Property value never falls? Don’t put the house on it
|
While markets may not be perfectly efficient, they tend to deliver the correct result … eventually. This may take some time, especially when the market in question involves an asset indelibly linked to human emotions and shelter — like residential property. But as Benjamin Graham once noted (albeit, referring to a different market), in the short term the market is a voting machine, in the long term it is a weighing machine. Most metrics indicate that residential property is overpriced. The most recent data suggests that the median price of an Australian property is $450,000 — in capital cities, the median is far higher than that (in the United States, the median property costs about $200,000). That means not only is Australian property double to price of that in the US, but Australians pay about 5-6 times their household disposable income for their median dream home — about double the historical ratio. Similarly, net yields tend to be less than 3% in many areas — with purchasers simply assuming that “property always goes up”. As a result of such willingness to buy property, Australian’s household debt levels are world leading — as the Australian Bureau of Statistics last year noted in its Social Trends publication:
In other words, the more housing prices have appreciated, the more Australians have needed to borrow. The most commonly propagated justification for ever-increasing prices (and willingness to assume more debt) is that Australia is in the midst of a housing shortage. This is allegedly the result of increased birth rates and rampant levels of immigration. The theory (commonly sprouted by estate agents, a willing media and almost every Australian real estate pundit) appears to be that Australia because has a shortage of property, and ever-increasing demand (due to immigration), equilibrium prices will continue to outstrip inflation indefinitely. The problem with this theory is that it assumes that the supply curve is fixed. In other words, the market is broken. However, if data released by the ABS is accurate, it appears that rumours of the flexibility of the housing market’s death has been greatly exaggerated. The ABS stated that during December 2009, 14,869 dwellings were approved (on a seasonally adjusted basis). This is a substantial increase on the prior year (in the midst of the financial crisis) when less than 10,000 approvals were granted. On an annual basis (and annualising a single month’s result can be misleading, especially given the lumpiness of approval dwellings), if that rate of construction is sustained about 180,000 dwellings will be constructed next year. Why are more dwellings being approved? Most likely because higher property prices mean that developers have been able to expand their profit margins — especially apartment builders. The lure of greater profits encourages more development. Given that each Australian dwelling houses 2.6 people on average, that means properties for more than 460,000 people will be built next year based on the December figures. Now let us consider the “demand” side. The Department of Immigration and Citizenship stated on its website that 2009-10 immigration is expected to be 168,700. (Further, it is highly likely that temporary immigration, especially in the form of student visas may drop as the Australian dollar increases and violent attacks against Indian students garner widespread media coverage). As for organic growth — the ABS found that for the year ending June 2009, there were 300,900 births in Australia and 143,100 deaths. The natural rate of population growth was therefore 157,800. Combining natural growth and immigration, that gives an approximate permanent population increase of 326,500. This figure is substantially less than the rate of dwelling approval based on December 2009 data. (The ABS noted that total population growth in 2009 was 443,800, with the ABS having a different net migration figure to the Department of Immigration, even using the higher figure — there does not appear to be any actual shortage). Further, the increase in Australia’s population growth is unlikely to be sustainable. The rate of growth in 2009 was 2.1% — almost double the international average of 1.1%. The decrease in growth rates may come from reduced immigration, lower birth rates (as unemployment increases and the baby bonus is reduced) or even higher mortality rates as the population continues to age. On this point, Immigration Minister Chris Evans is expected to announce today that the list of jobs that receive immigration preferences will be slashed, making it far more difficult for overseas students to obtain residency after completing tertiary education. This will further reducing the demand for housing. Last year, as construction slumped and migration boomed, it appeared that after decades of net dwelling growth, Australia may be encountering a shortfall. Not only does it appear that this has not eventuated, but the market is reacting to ensure that more dwellings are constructed while political and economic factors may lead to reduced population growth in future years. What this means is that all those so-called experts who continually claim that Australia is suffering a housing shortage have never bothered to calculate the real shortage or simply turn a blind-eye to the reality because it suits their “property never falls” argument. No housing shortage exists — the market has reacted with great speed to changes in price by increasing supply. The reason for the increase in property prices is not due to any economic factors such as supply shortages (yields have dropped and income to price ratios increased) but rather Australians use more debt than anyone else to purchase their dream. Property never falls in value? Don’t bet your house on it. |
|
|
|
55 Comments
I agree.
I have been active in the Sydney market and do not agree with the supposed 10% rise.
It is real estate agents talking it up.
The actual fact is the market is in a doldrum, sure in the 20% of properties that are cleared may be up 10% but what about the 80% that do not sell ?
Anyone for bubblegum ?
I wonder what effect limiting real estate agents to a flat fee based on the amount of actual work they did to sell the house and making sellers advertise a price would have on the spiralling cost of housing?
Adam, you compare median house prices in your analysis to the U.S. Would you be kind enough to give us a comparison to other OECD countries, like Canada, U.K., Sweden, etc, or point out your source for these metrics?
House prices should be linked to the rate of inflation thus keeping prices affordable, allowing people to actually purchase a home and stop the greed & sleaze of property speculation. I would hate to be starting out to buy a house nowadays.
Jeez. Sure lets limit earnings and investment prices. Also lets limit grocery prices and the price of clothing and essentials.
I’ve never seen such a bunch of whingers on any other topic other than this. It has never been easy to buy a house. Deal with it.
whinging? hmmm, housing is a right, one which eludes many australians and will continue to do so unless the property market is regulated. but hey, it’s a dog eat dog world out there and who gives a rats ar*se about the ‘other’s - money is god and i’m a worshippin it!
Ive said it before and I’ll say it again - housing is a right. OWNING one is a privelige (sp?) One people need to work hard for, or go without.
I agree with your point that the market is being artifically held up by the real estate agents, the banks, and State Govts.
They are the true beneficiaries of an inflated market at the expense of consumers who are in a precarious ( by world standards) debt equity ratio and risk their largest asset being devalued if the market makes a downward correction.
Of more concern is why the buyers in the market seem to belive the snake oil talk and refuse to call agents on thier chicanery and misleading conduct by artificially talking up the market.
For ther agent’s part, they figure if Wall St and the managed funds industry can do it , why can’t they have their day in the sun and take more of the punters money.
What is so sad is that buyers are colluding with this nonsense believing the scarcity model and being fueled by the fear that if they don’t get on now proices will go up higher and paying phenominal amounts for properties that everyone knows are not worth it.
Until such time that people vote with their hands and refuse to bid at hyped up auctions, or refuse to be treated so badly then theyillcontinue to pay the price out their owm pockets.
While it is possible to build a lot of dwellings it is not possible to build a lot of dwellings in the areas where people want to live. For example, the higher densities needed to put people into the desirable areas of Sydney are proving very difficult to achieve.
The task of aggregating house sites in order that they be knocked down for a high density development is very tough. Defeating the local resistance to that process is even tougher. Thus the demand for dwellings in desirable areas is likely to remain strong. Sure, big price increases are unsustainable, but the likelihood of a crash, barring a world depression, seems remote.
Adam, agree with the majority of your article, but not it’s conclusions. I would like to think the property market, particularly Sydney, is a huge bubble waiting to burst, but I just don’t see it. Sure, people are leveraged up to their eyeballs, but demand is still fairly solid. You did omit a couple of other notable drivers of demand: the huge number of twenty and thirty-somethings stuck at home with Mum & Dad, who would have, in generations gone by, entered the housing market years earlier; also, the expat community, which would have returned home permanently in larger numbers in the last couple of years due to the GFC.
as a 31 year old, all I know is that the cost of a ‘family home’ isn’t cheap but the demand for residential dwellings is clearly evident. Whilst a reasonable correction in property values WILL happen, just refer to history, I don’t think there will be a crash.
I wouldn’t automatically assume that developers have greatly increased their profit margins. Small to medium property developers are working as hard as ever to find parcels of land ‘that work for them’. High residential valuations also mean high englobo/vacant land valuations. If a developer can make +15%, it is a job well done.
There are still alot of developers, refer Mirvac / Stockland / Delfin, that hold large land banks in the outer suburban areas on Melbourne, Brisbane and Sydney. The holding costs alone, in addition to a development cycle of up to 10 years, mean that it is hard to make large profit margins. Chuck in higher bank margins, approval fees, council rates etc etc.
Adam - you still don’t get it. It’s demand, demand, demand combined with an artificial shortage of suitable land. Short of a major recession and 10 percent unemployment, prices will remain stable or will be increasing. Get over it.
thats it Bakerboy.
It will also be interesting is to see where the growth of property trusts will come from over the next few years given all property trusts are already finding it difficult enough to acquire commercial property with cap rates at their current levels.
DAVID SANDERSON, you make a very good point about housing supply needed where people want to live.
Sure, there are large amounts of land on the outskirts on Melbourne that are not being released, although if they were released, it would likely only apply downward pressure to the house prices in the outskirts. Demand for inner city property and desirable established suburbs would still be very much in demand.
thats right Andrew and thats why you never really see house prices in Toorak, Mentone etc ever go backwards. Different market.
RE: There are many different ratios of household income to property prices quoted. Obviously, they each feed into a particular interpretation of the issue - Rismark for instance suggests there is no particular affordability issue based on their own calculation of a ratio of 4.1.
Each of these calculations imply median household incomes are over $90kpa. As at 2006, Census indicates median household incomes are approx $53 kpa.
Where are the household income figures used to calculate these ratios drawn from please?
@Alexander Berkman
(((money is god and i’m a worshippin it!))))
yep…it’s that worshipping “things of wood & stone” again for those punters who pay rediculously inflated prices for ramshackle dwellings and the God of Money and Greed for rampant property speculation.
I am trying to think of that term straight out of Gallagher & Burkhart ( SP ) where govts were part pro regulation and part non regulation…it escapes me at the moment, but curbing murderous property speculation under regulation would be a step in the right direction.
@ABarker
((((( Also lets limit grocery prices and the price of clothing and essentials.))))
If Govts are elected to serve the interests of people who elected them, then of course. …better that than serving the interests of multi nationals. There should at least be a Minister for Scarcity.
@TY_We Are Not
An interesting national housing model is that adopted by the Libyan Govt back in the early eighties. Introducing property laws that limited ownership to one dwelling…..despite the decline of private finance , the housing sector constituted one of the most notable of Libya’s achievements.
Surely the biggest demographic group of land owners is the baby boomers? Look around your own suburb - elderly couples or singles sitting on 800m2+ with land values over $1m.
At the risk of starting a generation war… Unfortunately this is the group that insists new homes be built to 6 star energy efficiency ratings (massively increasing costs for young families) whilst refusing to upgrade their own home’s efficiency. Also the same group that passionately fight against the conversion of any bushland to new home sites because of the desire to preserve the natural environment, save the spiders, the lovely cockatoos, etc. You’ll also find people in this group that lament Gen X for having both parents working and not investing time in raising their kids. Der, they are paying the mortgage!
Until this group is encouraged to move on to down-sized land, property values (especially within 10 km of the CBD) will be upheld. I’d like to see a Govt with the courage to re-direct the first-home buyers grant to to the baby boomers as incentive to sub-divide their land, move to retirement townhouses, etc. The alternative is to wait 10-15 yrs for the inevitable flood of supply as the kids try and sell Mum and Dad’s house. Watch the values fall then.
Realist: I think real estate agents definitely should carry some blame in this too…
but in relation to Aussies having to pay the most in the world. I find that very hard to believe.
Did you know in the UK, most houses that people buy are “leaseholds” which means they own the house like we do in Australia, for 90 years or so, after which point they get an offer to rebuy it at the current market rate, or it returns to the previous deed owners. Freeholds (which is where you buy the property outright) are far more rare than in countries like Australia. So in a way, most people who are buying in the UK arent buying like they are in Australia, and yet they must pay as much as we do, for their awful squalorous sardine cans.
We arent that badly off.
@GJohnson - A Minister for Scarcity - Classic. Reminds me of the Ministry of Plenty, in a book I read, once, or something. (Miniplenty for those who know what I’m talking about). Your economic ideas scare me and make me laugh at the same time. If you want a regulated planned economy you could always move to North Korea or China. And even China have realised markets are not such a bad thing.
@Brewesan - Yes I would agree the boomers are sitting pretty on big parcels of land. The thing is they fall off the perch or go into a nursing home and their kids end up developing the sites, or, selling off the blocks to developers who will. The problem is at the moment developers are finding it difficult to get financing, and, if they can, rates and timeframes make it near impossible to make any money. I don’t see prices falling in 10-15 years as by this time they will have at least doubled again and those who have them then will either rent the house or develop into two dwellings and sell them off then.
The environmental factor doesn’t factor into it so much. Older homes have eaves, insulation, proper shading and established gardens which cool homes in summer. New homes have a roof which is lucky to cover to the walls at all - a disgrace in this country. Northern aspects with no eaves - instead we have roller shutters and a RC AC running 24/7.
Will be interesting to see what effect (if any) the BASIX laws have on new homes. I wonder if old, under-designed houses will lose some value?
Several points to point out.
1. Migration from NZ is not usually counted as official migration. However there are tens of thousands of young educated kiwi’s moving to melbourne and sydney each year.
2. The reason why house prices rise faster than inflation is that the house you are comparing from the 70s isn’t the same as the house from the 00s. There is a massive difference in quality due to constant renovations in many properties.
3. By using the median value for a whole city today vs historically the comparison is misleading. The correct measure is to view the change for a suburb. What you then find is that in inner areas land values (and therefore house prices) have boomed.
4. Australians are much more comfortable with debt and leverage than previous generations. The conventional wisdom of paying your house of ASAP is no longer universally accepted. Two income families are the norm now rather than the exception. Lots of people chose to have housing debt because it has much lower interest rates than other forms (like business loans, car loans, etc…).
5. The property shortage is actually caused by the big property companies land banking. There is plenty of zoned land on the outskirts of Melbourne, but its basically all owned by half a dozen big name development companies. They then release it nice and slow to keep the prices up.
6. The reason why inner city property is expensive is because there is no more land in the inner city and the outer suburbs are a lot further out (in travel time) than they used to be even in the 90s. There has also been a massive growth in the uni-educated white collar jobs which are focused on the CBD and inner areas. People work long hours and the commutes to outer areas are much slower than they used to be, so you pay more for a house to increase your leisure time.
ABarker isn’t the problem unrestrained markets? The housing market seems so unrestrained that it is causing significant problems for several sectors of the community and in modern democracies those are the kinds of things that lead markets to intervene. That doesn’t mean that anyone calling for intervention wants a ‘planned’ economy.
I know it’s not straight forward but even Adam Smith would agree that governments should rein in market excess. in reply please be gentle, I’m no economic expert but as one of many people spending a lot more on my housing than seems reasonable I’d love to see a solution.
@ABarker
((((If you want a regulated planned economy you could always move to North Korea or China.))))
Oh boy…why do you always go to extremes?…the concept is semi-planned or semi regulated, not totally planned or totally regulated.
Being married to you must be a nightmare.
@SBH - the property market is EXTREMELY regulated and restrained. Lending guidelines are very tight in Australia compared with the rest of the world, despite what everyone says. And that’s why our banks have fared so well.
Councils are very difficult to get approval through, land use zones are highly restricted, I think this is the problem in part - by restraining the supply we have seen house prices rise dramatically, and meanwhile we have some areas of land that are sitting vacant. Property also takes a long time to sell and transfer, it is not liquid, so this is a ‘natural’ restraint, unlike the share market which can dip or rise spectacularly in one day.
I think Energypedant made some good points. I think we do need more satellite cities, hell, the US has tons of towns/cities with up to 500,000 people which thrive on their own (think the college towns, defence bases etc). We have a few in NSW and QLD, and that’s it. I think our problem is climate however, the arable land is just not there.
Believe me I understand about the spending more than seems reasonable but these days the houses we get are a lot better than the ones our parents got to begin with. No floor coverings, no curtains, no driveway, no builtin wardrobes, no paint, no garage etc etc - that’s partly the reason houses have become so much more expensive, we get huge houses with everything included, no longer a simple 3x1.
And yeah markets which are completely unrestrained don’t work, especially if we have chimps running them (USA).
@GaryJ - Come on now Gary, that was just plain mean. My wife doesn’t complain. At least I never seem to hear it. It might be when I’m watching TV or something.
Bakerboy:
“Adam - you still don’t get it. It’s demand, demand, demand combined with an artificial shortage of suitable land. Short of a major recession and 10 percent unemployment, prices will remain stable or will be increasing. Get over it.”
The key driver of demand in the housing market is ability to require debt in order to finance the purchase. So if Banks decided that they wouldn’t lend unless a person had a 15-20% deposit, it would stiffle demand by 1) Delaying peoples house purchases and 2) reducing the overall amount of finance available with which to make an offer. This prospect seems unlikely given the huge volume of interest banks reap with house prices being so high requiring more debt.
One thing the government could do to end the nonsense is to create two housing markets: one for genuine buyers in need of housing, the other for speculators, euphemistically known as ‘investors’. But if you’re intention is acquire a capital gain from the appreciation of property prices, that is speculation.
For the genuine market, the government could act as underwriter, using its purchasing power to buy property on behalf of buyers, then asking for it to be paid back across 20-30 years and indexed annually to the CPI. There is no law of nature that says we need to be beholden to banks, real estate speculators and the like. Some thinking outside the box could help millions of Australians with an elementary requirement for shelter, and who do not wish to have their income eroded away through interest and cripplingly high house prices.
Short of this kind of action, I agree with you Bakerboy. I think a major economic crisis brought on by debt deflation may be the only way to see house prices fall to levels that are more affordable.
HughG
I don’t think that it is true that most land in the UK is leasehold. The figure is more likely 2 million and they are mostly flats or units (because they don’t have a system of strata title). There are some leaseholds over land but they are generally 999 year leases and date back to the mid 1800s. That is not to say that 2 million leaseholds wouldn’t have some impact on prices.
@ abused citizen
(((((Of more concern is why the buyers in the market seem to belive the snake oil talk and refuse to call agents on thier chicanery and misleading conduct by artificially talking up the market.))))
Agreed…the industry should be reined in and brought to heel…with massive fines for fraudulant conduct and deception.
The whole process of buying a property can be frought with deception from beginning to end.
Everything from stretching the camera lense to the withholding of information should be stamped out.
The classic was a couple of years ago in Sydney when an agent neglected to tell a prospective buyer that a family had been murdered in the house being offered for sale….the buyers won their case and got it over-turned, but only just.
One day someone will take them on.
OK you lot, settle down. You are all right to a certain degree, some more than others. I have done a couple of small and I mean ‘small’ subdivisions, a couple of cheapie renovations and I have 2 rental houses with 2 very good tenants. I am just worker, work a 40 hour week for an average wage. I live economically and have an old 1991 ute. I am not worth a million bucks! but I have worked hard to achieve being comfortable at the age of 50, but not comfortable enough to give up the day job. So, with my basic experience I can say that the cost of real estate is “what it costs!” to buy initially, to renovate or develop, then sell and hopefully make a reasonable return NOT a big fat profit. We all dream about THAT BIG FAT PROFIT, but in reality its the costs along the way that determine what has to be the price in the future. Sure, demand can take profits over the top but we all know that “high consistent demand” is only really in the “Tooraks” of this country and most of us aren’t in that league. It comes down to cost of labour to complete any development. Surveyors, tradesman, council fees, stamp duties etc etc and if we all want to earn a reasonable rate of pay, then these costs get transferred to the price of Real Estate. As soon as technology removes the reliance on the “real estate agent”, then we might see a leveling out. To my mind the “agent” is a thing of the past. Notice they still take the high commissions but most of them just advertise on their shop windows and the real estate “site” which is the only one that people use these days??? I don’t begrudge sales people earning a living but this industry has to evolve or go. Once upon a time an agent really had to work for their commission and pay loads to advertise in the paper media and on TV. Now, they sit back and wait for the emails and phone calls to come to them from the internet at a hugely reduced advertising cost, then show someone the house and do the paperwork. Done and hosed for 3%. Work out the 3%’s and see how much this adds to a property (are they really worth it/). Then cast your eyes to your State Governments and look at the windfall of stamp duty paid to them for doing bugger all in the process. Those two figures alone on the price of an average house are enough to make the growth figures expand each year and as the prices go up……. so do their earnings.
The fashion for photographing the house in the evening with a 100 lights blazing is the triumph of marketing over genuine information. In many of these photos, which are also heavily photoshopped, it is impossible to gain any real idea of what the house actually looks like.
McGrath seems to have started this fad and now all the dopey agents are hopping on board. The whole thing is so incredibly dumb and if it works, as it presumably does, then many buyers must be completely under the sway of fad and fashion and would be pretty easy to fleece.
@GaryJ - Come on now Gary, that was just plain mean. My wife doesn’t complain. At least I never seem to hear it. It might be when I’m watching TV or something.
Hi honey…I am home!!!.
@wild goose & @David Sanderson
Another classic is when the same property is listed with two agents.
Two sets of completey different photos and bylines and a slightly different price…they both co-operate/collude?? in the sale…if it was any other industry they’d be before the courts.
I grow tired of Adam’s musings on house prices. He has certainly signed up to the Keen “The sky is falling” agenda.
I think Housing is the only asset class where people get upset when things are going well. When the sharemarket is going well, people don’t go, “Oh no, my superannuation balance is too high”. Or “Oh, those poor people, they won’t be able to buy into BHP with prices that high”?
Have we all become communists? If you can’t afford the house price, don’t buy one. Continue to rent. Live in a tent. Change jobs. Work harder. Improve your education. Move to NZ. Plenty of options.
I think it’s people’s sense of entitlement to an house that annoys me the most. In the US or Europe, people know that it’s not necessarily a given. I think it’s time Australians realised this as well.
at mR joHsoN
<>/?Oh boy…why do you always go to extremes?…the concept is semi-planned or semi regulated, not totally planned or totally regulated.”;<
hurro hurro evrybody kunitchiwa its Sukio from Ja pans here
mR jOhnsoN sometime you left and sometime you right you never make up mind what is with you?
ok ok i know that yin and yang do come together and form cosmic harmony and balance but it YOOOUUU who go to extreme not aDam giggle giggle i rike you but you confusiousing
agggh i rerking verwy hard in pizza shop and boss make me do things not in job description and i so tired aggh back to work
sayonara by by from Sukio Somora from Ja Pans
@Scott - I’m glad someone else agrees. Yes it is difficult to buy a house. Yes, it is not easy, it never has been. I want to see more articles from Chris Joye or someone who can put the other side of the coin back in the debate.
I do have concerns about so much $$$ being tied up in repaying mortgages however. This could be used to grow the economy, that’s for certain, but, then again the strength of our banks has meant we can get through the GFC relatively unscathed. This has contributed, certainly.
As for Su-su-sukio… well… that was unexpected.
Hughg,
Further to your comment, UK leaseholds are actually for the land, not the actual house.
Leaseholds are mostly actually extended by the resider if they fall below 80 years for a fee. The leasehold years remaining are priced (the fee) into the selling price of the house, so in reality, comparisons can be easily made to freeholder housing….just like a price adjustment if your house resides next to a bogger plant or something…..and that’s why it’s a furphy that house prices will somehow fall if leasehold was enforced here…..
Now, I really like this thread cause it’s so troll and abuse free so just remember I’m contributing not having a shot.
Scott, there is something in that. People do expect( I think I agree somewhat unreasonably) to be able to buy a house. But people have a basic right to shelter which is not the same thing and the problem at the moment is that self-funded housing is becoming less and less available. Retirees are a significant new category seeking housing from public and community sources. Most of the options you’ve suggested aren’t available to them.
Wildgoose re agents I agree. In fouteen years I’ve watched the cars at the end of my street driven by agents evolve from pulsars and falcons to maserattis. Is there any other industry (ok, maybe private health insurance) that gets so much for so little work?
Thanks Abarker, I hadn’t considered those elements at all.
Necessary, the other thing they could do is a) increase public housing stock which has been run down for years and b) give renters a set of rights that acknowledges some kind of basic right to housing.
SBH,
I think that the idea of increasing public housing stock gets frequent mentions, but governments generally lack the will to make a real go of it. Often they have to deal with NIMBYs.
Your idea of renters rights makes sense, and I think in this country that renting is not seen as a long term housing option for many when there is no reason why it should not. Long term leases (say 5, 10 or 20 years) which include greater rights to alter the property would make renting more attractive to many.
Agreed SBH - public housing would be a good option but this costs the government a fortune, not to mention the stigma of having council houses in your street (ie NIMBY like Chris said).
The fact is negative gearing and tax deductions cost the government a lot less to do the same thing - house people. That’s why they let people invest in property, that way the risk of tenants smashing the place up or defaulting is passed to other owners.
If they stopped that that’s one surefire way they’d crash prices (it happened when Keating repealed it - he promptly put it straight back). Then the problems would be rent prices doubling instantly, or, huge amounts of homeless people.
@Scott
((((Move to NZ. Plenty of options.)))
That’s not an option!!!…LoL
The government introduced negative gearing to get private investment into rental stock and rightly so. Governments are not supposed to be investing in real estate. Sure they are there to use our money to invest in infrastructure but I don’t think a huge housing portfolio comes under that category.
As a good society we should always look after those that need shelter but it isn’t a “right” to own property where you desire to live. My parents have never owned a home and they couldn’t afford to send me off to university. I have had to work, save and borrow to own the properties I have. I consider it a privilege to live in a country that has made this possible for me.
It is my goal to be secure through my own resources, to be self funded in my retirement, to own outright my retirement home and have enough money to live a reasonable and comfortable lifestyle in retirement without expecting younger taxpayers to pay for me, or worse bleating that it’s my right to have a pension, a home, a vehicle because I’ve paid taxes etc etc. I have been willing to go without a lot of material possessions to do it. The mentality of greed and excess, the unwillingness to start at the bottom and grow, the need for everything now and pay for it later is the problem. The problem is not the affordability of real estate. If you can’t afford where you want to live, then rent there but buy in a regional area and rent it out to grow your capital for later is the sensible scenario. But, the lesson is buy real estate, a long term appreciating asset and not depreciating assets like cars and big screen TV’s.
Most of us, thanks to this fabulous and free country have the opportunities and safety nets to help us do this.
@ABarker
((((public housing would be a good option but this costs the government a fortune, not to mention the stigma of having council houses in your street (ie NIMBY like Chris said))))
This is actually not always a problem…not sure about melbourne, but some some of the Sydney suburbs have embarked on this very successfully.
Also, I read where in Western Australia, mainly the port city of Fremantle, where you have some of the most expensive realestate in the country, if not the world…that HomesWest properties are situated right along side multi story condo’s and the like…and nobody bats an eyelid, so it can and does work.
I might add also, that Fremantle has a massive homeless problem for whatever reasons I don’t know.
Property values never fall is the heading.
Just as a rule of thumb, if you think a property for sale is overvalued, just do a bit of basic maths.
How big is the house? go to a builder and see how much it will cost to build a house of that size in todays money = $?
Then, find out the price of dirt in the same area, the same size and preferably from a bank valuer not a real estate agent for the real price. How much is a block of land that size = $?
Once you have these two basics then the value will not fall over the “longer” term (10 years) because tradesman won’t work for less and they can only charge competitive rates to actually build a structure and a bank value for a piece of dirt, is the fire sale price. So even, if you have a few ups and downs over 10 years the value won’t fall.
While costs of living creep up every year and as our society requires governments to fund more and therefore taxes go up, it isn’t rocket science to see that the price of real estate follows that same curve upwards.
What will make real estate fall? The collapse of our society as we know it now. Do you really want that as the price of cheap real estate?
(@GJ - I might add also, that Fremantle has a massive homeless problem for whatever reasons I don’t know)
because homeless people also want to live where they can’t afford to………. just like a lot of renters and first home buyers…………….
@Sukio Somora
Dear Miss Somora…who told you Grey was n’t a colour?
Oh and as far as the HomesWest properties next to the million dollar condos. Well, there’s 5 and those lucky bastards that got in first and have signed up until death and are not moving to let the other 15,000 in the queue behind them get in. If the tenant dies then HomesWest will sell the property for a million and a half and buy 20 cheap ones in an outer suburb for the next lot of renters. HomesWest owned that land before it skyrocketed and is the only reason that aberration happened. It is unrealistic for government to buy a million dollar piece of prime land and erect a few townhouses that rent for $100 a week to 5 lucky tenants. Is this how you want your taxes spent?
@wild goose
(((The collapse of our society as we know it now. Do you really want that as the price of cheap real estate?)))
You included this proviso….otherwise your whole argument is based on the premise that the good-times keep rolling. ..if you believe that then i gotta bridge that looks like a coat-hanger and you can get it real cheap.
No, I didn’t say the good times keep rolling, don’t put words in my mouth. I said that if you consider that the costs of living keep rising each year, as they do, and our society keeps on demanding that our government supply a specific standard of living, then the curve is always on the upwards. Cost of living creep = wages creep = taxation creep = real estate creep. Inflation.
What will make it fall is a catastrophe, for example like, a major war on our soil, a disaster like Haiti in our country, both would devastate our ability to keep the cost of living stable or the government to provide us a standard of living. Therefore major deflation of our money and our real estate. It would have to be big and dramatic and affect the whole of this very big wide land, to affect us because our isolation is also our cushion as the latest economic crisis has shown quite dramatically.
My belief is that while this country and nature affords us the cushion of NOT feeling these type of disasters, and while we are essentially too far away for the rest of the world to impact on us, we will be on the upwards curve over a long period of time.
@Wildgoose - well said. And lets face it if there is a big disaster such as Haiti or a major war, the value of your house will be the least of your worries.
abso bloody lutely!
@the goose
(((Oh and as far as the HomesWest properties next to the million dollar condos. Well, there’s 5)))
Wuh?!?!…the article pointed out implicitly that were several blocks of Homeswest sites within the city precinct. That would account for at least 50 units depending on the size of the units and the number of units per block.
They listed them as South St, Queen Victoria St and beach St and some other St,…that my friend would account for far more than 5…. why do you twist facts?. I read it in the Age..it must be true.
@the goose
((((because homeless people also want to live where they can’t afford to))))
Whaaat!…homeless people will live and survive where ever they can…but they certainly don’t move to an affluent area because they can’t afford that area. … they gravitate to areas where they don’t stick out like dog’s balls. …so moving to an affluent area is not on the agenda… it invites the shunt.
Scott - “I think Housing is the only asset class where people get upset when things are going well. When the sharemarket is going well, people don’t go, “Oh no, my superannuation balance is too high”. Or “Oh, those poor people, they won’t be able to buy into BHP with prices that high”?”
There’s a big difference. Price per share goes up, new buyers spend the same amount for fewer shares, price continues to rise, everyone happy.
Not the case with housing. You can’t get half a room. There’s a minimum size you need for it to be useful as housing.
“Have we all become communists? If you can’t afford the house price, don’t buy one. Continue to rent. Live in a tent. Change jobs. Work harder. Improve your education. Move to NZ. Plenty of options.”
You arrogant prick! Have you had a look at market rents recently? The point is that property prices have been going through the roof for the last decade and taking rents with them. It’s only record low interest rates that have kept the ball rolling.
More generally, yes there’s a property bubble in Australia. Just as there was in the US, the UK, Spain, Ireland etc etc… Yes I know Australia’s different, just as the boosters were saying about the LA and Las Vegas markets when the US market was at its craziest. The problem with these bubbles is that it appears no-one can predict when they’ll burst and up to that instant anyone who loads themselves with debt up to the eyeballs makes a killing.
Bit rough there Malcolm…calling me a prick (arrogant is fine). Not good enough for crikey. (moderator must be on holiday). Attack the argument, not the man.
No difference between buying shares and buying property. Its a perception issue. If prices go up, people can still buy a smaller apartment/house or in a less central area. It’s just that they don’t want to.
Yes, I have seen market rents. As Adam keeps pointing out, they haven’t increased much at all (pretty much keeping pace with CPI).
Australian Financial Institutions aren’t stupid, and the industry is well regulated by APRA. Sub Prime Mortgages never really became popular here, only accounting for 1% of loans (compared to the 15% in the US). Hence I don’t believe that easy credit is causing the increased demand. Most people taking out loans, can afford them which accounts for the very low default rates.
You call it a bubble. I call it market forces.
My sister recently sold her house in an outer suburb of Perth to a young couple who borrowed 100% of the sale price PLUS all of the stamp duty. I don’t know how they did it, i was always under the impression that the banks wouldn’t lend you the stamp duty amount but there you go. This young couple have not one cent of their own money at risk in this house.Wonder how many of these situations are out there?