Talking the intergenerational property meat grinder with Martin North

Find below a detailed interview aired last night with Martin North from Digital Finance Analytics, whereby we discuss our deep concerns with intergenerational housing inequality in Australia.

I am scheduled to do a two-hour live show with Martin on Tuesday 21 December.

Unconventional Economist
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  1. I used to follow Martin. Then prices went up 20% in the middle of a global pandemic, so I thought why bother.

      • Some of us have been around here long enough to remember post GFC the advice was the same. Personally cost me hundreds of thousands as I bought into it at the time. Finally bought in 2017.

        • reusachtigeMEMBER

          THIS! I feel for the poor fckrs who listened to that evil sick “don’t buy now” freak. I hope youse sue that prick, along with Steve Keen. They deserve to be in permanent poverty!!

        • Yeah, I do think they were both right fundamentally but when governments intervene with never before seen policies of course things don’t pan out the way it would in a truly free market. One day things have to revert to mean. But it’s apparent now it could go on for much much longer or end tomorrow.

          • Fundamentally right?? Well that’s just great… Hey, that million dollar asset I said will soon be worth $800k is instead worth $1.2mil, but you know, I’m fundamentally right.

          • kierans777MEMBER

            That’s how I feel. I cannot believe how much bigger the bubble has been blown, and for how long it’s survived. I didn’t comprehend how hard governments/banks would intervene or how creative they would get to keep prices going up. Knowing my luck, I’ll capitulate and then prices will crash 😂

          • boomengineeringMEMBER

            Kieran, in the meantime the intrinsic value of your fiat savings is on the downward trajectory. A double whammy.

  2. “prices went up 20% in the middle of a global pandemic”
    In the grand scheme of ‘never letting a good crisis go to waste’ – they didn’t.
    Multiple tens of trillion worth of debt has been shovelled into The System, all in the name of The Virus, in a way that wasn’t during previous nasty outbreaks.
    If wage ‘inflation’ fails to materialise (how can it, when it’s fighting against technology and global population increase?), then what? Answer: Everyone, stops spending on anything but the necessities; and the cheaper, the better (NB: China devalues the Yuan and ramps up production to keep their people gainfully export-orientated employed), and Deflation ravages the Globe.

    • Spot on Janet. Even very wealthy people will suffer but the individual decision for each of them is to keep policy settings as they are.

    • Deflation in everything except those neccesities you mention.
      Fuel, food and shelter all going up and staying there.
      But yeah lower the rates , QE and all those good things

    • I agree completely, however at some point (and I think we are already well past this point) it makes sense for young people to just not seek employment but rather devote their time and effort to building a house on any block of land that they can find and acquire.
      The underlying problem with inflating asset prices but not wages is that you must inevitably reach this cross over point. So even though I might be a lousy builder and I might spend twice or even three times as long as any trained Tradie, I’m still better off building the house myself and jumping through all the hoops required to get the land rezoned and obtain an occupation certificate. Matter of fact I spoke to a 25 years old the other day and suggested that this was probably the best financial decision that he could make.
      There are many Economic problems that arise if even 30% of our young decide to go down this self build road.

      Imagine you buy the land for say $100K (savings from 3 to 5 years working)
      You buy enough building materials to build a modest 2 bedroom 1 living area house (say 50 to 70msq)
      Year 1 you continue to work while you get the rezoning done (paying council fees of say $50K)
      Year 2 you get all the foundations plumbing /buried electricals done (say another $50K outgoings)
      Year 3 you actually build your small house
      Year 4 you mortgage this small house (valuations come in at $700K so you borrow $350K) and use this to build a proper house say 300m sq and petition council to divide the block )
      Year 5 you use the $350K for building materials for the new house plus proper Tradies for essential tasks.
      Year 6 you’ve got your dream home ($1.5M valuation ) done and you only owe about $350K ( or probably are debt free if you sell the small house)
      Compare this to the outcome you get if you remain a wage slave for these 6 years.

      • Im a surprised more young people in Aus arent just dropping out, unfortunenately when they do it seems to manifest in not raising families , avoiding long term commitents etc, not that i blame them i just think its sad.
        Doing what you suggest , plus raising a large family and abusing the welfare system is actually the way to go in my opinion, i mean wtf not.
        I suspect the regulatory hurdles , for buying a rural block and building on it these days are higher than you think.
        One area im familiar with in vic around 1.3 hours from melbourne wont allow building on less than 100 acre blocks full stop. Still makes sense to bite the bullet and go i reckon, youd just have to go farther out , or maybe not any of the south east .

      • You’re not getting a block, let alone a sub-dividable block in a city for $100k. Probably struggle in any decent town too. Possible to get a bush block without services or a town block somewhere like Broken Hill, Longreach or Orbost.

        • Are you suggesting that all the available agricultural land in NSW is valued at more than $100K/hectare?
          If not than why can’t you buy land to build a house on?

          • The key point is agricultural land , your not allowed to build on it. The jurisdiction im familiar with the minumum block size for building on is 100 acres.
            Theres no shortage of land in Aus ,
            Getting it rezoned is the issue.
            Quite sickening when you really think about it, australia affordable housing crises/homeless problem, could be solved in 6 months if any government had the will to do it.

          • your not allowed to build on it.
            Say’s who?
            And why do they say it?
            And who requests their approval?
            And who accepts their refusal?
            All major reforms begin with civil disobedience
            Deliberate disobedience, willful disobedience
            I suspect the power of disobedience is the lesson that this generation (both old and young) must relearn.

          • I fully agree with you there dodgy. I actually posted a longer comment about this but went to the moderator
            The house i grew up in was built as you suggest.
            Hence my comment below about having to get it up to code before selling. There was a lot of legal fees and plumbing works etc.
            I do wonder however if you had no intention of selling what would happen?, given were in 2021 not the 80s and 90s
            Would the council evict you? Might be bad optics especially if you had a few kids in tow. I remember reading a few stories about people being evicted from there land that they were living in caravans on. WA i think. And single people
            Lots of young families doing this would sure bring the subject to the fore in the media

          • Reus's large MEMBER

            If you build a “tiny” house you can live on a agri block as it is not a “permanent” structure, otherwise the council is going to fine the crap out of you.

            FYI, I just built my house as a owner builder, so only using the trades that I have to like sparky and plumbers, it is a custom design that cost more than a standard build and I got it done for around 180k, but that includes double glazing and hardwood floors and top of the range appliances. So I would say it is possible to get a 3 bed house of around 200sqm or 20SQ for about 150k quite easily.

        • @Resusa
          The point I’m trying to make is that the key to affordability is to liberalize zoning permission. Make this one change and you create options such as the one that I’ve outlined. Reverse the situation from you needing permissions to build to the Council needing to show compelling reasons why you shouldn’t be allowed to build and you’ll see the housing market support systems adapt and house prices (outside of Sydney) will plummet.

      • It ain’t the building that’s expensive (relatively speaking), it’s the land.

        You wouldn’t get within a bull’s roar of a block big enough to build two houses on for $100k, let alone one that was actually subdividable, anywhere near a population centre of usefulness.

        The days of buying a block, slapping a big shed on it, then living in the shed while you spent a few years building a proper house, disappeared in the ’90s (I’m early 40s, and a few of my friends’ parents were doing this while I was growing up, but I haven’t heard of anyone much younger than me with this experience – and that was in regional QLD as well).

        • Council building inspectors have a large role to play as well.
          I remember getting our house up to code in the early 2000s and the plumber commenting that the septic system the inspector made us install at great expense was twice the size of the local football club’s sytem he’d previously installed at there grounds.generally hosting several hundred on a weekend, for a 2 bed one bath house.
          The PTB very much frown upon what dodgy is suggesting and will throw up whatever obstacles they can

        • Yes, it’s the land. And most young are goat going tell love where the very cheap land is as no jerbs there.

          • Jerbs are an issue but in the case of the 25 year old I was mentioning, he works in the Mine support / equipment sector. Specifically he works with a German company that builds custom mining equipment for all the big Aussie miners. A typical year will involve 2 to 3 months on site. 2 to 3 months in Germany overseeing the project / design build and rest of the year doing project specifications / compliance testing / commissioning paper work. For most of the year all he really needs a very good Internet connection and good flight options.
            So he can take the jerb with him where ever he chooses to live.

      • Year 1 you continue to work while you get the rezoning done (paying council fees of say $50K)

        The problem is right there. The elite have sown-up the rezoning rort. Essentially only elites can get their land rezoned (with a few lucky plebs who were in the right place at the right time).
        The big money is in rezoning. It takes no effort and no resources, just powerful friends.

        Australia’s richest man made his money from rezoning, not building. Builders work hard and are paid little. Rezoners hardly work and are paid heaps.

        • The elite have sown-up the rezoning rort.
          Of course they have, otherwise this whole scam collapses, but rezoning is still possible it just takes time and persistence.

          Crushing this rezoning rort is ALL that’s required to create housing affordability. Now I’m not suggesting that this land will be anywhere in the Sydney basin but If you don’t have a $1M mortgage you don’t need Sydney wages or Sydney jobs to live a very nice life.

      • Until now, a big problem with your idea was this: What school would your children attend? Would it be any good? But, this could now easily be solved by creating a public school that is entirely on-line (or expanding the existing “school of the air”).

        • Agreed schooling is a huge issue especially once you move away from the major Towns.
          Interestingly in NSWI believe they now have an online Selective School, so maybe things a changing for the better.
          Realistically if you have over a $1M mortgage on a 2 bedroom dog box you’re not going to be able to afford to have kids, so why should you care about the education system.
          Back in my day country kids from well to do families sent their kids to Joey’s for the last 3 years. Even at current prices around $40K/year this is still cheap when compared to a Sydney mortgage on a nice home.

          • When I worked at NSW Education in the early 2000’s I was called into a meeting to discuss how central IT could support their plan to replace School of the air with a combined “Selective” and “Remote” learning school. Their reasoning was that the internet provided a new medium by which they could deliver quality education to the poor and distance challenged students, while improving the outcomes via the symbiotic relationships that are delivered by the selective model… ( paraphrasing the statement made… )

            When I asked what the demographics they were targeting they said about 5% of the remote students were on large farms where distances made travel to a school prohibitive but the parents were still considered to be able to supply essentials. The rest struggled with even providing electricity.

            So I asked, if these students are in a situation where its common that they dont have electricity then how are they to be expected to use the internet…. response was, well they could go to the local library…

            The looks on their faces was priceless when I pointed out that in the majority of towns, the nearest library was in the local school, and if it was too far to travel to get to school, it would be far too far to travel to get to a library….

            They restructured the school but still linked the School of the air into it. They were very proud of their plan…

  3. boomengineeringMEMBER

    RBA posts second biggest loss in history having to pay interest on bonds (Covid handouts,) with $A rising.

  4. Few thought the Australian vampire squid property welfare complex would go full monty with the standout welfare grifters getting even more welfare thrown at it.
    They don’t want a real market to exist!! Just Gimmie’ More!! of the $200Bilion TFF, AOFM, CGD, Negative gearing, SMSF red gearing, endless FHOAS, drain super! Import more buyers – whatever!
    The sickening misallocation of capital to these blood suckers will end one way or the other most likely very badly

  5. reusachtigeMEMBER

    It doesn’t really matter whether some weirdos on the internet have concerns, housing will always be a great wealth creaction mechanism for the savvy!

  6. I like Martin but he’s never understood interest rates.

    House prices in Australia are exactly rational based on interest rates and dual income households (with a measure of foreign buyers as a ratchet).

    I was the only person I’m aware of of that had a 12 month forecast from Sep 2020 of 15% plus. Wrote it here on this blog. Mortgage rates can still go lower and that is exactly what the RBA wants.

    Property prices will absolutely not “crash” in Australia in the next 10 years at least. The whole future economy is reliant on that and it is all the RBA is concerned with. Mortgage rates will go to 1%in Australia and mortgage terms to 40 and 50 years. There’s no fighting it. You can hope and believe what you want. I don’t own a home in Australia and simply made the decision to move abroad a few years ago and I’ve never been happier. Australia is now just a fascinating and depressing social experiment to me.

    • *Income levels in Australia are exceptionally high. Which is not due to any achievement in innovation or technology etc. Mainly due to the extreme valuation of the AUD and the demands placed on iron ore by CN, but also because of the unspoken dominance of the public sector in the Australian economy and unusually high public sector salaries (relative to the rest of the world).

    • They won’t crash as long as mortgage rates can continue to be pushed lower. That’s why I think a negative cash rate is a fait accompli, probably after dwelling prices have fallen 5% to 10%. That’s been the playbook over the past decade or so.
      I wrongly assumed last year that we were at the bottom of the interest rate cycle. But they can go negative, just like in Europe and Japan.

    • “House prices in Australia are exactly rational based on interest rates and dual income households (with a measure of foreign buyers as a ratchet)”.

      After years in the bear wilderness, that’s now what I think too. There’s many much cleverer than me, but I imagine a goal-seeked median price based on serviceability is about as complicated as it needs to be.

  7. You probably don’t want to hear this, but there is only one option for the younger generations at this point and it is Bitcoin. Not only because it helps them keep and retain their capital against inflation, but also because it destabilizes the current system.

    There’s no nice and easy way out at this point. Bitcoin is the revolution.