How can we get property prices down? Future generations will be screwed.
Why Are Houses So Expensive Here?
deme on 11/09/2021 - 12:35
Comments
'coz
Foreign Investment
Foreign investors
Foreign inflation
1) Interest rates are quite low at the moment making it easier to buy for a lot more people, drives competition and therefore price up towards the bottom end of the market. Personal example - I earn a decent income (by no means rich / loaded - even though I am the prince of Wakanda) but the bank is willing to lend me 850k (PPOR) or 1.2m (Investment) - as a single bloke
2) Relaxing of lending laws
3) Government grants historically driving prices higher to benefit the developers / builders instead of helping first home buyers. Keeping tradies in jobs seems to be more important to the government than focusing on other parts of the economy, having said this, tradies might not see the benefit as the Developers / Buildings most likely keep the increase in their price for themselves.
4) Nation obsessed with property investment which has quite significant tax benefits - even if you have a cash flow neutral property (or very slightly negative) the depreciation benefit on new properties are factored in to your tax return which gives you the depreciation X tax rate back.
5) It is a tangible asset that people can physically see, so they feel better about it vs share investment or investment in a business
6) Lockdowns scaring people into getting a place to hunker down ?
7) Once your property goes up, the financial system in Australia is leverage to property so they love to let you use that equity to buy more houses - keeps the cycling going brahhh.Just get amongst it I guess, look at Brisbane if Syd or Melb is getting too expensive and just full send.
too expensive and just full send.
What does full send mean?
Go HAM
I think the poster is a mountain bike enthusiast? full send means you go for it in mountain biking terms.
maybe a nelk fan
Liberal government. Even when ALP tried to change that, Lib government successfully conned voters back into being re-elected.
?Compared to what, I only have experience in Shanghai/Toronto/Sydney and Sydney is cheapest by far in my experience. You can actually buy a riverfront house with a personal platoon 10km out of Sydney CBD without being a business mogul.
https://www.realestate.com.au/property//182-prince-charles-p…
2.6mill for a knock it down weatherboard/asbestos house (its actually my dads mates place) is business mogul to meAverage house price in Singapore is $5m, Hong Kong $30M. Yeah we can do better
So it's all good if we're cheaper than two of the most expensive cities in human history?
mate just pick up a second job, you lazy millenial!
Haha! I have a house, but unlike many people in my position I realise how lucky I am and how unsustainable the situation is for anyone younger/less well off.
@caitsith01: For sure, for sure. I do not own, but I know this is because of the decisions I have made in life. I'll eventually be in the market in a few years time, fingers crossed. But hey, my GME stock is aboutta pop if you're on r/SuperStonks
A few years ago I was very seriously looking at property in Santa Monica, CA. Equivalent properties were significantly cheaper than Sydney.
Lots of funny money being created out of thin air, it needs to go somewhere.
And government needs to pretend that inflation is still 2%.
The ponzi is too entrenched to be reversed without collapsing the economy. Smart investors see this and are FOMOing in, knowing that government will intervene to keep the bubble expanding into perpetuity.
whats the difference to stock market or bitcoin
all cons rightits all a game, learn to play it or be quiet
no guarantees though but if you sit here and complain you wont make anythingNo complaints. I've gamed it to my benefit, made a couple million Australian pesos.
Keeping money in the bank is financial irresponsibility and will be punished severely in coming years.
Has the bitching about genx and Gen y owning all the bitcoin started yet? They priced everyone out of the game.
It's all good, Boomers can trade properties for bitcoin, everybody's happy
Remember when the Murdoch media got everyone triggered because Chinese investors were pumping up prices to steal homes from the next generation?
Well it turns out with our borders closed it's actually Australians locking out Australians from buying a home.
Fancy that.
Always blame the foreigners or better yet the Chinese. It's deflects the problem and can get all the nationalists crowd riled up for your cause. Tried and tested in US all the time.
Good one. I was thinking the same. Typical Australians (knowing I'm going to ruffle a few feathers)
Ponzi only gets 2 mentions so far. Look it up. Housing is a Ponzi run by the banks.
Absolutely nothing is driving prices except Interest rates. Victorian rates, and maybe elsewhere, just dropped 0.1%. Why? To pay for Stamp Duty doubling. Otherwise, the market might stall.
The politicians have nothing to do with it, except taking donations to sit quietly (same as petrol prices).
Anyone who thinks partisan politics is still a thing, is dreaming of the past.
But they do know that they have to keep the housing Ponzi going because Australia produces nothing except houses.Politicians, business, and especially the unions, have sat idly by and allowed Australian factories to be packed up and shipped to China.
Feel free to name all the big manufacturing employers in Australia, like car manufacturers.
Only cheap immigrant labour to reignite cheap manufacturing, will dampen the carnage coming from the housing ponziThose nasty boomers used to work hard, save their money and deposit in the bank so the financial geniuses could to invest for them, and give a modest return.
Now the banks use those same geniuses to con the ordinary man into risking what he owns on the possibility he will make enough down the track to retire on.
The, when they have convinced him of his own investing skills, they con him into risking whatever he has earned on paper, into his next investment.
What about those Chinese who were destroying the housing market only two years ago.
Could someone please blame them again
Those "nasty boomers" are the ones that sold manufacturing off.
We gain around 1 million new people to Australia every 4 years… it does matter.
sorry but you have no clue what ponzi scheme is
if by that you mean a whole healthy industry then you are right
property feeds so many industries and is essential for a wealthy Australia - so many jobs are created out if it - just think about it
from builders, trades, ,lawyers, real-estate agents, interior designers, photographers, councils, I mean, i can go on and on - if property fails the whole Australia will crumble which you cant say for many industries - if mining goes who really suffers?
there is nothing ponzi about it, thats just lazy language or ignorance on your behalf"A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds." Wikipedia
The only reason property is "essential for a wealthy Australia" because politicians and unions allowed wealth creating manufacturing industries to be exported.
So stupid that now, in the middle of a "pandemic" we caan't even make drugs, when CSIRO was once a world leading organisation.
The ONLY reason building is important is because it is the only wealth creating occupation of any size left in Australia, unless you count baristas.
In fact I believe Scotty from Marketing just signed a Peace treaty with China, where they promise not to invade us unless we get 30years notice so we can import both our new submarines.
But don't worry, out brickies can build a wall.Maybe I don't know what a Ponzi is, but I know an ad hominem attack when I see one.
Is it slightly possible that Evergrande is a ponzi??????
There are a lot of reasons.
- the tax advantages are for investors rather than owners
- interest rates are, incredibly, low
- people see it as a “safe” investment as you have a, substantial, asset.
- Australians have, traditionally, been owners rather than renters
- people want to live in the big cities or the, desirable, regional ones
- FOMO kicks in.
- we don’t have big blockers to people investing from overseas.If you were willing to live in a small country town, not near a “desirable” attraction, then you won’t pay a fortune for a house. However, few people are willing to go down that route.
Me, I’m a “nasty” boomer but I’ve, only, ever owned my primary residence. My spare money went into stocks and my Superannuation. Don’t blame me for your overpriced housing.
Yes. There are less trendy country towns that have affordable housing. I would consider it. Quiet is the main thing.
Some of them are, very, quiet.
That’s not how, commas, work.
Don’t blame me for your overpriced housing.
Most of the boomers I know have only 1 house and no investments outside of super lol. Nasty stuff!
Investments should always go up to the right. If there are not then they aren't investments.
Those are just bad investments. ;-)
Well we are all in this together right.
We are all “struggling”
Riiiighttt???
Yes all in it together in as far as politely saying "Hi" to the neighbours and that's about it.
There are more reasons for it then they're are stars in the sky. But scarcity is a big one. As Mark Twain said 'buy land - they're not making any more of it'.
I came here to say this. It seems everyone else is missing the vital thing - there simply aren't enough houses for the people who want them, where they want them.
I don't care whether you want to owner-occupy or rent out a property, you're still going to need 1 'household unit' to live in one house. (I know it's not exact). Sure there are some properties empty around, but it's relatively insignificant in total.
If there were plenty of properties (aka sufficient for everyone who wanted one) then the law of supply and demand would reduce the prices. If there were a surplus, then pricing would have to fall.
So true. Basic economics
There are currently enough residence's to house people, it's just some (investors) are willing/able to pay more than others (renters) for those properties.
It's definitely supply and demand at play, but property is seen as a good investment, especially with overly generous tax incentives, until property is viewed first an foremost as habitation, as opposed to a speculative investment, housing affordability will be an issue.
Fixing the supply side of the equation by building more residence's doesn't work in reality, as soon as there are more residence's than required for habitation, building stops, no one is going to pay keep building past the point of enough housing to create a surplus.
There are currently enough residence's to house people, it's just some (investors) are willing/able to pay more than others (renters) for those properties
So, "there simply aren't enough houses for the people who want them, where they want them."
Future generations will be screwed.
Haha we already are cries in millennial.
My dad thinks he paid a lot for a house in the 80s and then paid it off in 5 years - "it's all relative!" he tries to tell me.
Pay-off house in 2-4 years: Silent
Pay-off house in 3-8 years: Boomers
Pay-off house in 12-19 years: GenX
Pay-off house in 26-33 years: Millennials
Pay-off house in +35 years: GenZDare I say lay off the avocados!!
pretty sure GenZ is on a payment schedule type world. You don't actually own anything anymore, you just work and pay subscriptions and rent till you die because owning is too expensive.
That's the capitalist utopia.
US and Canadian market is similar actually dearer presently. Housing unaffordability is a universal truth. The first reality check your offsprings get when they are out in the world from parent's free housing. Many reasons for this including scarcity (supply and demand) and resource intensive nature of housing projects. Building houses cannot simply be DIYed. New 3d house printing technology is promising but you cannot print land unfortunately. So will have to just live with housing unaffordability and stretch to buy if you're not Lucky enough to have a title in inheritance. Genealised view is that more money is being printed and limited resources exist. So you can imagine which way it needs to go. Call it a Ponzi when you find yourself resources to build a house for you for free.
Our parents were happy to live in a place with fewer amenities and entertainment options than we do now. If we moved to a place with the same population density as what our parents grew up in, we can have similar levels of affordability too.
I think there's a number of things that I think contribute to it, but I'm no economist:
- Obviously low interest rates, money is really cheap to borrow right now.
- If it's not putting it into stocks or bonds, then property has become another form of investment, and it's spread like wildfire.
- Obviously a supply and demand issue, if the demand isn't there then the prices will fall
- Population increasing, but supply isn't catching up fast enough
How can they stop this?
Increase the interest rates — The issue with this is, everyone is over leveraged, even though the RBA controls it, I'm sure the government pulls some strings as well, and do you want to be that government that does it to poor Joe who borrowed beyond their means and is now sitting on the knifes edge? Also remember Australians have a very entitled attitude, if shit hits the roof they'll have their hands out saying the government isn't supporting them.
Make it less of an incentive as an investment tool — Obviously we know how unpopular that is, no government wants to take away negative gearing. Also, I'm not sure if this is true, the basis is that negative gearing was introduced to make renting a home more affordable as more landlords existed.
Increase supply — Australia has a lot of space, but we have shit infrastructure that hasn't caught up to some parts of it, we are so focussed on spending more money on roads that lead to the same (profanity) areas and less about a solid growing transport system. Furthermore the desirable areas have no more land, so now you obviously see more high-rises. I grew up living in a house, and I enjoy being able to run out the door and onto the pathway down the shops, but I recognise it's not possible as the population grows, however one of the issues with apartment living is, every apartment built in Australia is a piece of shit, so it leaves very little confidence for people, especially in the recent years with all of the structural defects. The government could enforce it a bit more and hold people accountable, but hey our government are property developers themselves.
At the end of the day the entire housing market is orchestrated by the muppets that are in parliament, they want to continue propping it up and they also don't want to be the ones that change it. The current generation of Australians who have the power and the wealth do not give a single (profanity) about what impact this has to the future generation or the country as a whole.
Agree and disagree with your points (I am an economist - but these are thoughts, not well researched ideas).
Increasing interest rates will have an impact around the margins, but it's not going to make your $3M properties become $1M properties overnight. If anything, this is just a shifting of the burden around. New home buyers may pay less upfront, but they will pay more in the long run and current mortgage holders will pay more. In other words, this is just moving money around, nothing fundamental about the property market (i.e. demand of housing and supply of housing) has actually changed.
This I agree with - negative gearing should be abolished. But again, this is a tweak around the margin, it's not going to fundamentally change the market.
This is getting to the heart of the matter and is really what is driving housing prices. It's that we don't have enough space to house people the way they want to live. My own belief is that we've set unrealistic expectations that everyone needs to have a double storey McMansion with 6 bedrooms on a 700m^2 block when the vast majority of people are fine with a 2BR / 3BR unit.
At the end of the day the entire housing market is orchestrated by the muppets that are in parliament, they want to continue propping it up and they also don't want to be the ones that change it. The current generation of Australians who have the power and the wealth do not give a single (profanity) about what impact this has to the future generation or the country as a whole.
This will always be a delicate issue because of how much wealth is tied up in housing in Australia. Define what you mean by "Australians who have the power and wealth", sure, I suppose you are thinking about rich dudes on private yachts, but the truth is that the people you are referring to are actually probably your parents and my parents. What you're advocating for is, essentially, a halving of their wealth. I'm not trying to drum up sympathy, I'm trying to explain why this is very difficult to do.
Nobody wants to live in a 3br unit when the neighbouring unit could suddenly be let out to DHHS and house some methed up lunatics.
Increase supply — Australia has a lot of space, but we have shit infrastructure that hasn't caught up to some parts of it
This is kind of true, but also kind of not true. There's plenty of supply. Developers don't develop it because they make more money by keeping demand high. If they released it all at once, what would happen to their prices? There's a market incentive to have high demand and low supply.
Also, re infrastructure not keeping up. If you follow the "Australia has lots of space" argument, you're basically advocating for sprawl. Greenfields development that is 100kms from CBDs should not be happening. That's unsustainable in every sense of the word. It's not possible to service those with infrastructure other than cars, maybe buses, and building more roads has been proven to generate more demand and increase traffic. And if it's all going to end up on the same roads to the city… what is this greenfields development solving? Other than 'how to destroy good farmland and build crappy houses'?
however one of the issues with apartment living is, every apartment built in Australia is a piece of shit
Also kind of true. When the building and compliance industry is almost entirely privatised, again, money is the only incentive. I am hopeful that with the new SEPPs and Apartment Design Guideline in NSW this will improve over time. It is disgraceful the quality and style of apartments we have seen recently. Compare two-four storey art deco, brick buildings. Good light, good size, shared courtyard. Nice to look at from the street. Then you have 40 storey towers clad with 'accent panels' that have bathrooms without windows and leak from day one. These buildings will be up for 100 years (if they don't fall down). It's a disgrace how poorly functioning they are. I love apartments, I hate these.
At the end of the day the entire housing market is orchestrated by the muppets that are in parliament
It would be simpler if this were true. Then we could just vote them out. Unfortunately it's much more systemic than that. You have Councillors and property developers acting as a merry go round. Guess who writes the local strategic plans and LEPs and DCPs? Old mate who later goes to be head of development at LendLease or whoever. They write the laws etc in such a complex way that loopholes are hard to identify, they're the only ones who know. Small-medium developers lose. Cities lose. Residents lose. Who wins? Developers. Always developers.
Why doesn't the ABC and mass media call out the corrupt pollies and developers who benefited at the expense of everyday Australians?
67% of Australians either have a mortgage or have paid it off. They're every bit as an "everyday" Australian as renters.
Well generally speaking, it's not the kind of corruption that's technically illegal or anything. It's very hard to figure out what's going on and who's done anything wrong.
There's a great book on the matter called Game of Mates by Murray and Frijters that explains it all better than I could.
One of the big problems this country has dealt with the First Home Owner problem in Australia is just handing out grants. FHO? Okay, here's $20k - guess what, the price of property goes up $20k overnight magically, because everyone knows they have $20k more available to spend. Every time they try to solve the problem like this full-well knowing that it's just a dodgy way of handing over $20k to their contributors and political supporters without it looking like that's what they're doing.
A long long time ago there may have actually been a need for a program like negative gearing - it was supposed to be a program to enable individual investors to allow a rental market to be sufficiently available where the government used to have to provide public housing - but we are now long past there being a need for that.
I think the fairest thing they could start doing is to start calculating stamp duty on the basis of all property owned, not just that singular property. This would make it so that you can, if you really wanted, buy investment property … but it certainly disincentives it. It would also put first-home buyers at a significant advantage without it artificially inflating the price those FHOs would have to pay - and only investors would then have to start chipping in to. As investors start buying more and more properties, they would effectively pay more and more tax on each property - so there would be a point approached where buying more property just wouldn't be worthwhile. Investment would still occur - but it would be more distributed - you'd see far fewer people with six investment properties.
How you calculate it there are a myriad of ways - just as a random example though, it might just be that the stamp duty you pay on a property purchase becomes 10% (could be as high as 20%) of ALL property you own plus the one you're purchasing - so if you say already own two 800k houses, and want to buy a third 500k investment, you would pay 10% on $2.1m - so $210k - whereas the FHO would only pay $40k stamp duty.
I saw a lady today who's living in a carpark (in her car) next to the local KFC and McDonalds.
That's the image in my head with Australian property.
It would be a dream to live next to both a KFC and a Maccas.
Most of the homeless men live in a station wagon down by the sea.
If I was homeless, I'd try to live seaside too
The value of a home should be based on its proximity to the closest McDonald's, Hungry Jacks, KFC, Nando's, Red Rooster and Pizza Hut. If I can't get food from these places and get back home before it gets cold then that house is not worth much at all.
Location, location, location
Better question, why is eager growth so low. The government is actively promoting inflation above and beyond wage growth and this is making houses unaffordable.
Supply / demand
You sell something for a price and someone pays it.
/Endthread
I used to actually research real estate markets in Australia as my job. Not anymore, but I do have some significant insights.
I think it's useful to start off with whether land is actually significantly expensive in Australia. Here are some statistics:
https://www.numbeo.com/cost-of-living/city_price_rankings?it…
https://www.numbeo.com/cost-of-living/city_price_rankings?it…Obviously there are different ways of measuring this, but the long and short of it is that land in Australia is not significantly more expensive per sqm than elsewhere in the world when you compare like-for-like. Compared to cities that you might actually say are somewhat comparable to Melbourne / Sydney, e.g. Boston, Toronto, Vancouver, Stockholm…etc. the prices in Melbourne / Sydney are not that expensive on a per sqm basis.
So why do we feel that Melbourne / Sydney are too expensive? Easy - blocks of land are too big, the vast majority of people live in "the suburbs", and there is just not enough land around to satisfy the number of people we have and how they want to live. We can discuss macroeconomic factors and they definitely do play a part, but the fundamental driver (beyond any other driver) of property prices is how many people there are.
If you have more people than you currently have land for, then you can either try to squish more people into the land you have (i.e. increase density), or you can choose to build out. The issue is that for a long time, we've chosen the latter. What this means is that you now have 4BR houses on 700m^2 blocks of land 10km from the city that cost $3m and house probably like 3 - 4 people who can all fit easily into a 2BR / 3BR unit. If that land was, instead, split up into 3 - 4 blocks, there would be much more supply and housing would be much more affordable.
I think it also makes sense to question whether the way that we live actually makes sense. If you're currently shopping for 4BR houses on 700m^2 blocks and seeing that it's too expensive, I do think that you should probably question whether you actually need that much space and a backyard you'll never actually use. FWIW, we recently purchased a 3BR apartment in a high-rise walking distance to the city for less than $700K. Can easily walk or catch the tram to work, super convenient, have enough space to live and work at home and pretty affordable for what it is. I personally think everyone's just bought into the hype of wanting to live out in the trendy burbs with a big fancy house and a white picket fence when they actually don't need that.
Also, I personally think that future generations are fine. If anyone is screwed, it's future first generation immigrants. The baby boomers who accumulated huge amounts of wealth are about to hit the age where they're kicking the can. Over the next 10 - 20 years, we're going to see a lot of intergenerational transfer of wealth. Many middle-class (even lower middle class) young people who grew up very modest are about to inherit millions and millions of bucks when their folks fall over. The real tragedy is that this only further drives apart the haves and the have-nots.
Best post in the thread. Well said.
100% this comment is bang on.
Those inner ring suburbs that are all separate dwellings have a lot to answer for. If they were all townhouses or apartments, we wouldn't need all this awful sprawl and mega towers. And housing would be cheaper.
Do you have a good explanation of a phenomenon, where apartment complexes are being built to replace those big-lot houses in suburbs, but sold for prices matching those houses?
I’m renting in suburbs, 15 mins train to Sydney CBD. New building, 20 units, a studio goes for $1.1M, a 3-bed goes for around $1.8-2M, top-levels 3-beds go for $2.2-2.5M.
Most lots pre-sold during construction 🤦♂️Older houses on 400-700m2 parcels go for around $2-3M in this area, with prices rising monthly.
Do you have a good explanation of a phenomenon, where apartment complexes are being built to replace those big-lot houses in suburbs, but sold for prices matching those houses?
Yes, because apartment complexes are built to look pretty and appeal to investors, not as actual value-for-money places to live.
Would be curious to see how many of those 20 units in your block are owner-occupied and how many are rentals.
Need to get rid of: Immigration, 457, Tax schemes.
Need to implement: death tax
Need to get rid of: Immigration, 457, Tax schemes.
Why would you get rid of 457? Temporary workers are not the ones purchasing properties.
Silly to target immigration IMO, Australia has a hugely ageing population that will become increasingly difficult to support in the coming years without an influx of younger people to pick up the slack. Plenty of evidence that shows immigrants are a net benefit to the local economy.
Need to implement: death tax
This I agree with politically, but it's not going to make houses cheaper.
And when the immigrants get old and need care? You’re essentially saying we should import slaves who need to pay the tax to take care of the boomers. How about no aged pension whilst owning a 2 million dollar house?
You’re essentially saying we should import slaves who need to pay the tax to take care of the boomers.
Yes, because people coming here voluntarily to seek opportunities for a better life is the same thing as sailing out to the new world to herd up the savages to bring home and sell at the Sunday flea market.
Very much the same.
Don't be a moron.
Immigration at this point is desperately needed to keep our country affloat, without it we will be in an economic death spiral in just a few years. Despite all the complaining about house prices here (and they are bloody awful), pretty much all western countries are in the same situation we aren't anything special, even New Zealand is have a nightmare with housing prices.
There's no immigration during covid and property prices are skyrocketing?
Immigration, 457
Done
https://immi.homeaffairs.gov.au/visas/getting-a-visa/visa-li…
This visa is closed to new applications.
Go look at house prices in New zealand & Canada, its no different.
In many Asian countries, people tend to live in multi-generational housing. There is simply not enough space for everyone to have their own 4bd house with a nice backyard. There’s simply too many people and not enough land. Even if you abolish all the favourable tax laws, someone with more money than you will outbid you. Just look at what’s happening right now. There’s no immigration, everyone has decided they want to buy or build and the house prices are skyrocketing.
I don’t think it’s a supply and demand problem. Having 4 million coming in over 10 years didn’t help but we’ve had higher population growth in the past. It’s greed on all fronts, banks, governments and people obsessed with where they live. The simple fact is mortgages jumped from 3 times your income to 6-9 times that from the late 90s onwards. Back in the 90s anyone with a “good job”, earning average rather than median wage could afford pretty much any house in the “desirable” suburbs. Now those houses are way more than 3 times the average professional wage.
I don’t think it’s a supply and demand problem.
Except it is. No matter how much you screw around with macroeconomic factors, you're simply just moving money around and backwards and forwards. (I'm not spitballing, I have a PhD in macroeconomics).
It's been well understood in economics for quite some time now that monetary policy can only affect nominal measures, not real measures, and in the long run, the nominal measures have to revert back to the real measures (i.e. "the bubble will pop" in layman's terms). There's very little to suggest that housing is going to pop - it's been increasing at a steady 7 - 8% for decades. It's just the nature of exponential growth that prices are increasing much more now in dollar terms as they were 10 years ago because of compounding.
What you're saying is actually completely contradictory because in your next sentence, you say:
It’s greed on all fronts, banks, governments and people obsessed with where they live.
What's another way of describing the people obsessed with where they live? Oh yes, that must be demand mustn't it? How can you say that it's not a supply and demand problem and then turn around and say that there's too much demand for X type of housing?
The simple fact is mortgages jumped from 3 times your income to 6-9 times that from the late 90s onwards. Back in the 90s anyone with a “good job”, earning average rather than median wage could afford pretty much any house in the “desirable” suburbs. Now those houses are way more than 3 times the average professional wage.
Yes, except this doesn't answer the question, it is just phrasing the question in a different way. In other words, you're just saying housing is expensive because housing is expensive.
Basically, what you're saying if we drill down to the actual substance is - "housing is not expensive because of supply and demand, but housing is expensive because housing is expensive". This makes no sense.
I’m no economist so please excuse stupid old me without a PhD. You just said the supply of housing can easily be increased by increasing density. My point is that house prices have shot up since the 90s because people can borrow more. If loan to income ratios remained the same they wouldn’t have shot up so quickly. I don’t think the balance of supply and demand for houses has changed hugely over the years. As you said the density and distance has increased to meet any increase in demand, I don’t think the gap between supply and demand has changed drastically. More money is chasing after the same stock, houses or shares. When the 30% private health rebate kicked and prices went up 30% was that because of supply and demand? No it was because more money was coming into the system. I think it’s the same with housing, more money got pumped in because of looser lending requirements. From my hick perspective more people wanting the same thing or people wanting a diminishing supply is a supply and demand thing. The same people suddenly having more money to buy the same thing is too much loose money, look how well that turned out for the US. House prices may perhaps never drop but perhaps like in the 90s they’ll stagnate for enough time to allow wages to catch up.
I’m no economist so please excuse stupid old me without a PhD.
Not putting you down, but at least be aware that you can't just concoct theories about things that have been well studied for years.
My point is that house prices have shot up since the 90s because people can borrow more. If loan to income ratios remained the same they wouldn’t have shot up so quickly.
This only makes sense if your underlying assumption is that there is a shortage of homes. If there were enough stock of homes, then how much you could borrow is irrelevant.
Just think about chocolate bars - even though everyone could "borrow more" and spend their entire credit card limit on chocolate bars, obviously nobody does that because there's an excess supply of chocolate bars.
What you are describing definitely exacerbates the problem, but it is not the root cause of the problem. The root determinants are demand and supply - how many homes you have and how many people there are.
As you said the density and distance has increased to meet any increase in demand, I don’t think the gap between supply and demand has changed drastically.
Density has not increased. Distance has increased, but the issue with distance is that as you build outwards, since the area changes quadratically with the distance out from the city, the cost of infrastructure increases massively (e.g. doubling the distance out from the city means you have to build 4x the amount of infrastructure). This is why areas further away from the city continue to suffer from poor infrastructure and will never be proper substitutes for the expensive areas we are referring to.
More money is chasing after the same stock, houses or shares.
That is only true in supply-constrained markets.
And even if I grant you that, increased interest rates will only shift the burden around. That will just shift the burden elsewhere. You might pay less upfront, but you will eventually pay for it with your interest repayments
Let me explain this to you in a different way. Imagine that you are the 10th richest guy looking to buy in a suburb with 9 properties for sale. Regardless of what happens with interest rates and other macroeconomic factors, you're not going to get any of those 9 houses because you can't pay as much as the other 9 chumps.
When the 30% private health rebate kicked and prices went up 30% was that because of supply and demand? No it was because more money was coming into the system.
No, it's because PHI providers realised that they can jack up prices now that there's a subsidy. What does the whole "money in the system" even mean?
I think it’s the same with housing, more money got pumped in because of looser lending requirements. From my hick perspective more people wanting the same thing or people wanting a diminishing supply is a supply and demand thing.
And you were saying it wasn't a supply and demand thing? What are you talking about?
The same people suddenly having more money to buy the same thing is too much loose money, look how well that turned out for the US. House prices may perhaps never drop but perhaps like in the 90s they’ll stagnate for enough time to allow wages to catch up.
Happy to discuss the GFC - I actually taught a class predominantly on the GFC for many years. It's a complex topic that involves the flogging of securitised subprime loans which then caused the crash in the housing market due to basically a flash sale. The long term impacts are that people lost their homes. However, this has nothing to do with the discussion we're having here on why AU house prices are too high.
@p1 ama: I’m sorry if my writing isn’t up to your standard, I’m just an engineer and obviously my writing doesn’t meet your academic rigour. I’m not concocting a theory, several economists have noted with concern the jump in debt to income ratio and the relaxed lending standards. When people can spend more on what is already national obsession it exacerbates prices. Other places may be as pricey but Australia’s debt to income ratio is punching above its weight. Everything you’ve said is a cause of high prices and other nations face the same issues but ours are exacerbated by loose lending. The loose lending is what makes prices even higher in Australia.
It wasn’t just sub prime lending that was happening I remember my cousin in the us earning less in US dollars than average wage here in aUD and paying more than prices here. I thought people would never be able to borrow to such high ratios of debt to income but sure enough it happened. My sister in Sydney was only looking at houses 3 times their income because that was all the banks would lend, but it didn’t take long for her to be approved to borrow 6 times their income. If people could only still borrow 3x their income would prices be so high?
@Forrest Rivers: Sure, so what's your solution?
If borrowing limits were decreased, who exactly does that benefit? It surely doesn't benefit the very people who are trying to get into the market who you purport to want to help.
You've got the logic the wrong way around. Lending criteria has to be looser because of how expensive housing is, not the other way around. If lending criteria were higher, a lot of people who are in the market would have to shop further out or continue renting.
My point is, lower lending requirements are generally good because it's what helps new buyers break into the market.
@p1 ama: Demand is high yes and lower lending requirements won’t change demand. But it does change prices as everyone in the market has increased ability to bid up prices. High prices and leverage relative to incomes is what creates long term risk. If inflation becomes a serious persistent issue or we suffer some other financial crisis, we are very limited in what we can do. Our economic levers are already tapped out.
@lowlifesphere: It does change prices, yes, but it will fundamentally still become an allocation problem.
You still have the same number of houses, you are basically just finding ways to tweak around the edges and put different people in those houses. This might seem like an oversimplification from a micro level, but at the macro level, this is exactly what is happening.
I fail to see how tightening lending requirements will help anyone (as a macroeconomist myself).
I agree with your point about suffering another financial crisis and the limits of monetary policy, but that's a different discussion.
@p1 ama: I change my mind you persuaded me initially but your argument ignores how changes to lending limits and mortgage rates cause transitory effects to supply and demand. Low rates have definitely increased demand, and exacerbated the allocation problem this past year. I agree there are other factors at play like wfh, but low rates are also encouraging more investors, more would be renters to enter the market and encouraging owners to hold as rapid price climbs induced from increased buyer activity are concerning if you want to sell and purchase elsewhere. It’s created a temporary property rally of panic and euphoria.
In the last 2 years rents have only gotten higher, while mortgage serviceability has rapidly gotten lower. Who does this attract? More investors as their money in the bank isn't earning anything, but if anything is sitting there and inflating away due to loose monetary policy and more would be renters as mortgages cost only around $50-$100 more per week than current rents (based on middle class suburbs in western Sydney).
There is also a popular sentiment going around that rates will never go to prepandemic levels again, which is flat out wrong. I mean it is possible for rates to stay low, but there are inflationary risks on the horizon that look to be persistent and require policy reversal.
It will become a purely supply and demand allocation problem again once the impacts of artificial manipulation from the rba have saturated, ie when weekly repayments require a significant premium over rental returns, but it hasn’t settled yet. And when it does settle what have we effectively done? We have put our selves at peak risk and economic sensitivity with the highest all time house prices and highest all time debt to income ratios.
Banks are happy to let people borrow 10-15 times their income now sure, but what happens if there any issues in the future (rate hikes, economic crisis, unemployment). Banks may limit credit down the track which will reduce the artificially inflated prices and then have all these borrowers that bought at the peak now in negative equity, then rushing to sell to get out and therefore flooding the market.
Tightening lending requirements reduces the risk you are exposing to all the new entrants to the market. 20-30% gains in property in one year are not healthy, it could also drop just as fast given the right circumstances and absolutely ruin everyone who just purchased.
@p1 ama: Also tightening restrictions allows those saving for a deposit responsibly enough time to do so. In summary loosening lending just puts more money in the pocket of sellers and puts us as a society at greater economic risk.
@p1 ama: Decreasing borrowing limits just benefits those who already own paid-off investment properties. Now others can't borrow as much to compete against them - and they can borrow for yet another investment - which they have collateral against.
@akashra: https://www.afr.com/property/residential/low-rates-trump-new…
“Australia’s fast-rising housing prices are a consequence of lower interest rates and people’s ability to spend more on homes, and not even the recent boost to supply from apartments and HomeBuilder-driven dwellings will change that, Reserve Bank officials said on Tuesday.”
As someone who has developed, the cost of creating new housing is very high. Especially if you are building inner city in an established area. Open your checkbook for the surveyors, civil engineers, builders, architects, authorities for water, electricity, nbn, the local councils, traffic engineer and more. Then be prepared to pay to deal with all the objections from neighbours to get anywhere - they will have a list of demands and will increase the cost further. Waste money at VCAT/NCAT fighting with council and NIMBY neighbours. Meanwhile deal with the banks, real estate agents, conveyancers, consultants and lawyers who all want a cut.
I wouldn't do it again - easier to make money elsewhere and let someone else take all the risk. Either the costs of construction and redeveloping need to come down or property prices will continue to rise because it's just too damn expensive to create.Think about who that system benefits…
Big developers, who have all that stuff in house. The cost is amortised. Little fellas can't make a buck but big fellas are wrecking house and building garbage.
you forget the fundamental part here
if you actually make money off your build/subdivision you have to pay 50% capital gains, PLUS GST
the gov has made it so hard to actually make money of developing unless you are a builder and can built it yourself for cost priceOR
play the system by living in it for a year and keep one house as investment for eg but buying to subdivide, develop and sell only provides minimal profit - HOWEVER profit it still is but after you pay 50-60% of it to gov it leaves bad taste in your mouthYou are correct. Live in one and rent one out. However the yields are terrible and you are living next door to your tenants.
no they are not, u have no clue