that housing is an essential provision, not a luxury you make money off.

        Not quite sure CGT would deliver that message.

        For example, it would mean you couldn’t afford to move from A to B and maintain a similar value of house, since you’d have to pay the CGT on A, reducing how much you have to spend.

  6. Wade’s attempt to justify house prices was weak as piss. On the other hand, his point that it is plainly absurd that 40% of the country resides in just two sprawling CBDs is true (what i have called the Sydney/Melbourne Megaburb in the past). It is utter madness and will lead to the ruin of both if it isn’t directly addressed by government. Won’t happen though…it’s game over already.

      • The problem is jobs need to be available outside of these big hubs. I was in the US recently and noticed even in places like Harrisburg PA or Louisville KY there were jobs available and diversity in terms of their economies.

        In Australia there is very little diversity and this is a big problem, especially in the technology sector. We could be leading the world in so many ways, but instead focus on dumb shit like house prices.

      • Big Australia
        I love it. More road rage, economic stagnation, vast ghettos ..If you could just confine it to Sydney and Melbourne, the rest of us would be truly grateful….

      • Big Australia is dead unless someone can figure a way to get NOM back to peak mining boom levels.
        Doesn’t seem to be happening.

        Certainly, Treasury’s projection of 1.2% population growth for the foreseeable doesn’t get Sydney or Melbourne all that close to 8 million in 35 years.

  7. median price in Alice Springs is higher than median in NY metro both in absolute and relative to income terms

    • This!!! And people wonder why I’m harsh. Engineering this particular piece of insanity took a Herculean effort of pure derp from almost all levels of society and government. The fallout will be one for the textbooks.

      • Gees LD,
        I am afraid you are right in all you said.
        The fall will be catastrophic, and the blame game will begin.
        Hockey and Abbott are gone but their legacy continues

      • We know it won’t. What will happen is the same thing that happened in Ireland; bubble pops, gov’t rescues banks (yeah, great understanding of capitalism there…) and the bubble reinflates later.

        Vested interest rules the country.

  8. reusachtigeMEMBER

    LOLOLOL!!! Youse whiners are hilarious! This journalist is right and all of you evil crashniks are, as usual and for eternity, wrong! LOL

  9. I guess this is obvious, but, comparing the “two largest cities” in any given country (large or small) to the rest of the country would certainly get you an F in Statistics 101. Also, for someone arguing that Sydney and Melbourne will remain expensive permanently, bringing up Tokyo is poor salesmanship.

  10. There’s undoubtedly a “New York of Australia” effect for the more desirable parts of Sydney, but that should only affect prices relative to the rest of the country. What’s nuts in Australia is the smaller cities and towns (that have nothing in particular to recommend them) are ridiculously overpriced.

    • The halo effect. People’s perceptions are influenced relative to what they know, so when people move from Melbourne to Ballarat, they assume it’s going to be cheaper, but their perception of value is still anchored around what they sold for, or would have to pay, in Melbourne. Therefore the Bogan capital of Victoria gets infected with the same stratospheric house price disease that Melbourne does. Congratulations, just what a backwards town with no jobs, no future and a rampant drug epidemic needs!

    • we don’t have a problem of some desirable parts or even whole inner city (<10km) being too expensive like Manhattan or Brooklyn in NYC. Our problem is that home prices are extremely expensive everywhere, even in lowest income suburbs considered by many ghettos 45km from the city where poor people are supposed to live (e.g. median house price in Mount Druitt is $600k).
      There are many poorer suburbs in NY metro with median prices well under $200k, some under 10km from downtown where poorer people can afford to buy or live. There are numerous very nice suburbs 30km from downtown where prices are under $300k. Even in one of the most wealthiest counties in USA (Bergen, Mirris, Somerset Counties in NJ) prices are cheaper than in one of the poorest suburbs of Sydney – Mount Druitt or Campbeltown

    • TailorTrashMEMBER

      All houses in Australia are ridiculously over priced because people have borrowed ridiculously to buy them . The buyers and the banks are now sitting on a debt bomb ………and it has to be ticking louder every month …………

  11. Sydney and Melbourne “generate more than 40 per cent of Australia’s economic output” because GDP includes the sales value of mainly existing properties.
    The large quantities of foreign cash behind illegal property purchases not only distorts the RE market but gives the illusion that GDP means something other than land inflation.

      • You might be correct macron.
        I got that idea from reading the interweb somewhere.

        So “The purchase of existing homes is not included in GDP.”
        But new housing and renovations will be included in GDP.
        Then there is the cost of finance for the housing bubble.
        Where does that appear in the GDP?

      • That’s right, new construction and renovations count.

        Also all of the fees and charges associated with purchases count, so you’re looking at commissions and conveyancing costs (not including stamp duty).

        Net bank interest, so far as I’m aware, is also included.

        Also, it’s just occurred to me that you are still partially right in the sense that as prices rise the ‘imputed rent’ component of GDP rises (as well as actual rent for investor owned properties). So basically the ABS will include the value of rent forgone on owner-occupied housing as part of GDP.

        I was perhaps a bit blunt earlier – the housing boom does swell GDP. But not to the extent that it would if the purchase price of all existing stock turnover were included.

  12. “Australians are unteachable and can only learn by facing the harsh consequences of their actions”

    True, but I don’t think Australia’s are unique in this regard. It’s just we haven’t had a recession in a long time, so a high level of complacency/arrogance isn’t surprising.

      • Mining BoganMEMBER

        I used to run the whole 1890s scenario past my fellow bogans. At first there was the usual disbelief, followed by the frantic googling on their massive smartphones to prove me wrong.

        Then came the best part. The thinking is it won’t happen again because that was olden times and everyone is more smarter now. True.

    • “True, but I don’t think Australia’s are unique in this regard. It’s just we haven’t had a recession in a long time, so a high level of complacency/arrogance isn’t surprising.”

      Absolutely agree.

  13. “Japan’s two largest cities, Tokyo and Yokohama, account for less than 10 per cent of the total population.”

    This kind of comparison is complete and utter garbage. They’re comparing Japanese city government areas with Australian metropolitan areas.

    The two largest metropolitan areas in Japan are Tokyo (~37 million) and Kyoto/Kobe/Osaka (~19 million), which make Sydney and Melbourne look like tiny backwaters in comparison, and together make up about 43% of Japan’s population.

    Oh, and did i mention that you can buy a block of land within an hours’ commute of central Tokyo for about $50k AUD?

  14. TheRedEconomistMEMBER

    I attended an Auction in Sydney’s Northwest (Hills District) and here are a few of my observations.

    House was 4 bedder (albeit one very small room which was presented as a study) 3 car garage on 700 Sq/M Block in a quiet culdesac

    House was once lemon brick in colour and had been rendered with new kitchen and bathroom with polished floor boards. Garden was low maintenance with nicely trimmed grass

    You could pretty much just move in … nothing to do

    Price guide online was 1,099,000.00

    Before the auction started the auctioneer mentioned you needed to be a registered before you could bid

    You had to provide a license or a passport as ID. Also if you were representing a company or SMSF you had to show document stating this before the auction started.

    They then called out for bids and everyone kept their hands down.

    There was one early bid at a an even 1m… but then the auctioneer said they wanted to start at $1.2M. This being $100K over price guide.

    Still no one put their hands up… So there was the normal spruik of close to “new train line and bus services.” There was also recent spruik of recent capital gains in the area of 25% on the last year and 12% the year before.

    The auctioneer also suggested that property prices never drop and that any buyer would be “happy in Feb 2016 that they bought in Nov 2015”… and “in Nov 2016 they would be even happier they bought 1 year earlier”… “You could be in by Xmas”

    With no further bids… he then advised the crowd that the vendors have been in negotiation with a prospective buyer but the buyer was pending FIRB approval. I reckon it was rubbish to get other bidders interested.

    So after this $1.1m was bid… the auctioneer said they could only accept $25K increments. 3 bidders started showing interest

    It hit $1.5M… then one bidder who wanted to increase by $5K and was told no. He pulled out.

    $1.175M was offered and a $1.2M bid was offered.

    With no more bids… the place was passed in or put to private negotiation at 1.2m.

    My question is … Is the auctioneer allowed to suggest there has been early negotiation which is pending FIRB approval? Can they suggest property prices only go up?

    Overall the market has turned in the Northwest.. this place would have got $1.25m easily a month ago.

    The Agents and auctioneers desperation seem palpable and the vendors are being overly optimistic.

    • “My question is … Is the auctioneer allowed to suggest there has been early negotiation which is pending FIRB approval? Can they suggest property prices only go up?”

      The real estate industry is exempt from the Australian Financial Services Licencing Act.

      Real estate agents can assure buyers that prices are guaranteed to go up by 15%PA for the next 30 years with no legal consequences.

    • Next time please record the auction and put it on Youtube, it will be entertaining viewing in a couple of years time to revisit.

    • I can’t believe that agents get away with things like that. They so need full AFSL compliance and liability, plus the consumer protection laws should also be applicable – they are salespeople earning a motza afterall.

  15. Matt Wade’s logic is so flawed.

    The law of supply and demand says that if demand is from these two area’s, then higher prices will happen.

    So how the hell does that explain the rest of the country’s ridiculous housing prices?
    (rhetorical question, I’m preaching to the converted.)

    • TailorTrashMEMBER

      All houses in Australia are ridiculously over priced because people have borrowed ridiculously to buy them . The buyers and the banks are now sitting on a debt bomb ………and it has to be ticking louder every month …………

  16. Interestingly if you include western/northern europe in that graph the price to income ratios are similiar to Australia. I was in the bear camp for years but now I’m honestly not sure which way this will go, given that our urban planners are infatuated with european cities.