I was thinking, why instead of building houses, which is kind of a waste of space, does the government not pass laws requiring that only units/appartments be built?
This will mean that in the long term more 'housing dwellings' are available as opposed to the limited number of people that can live on a single house, and thus housing will become affordable, as housing is one of our primary human needs…
What do the rest of you think? Why are policies like this NOT inplemented?
I don't think you know what house prices are like in the greater Sydney area. If you're making $50k, you are priced out of all houses within 45km of the CBD, even a 2bedroom fibro shack will be nudging $550k within that area.
That's why I said other places in the country, not Sydney.
You're living in a dream world if you think someone on a 50k salary can afford to buy a house in Brisbane, Melbourne or Perth.
I'm on a fair amount more than that and my wife works full time, but we can't afford to buy a house until we have 30k saved in the bank. I've already used my first home owners grant with my ex (sold the house not long after it was built) so with stamp duty, deposit and fees, nothing is going to happen until we've reached that goal.
@bonezAU:
I must be living in a dream world then… This is almost my exact scenario, Melbourne outer suburbs.
The issue is affordability, not supply. There are people who are buying as evidenced from the brisk sales, just mostly not first homeowners. More and more of them are investors, due to the over generous negative gearing provisions.
This. The Aus tax system is broken and simply promotes a pyramid scheme of sorts which allows the wealthy to feed off those less fortunate, aided by the tax man. Our politicians are not competent enough and are full of conflicts of interest as they are generally in on all of these tax perks!
But isn't affordability tied to the supply/availability of housing?
Could the rampant and unrestrained overseas buyers have also a part to play on house prices being sky high?
No if you read the analyses supply is not a problem compared to other countries, nor is there oversupply. It's a bit more nuanced than you suppose.
I think the issue is there is a huge supply of cheap debt money with very little risk analysis being done on who it is lent too. This massive supply of cheap debt money is just being dumped into housing, specifically Sydney and Melbourne housing at the moment.
I'm not sure what event will cause a reduction in the supply of this dumb money, but make sure you are prepared for when it collapses.
That's such a general statement with no evidence to back it. Australia's banks do a lot more risk analysis on who they lend to than other of the world banks. Since the American sub-prime lending disaster that led to the GFC, lending standards have been tightened greatly.
Australia's banks got through that, and are in an even better position now to get through something similar.
I do however, believe that once interest rates start increasing (maybe some time late next year) the Sydney Real Estate market especially will lose some of this recent capital appreciation.
I would suggest that not only have the banks learnt absolutely nothing, they have ramped up into the exact same activies that brought down their overseas equivilents.
The only reason they are in a good position is because everyone believes that the Australian tax payer is on the hook to bail them out. From the numbers in the below article, Australia couldn't afford to bail them out:
http://www.afr.com/business/banking-and-finance/big-four-ban…
There is a plethora of research being done on how bad our banks are. Don't be surprised if Australia loses its fancy AAA rating (edit: probably by the end of the year) and interest rates start to rise, and one of the big four banks crumbles, its really just a matter of time.
@CheapandUsed: And let's not forget NAB's recent rights issue. The massive mortgage debt I see people taking on most definitely indicates to me there's nothing prudent about this nation's lending standards at all.
@wasabinator:
…The rights issue was in response to the Murray report advising that the big banks hold more capital. Has nothing to do with sub-prime lending…
@Devils Advocate: No, but it has plenty to do with excessive leverage, which I reckon the banks must be particularly exposed to given the size of their mortgage books and the fact that APRA have been completely asleep at the wheel.
@chill:
It is pretty reasonable to say capital city prices, especially Sydney, are in a bubble.
But that doesn't mean a collapse is imminent.
In the USA most states allow you to walk away from a mortgage. Here you cannot, and must declare bankruptcy forfeiting other assets. More than anything else this will make it much less likely for a collapse in housing values.
And as the government/reserve bank seem fine with super low interest rates, people should be able to continue making mortgage payments.
If there was significantly higher unemployment, a possibility but not a likelihood, that could play a part, but in its absence why would people who bought property and can make the payments sell at a loss?
@mskeggs:
I don't blame you, its well executed lie by the property propaganda in Australia (i.e. all the media).
Only 11 states in the USA allow non-recourse loans.
https://theconversation.com/debunking-the-myths-peddled-by-a…
The reason for jingle mail in the USA would be the same here. People have their entire financial lives in their house, the only thing of value outside the house is a car (likely financed) and maybe some super. In that situation, whats left? return the keys, keep what income you can and convert it to cash.
@CheapandUsed:
Thanks for that link, I didn't realise that a majority were recourse. I retract that, but note the study did show that non-recourse locations defaulted earlier, which you would expect given the lower consequences.
In the GFC the US, Spanish and Irish property bubbles were all deflated by unemployment, people forced to default because they couldn't make payments.
Consider here that 1/3rd of properties are owned by investors, 1/3rd are mortgaged and 1/3rd owned outright by the owner occupier. So 1/3 can't default, and I suggest few investors would go into default - they risk losing their PPOR if they were driven into bankruptcy.
We can also assume if you own outright or are an investor that you would be reluctant to sell for less than you paid.
So that leaves the only avenue for a property collapse to be if mortgagees are forced to sell, which only really happens if they are involuntarily unemployed.
So you absolutely need high unemployment to get a property crash. And for the Australian market that is likely to come from a GFC like event offshore, not from local conditions.
For evidence, consider the AU market was highly over valued in 2007 too, yet because we had good employment numbers through the GFC we avoided a correction.
I think it is a dumb time to buy a house in a capital city, but I think waiting for a collapse will see you waiting a very long time.
The only reason I decided to comment on this thread is because there has been so much mis-information regarding our banks and property sector that the truth needs to start making its way out there, including breaking some of the more common myths.
I guess when most newspapers are more like real estate advertising magazines, you don't rock the boat that pays the bills and keep repeating the myths.
Absolutely agree on it being a dumb time to buy a house. It just needs to normalise for a significant period, especially since wages are growing at their slowest in decades. Hopefully we overbuild this time to reduce these extreme's in the cycle.
So you absolutely need high unemployment to get a property crash.
Or high interest rates. If people can't afford the repayments it doesn't matter if they're employed or not. While in the current environment it's not probable it is still possible that interest rates could go up enough to make mortgages unserviceable.
In general, I think it is better to limit government interference in markets that should function without it.
I think the problem is that the government interferes a bit in the market, enough to keep prices high, but not enough to provide housing for low income earners. One of the main issues is supply, with zoning laws, land releases, building height limits, density restrictions all playing a part in reducing supply.
With new housing estates in far flung parts of the capital cities, the burden of providing infrastructure (water, power, telephone etc) has shifted from the government collecting it through taxation (in days of yore, like before the 90s) to the building developers, who build it into the price of the land.
Land taxes are also very low, which reduce the penalty for sitting on under-utilised land.
Governments are also loth to let house prices decline (which would have an effect on the wider economy like in the US from 2007), so the primary way that affordability is encouraged is to let inflation eat into the sticky prices until they become affordable for median income workers.
There is an interesting annual publication by Demographia that looks at housing prices in large metro areas across the world and essentially point to what I've said above as reasons for high house prices.
Demographia doesn't look at world house prices at all.
There are 196 countries in the world and demographia looks at 9 of them.
I call that cherry picking.
Why not just make everyone live in cardboard boxes? Insulate them, and wrap them in glad wrap. One toilet per 20 boxes, one shower per 40. Voila, affordable housing.
Imo stopping foreign investment in residential properties and ending negative gearing, would be a good start to housing affordability
I never buy into the under-supply argument.
First home buyers are up against the perfect storm of low interest rates, low unemployment, a cultural love of property and home ownership and tax biases.
If you want cheap house prices then pray for a recession, pray for 10% plus unemployment and pray you keep your job.
Look back at the GFC and you will see there was plenty of cheap houses to buy in the US and Europe in "The Great Recession".
The primary issue is supply. Just look at real estate prices in Germany and the USA. There are plenty of people trying to complicate the situation but supply is the main issue. As well as that we have far too much government interference and taxation of housing. This adds to the cost of building. Corrupt taxes like section 94 contributions and stamp duty need to be abolished and replaced with a land tax.
Cheap money gives people access to increasing amounts of debt with which to spend. And for many people the amount of money they spend on a home is dictated by how much they can access.
So Metroplex78 I think you're on the right track. Personally I'd like to see us introduce a hybrid system where capital cities invest in rail infrastructure and along the rail corridors greatly increase residential densities. Having more people using public transport means you can have more frequent and efficient services. If only we could have something like the train systems in Singapore or Hong Kong. But to support that you need a lot of people. Train lines cost a lot but they can be partly self funded and partly funded by the people who benefit from them. Outside of the rail corridors I think we should retain the existing average dwelling and lot size.
And if people genuinely don't want new high rises and higher density areas then we need to look at demand. Our immigration rate has been increasing fast. I've got no problem at all with immigration so long as we have the resources, infrastructure and facilities available. Which at least here in Sydney is not the case.
Affordable housing within commuting distance to Melbourne?
Sure lots of houses $200K to $300K in Melton and Bacchus Marsh, both areas with train service to the City. Interest only repayments should be around $1000 per month (less than $300 per week)- affordable for somebody on a $50K income. After a few years you will have some equity in the property and hopefully more pay, then you can upgrade if that's what you want to do……
Sorry, awful idea.
Housing is affordable now, it's just a matter of circumstance. If you're making $50,000pa and want to live in Sydney CBD then it's not affordable, but Sydney CBD is a luxury. Dual income families making $250,000pa can afford that luxury. So you shouldn't force these people to live in a unit that is well below their means so that people on a lesser wage can afford to be their neighbours.
At the same time $50,000pa is enough to buy decent houses in other places in the country.