Australian Housing Affordability Discussion

[JohnM]

Just over 1 in 3 properties sells for under $400K in Australia

The median household income was 91k in 2014. The average was $104K

3 times household income is considered the borderline for affordable housing. You'd be hard pressed to find that anywhere with a decent job market.

http://www.rba.gov.au/publications/bulletin/2015/sep/pdf/bu-0915-3.pdf

just look at the house price inflation compared to CPI and cost of building.

View attachment 80418

it's all land inflation. the typical lot cost in sydney is $422K

View attachment 80419

unlesss you think capital growth can continue rising faster than incomes, why would you want to invest in housing? the net yield is atrocious. i'd prefer say the SYD Airport 2030 inflation linked bond providing around 4% + CPI yield

And noting that the Y-axis is a log scale - which IME is almost impossible for people to clearly visualise. Put it on a normal scale and the house price line would be off your screen and through your ceiling...

 

[Jeffrey O'Neill]

And noting that the Y-axis is a log scale - which IME is almost impossible for people to clearly visualise. Put it on a normal scale and the house price line would be off your screen and through your ceiling...

Yes

in a way the RBA has colluded with the property spruikers and HIA to obfuscate over the true - i'm not sure what term is appropriate but i want to say idiotic - way that the cost of homes and shelter have dislocated from the actual income of australian citizens.

i'm sick of people who were lucky to buy their house during the high inflation high wage growth era lecturing the non landed gentry of today about sacrifice and buying the coughiest house in the best street when really they just had inflation do the hard work for them.

i feel slightly sorry for the mugs who've bought recently and have massive mortgages in a low interest rate + low inflation + low income growth environment where the debt is not being inflated away combined with CPI+ income growth.

i don't pretend to know when the straw that breaks the housing market back will be, but we're getting fracking close to it. we have an economy hollowed out by the forever mining boom and high $ that turned out to be quite temporary. we don't really do much beside export dirt and any export income we earn we let the banks gear up to stuff into over priced housing that increasingly makes the rest of the economy internationally noncompetitive.

the car manufacturing industry will add 100K of reasonably high paid jobs we've willing exported from this country. compare the cost of what the 3 car manufacturers were asking for with some of the idiotic spending the govt has done and try not to howl at the moon and chant trump trump trump.

low land prices should be a natural advantage for australia, yet we've somehow made most land prohibitively expensive. combine that with linking local gas prices to the international market (in some cases the japanese can buy spot priced LNG cheaper than is available via the gas pipe networks in australia) and we've royally rodgered ourselves. i love how the energy companies are trying to force fracking on us, yet fight vehemently against a reservation policy. australia is a giant face palm but we're so focused on the block it's like we're anaesthetised to the pain.

i'm of the opinion that whatever the next downturn is, it will be far worse than the 89 recession we had to have, and the next recession is one we deserve for being so frackingly downright duwbya bush stoopid.

everyone knows you don't go full retard, just ask sean penn

[video=youtube_share;X6WHBO_Qc-Q]https://youtu.be/X6WHBO_Qc-Q[/video]

 

[whatmeworry]

Yes

in a way the RBA has colluded with the property spruikers and HIA to obfuscate over the true - i'm not sure what term is appropriate but i want to say idiotic - way that the cost of homes and shelter have dislocated from the actual income of australian citizens.

i'm sick of people who were lucky to buy their house during the high inflation high wage growth era lecturing the non landed gentry of today about sacrifice and buying the coughiest house in the best street when really they just had inflation do the hard work for them.

i feel slightly sorry for the mugs who've bought recently and have massive mortgages in a low interest rate + low inflation + low income growth environment where the debt is not being inflated away combined with CPI+ income growth.

i don't pretend to know when the straw that breaks the housing market back will be, but we're getting fracking close to it. we have an economy hollowed out by the forever mining boom and high $ that turned out to be quite temporary. we don't really do much beside export dirt and any export income we earn we let the banks gear up to stuff into over priced housing that increasingly makes the rest of the economy internationally noncompetitive.

the car manufacturing industry will add 100K of reasonably high paid jobs we've willing exported from this country. compare the cost of what the 3 car manufacturers were asking for with some of the idiotic spending the govt has done and try not to howl at the moon and chant trump trump trump.

low land prices should be a natural advantage for australia, yet we've somehow made most land prohibitively expensive. combine that with linking local gas prices to the international market (in some cases the japanese can buy spot priced LNG cheaper than is available via the gas pipe networks in australia) and we've royally rodgered ourselves. i love how the energy companies are trying to force fracking on us, yet fight vehemently against a reservation policy. australia is a giant face palm but we're so focused on the block it's like we're anaesthetised to the pain.

i'm of the opinion that whatever the next downturn is, it will be far worse than the 89 recession we had to have, and the next recession is one we deserve for being so frackingly downright duwbya bush stoopid.

everyone knows you don't go full retard, just ask sean penn

[video=youtube_share;X6WHBO_Qc-Q]https://youtu.be/X6WHBO_Qc-Q[/video]

From what I heard, the LNP sold out the Car industry for some dubious free trade deals... Sometimes I think the hard right of the LNP advocate Horse and Sparrow economics.

I remember when I was younger (and probably now), LPG was sold significantly higher to Australian car users compared to Japanese car users and the best industry could say it was in line with other hydrocarbon prices or something to that effect.

I think the problem was 2007. The Labour Government should have let the economy correct itself but were too scared of the politics to do the right thing.

 

[penegal]

I enjoy your posts Jeffrey O'Neill, although don't always 100% agree.

 

[CaptJCool]

I enjoy your posts Jeffrey O'Neill, although don't always 100% agree.

Classic!
Might the car industry have closed because of ideological reasons to smash a major ideological trade Union?
Was there jealousy because car manufacturing employees were banking $100k per year ?
execs always win and why ought the Govt subsidise their million dollar perks and salary ?

 

[penegal]

For the regular joe home owner:
The one thing which owning your own home does is force you to save. I use the word "force" lightly here. I am not saying that people without a mortgage don't save at all, but having one certainly encourages a shift in priority. A small reduction in consumption and redeployment of funds to asset accumulation will grow the average person's net worth over time.

This simple element of human behavior is why I think most people in the community (with modest incomes) are better off buying rather than renting. Arm chair economists will tell us that renters can earn higher yields on their savings in other asset classes, and I absolutely agree, so long as they are disciplined. (and most people aren't disciplined).

Let's face it, we all have that friend or relative whose spending expands to be all of their income, and savings tend to be a short term proposition. This lifestyle is fine until something changes. Income may dry up, or they want to retire and can't maintain anything near their former lifestyle on the minimum super contributions.

Finally there is a psychological element to owning your own home. There is something good about that feeling.


For the investor:
The long run returns of the property market as a whole are usually represented as being quite "average" compared to other asset classes. That said, enormous wealth can be generated through property.

To own property there are 3 main ways to generate income:
1. Rental income or rental yield
2. Capital gains (on sale)
3. Improvements, enhancements or development

The best property investors combine at least 2, and often all 3. If you are just shopping for capital gains, then I agree - they aren't very high when compared to other asset classes.

There are also numerous tax benefits (often very substantial) depending how the property investment is structured.

 

[penegal]

Classic!
Might the car industry have closed because of ideological reasons to smash a major ideological trade Union?
Was there jealousy because car manufacturing employees were banking $100k per year ?
execs always win and why ought the Govt subsidise their million dollar perks and salary ?

My post actually had nothing to do with the car industry...

That's a whole other discussion.

 

[penegal]

Buying a home when single is unattainable in most of Australia, data shows.

A really good summary

The point about single people really resonates with me. You basically have half the income, but still need a whole bedroom, bathroom, kitchen, living area, [and apartment/house].

As a single person, you might be happier to have a slightly smaller place, but certainly not 50% of what a couple would be happy with.

 

[JessicaTam]

The point about single people really resonates with me. You basically have half the income, but still need a whole bedroom, bathroom, kitchen, living area, [and apartment/house].

As a single person, you might be happier to have a slightly smaller place, but certainly not 50% of what a couple would be happy with.

Having just moved house, I agree with you whole-heartedly.

 

[JohnK]

For the regular joe home owner:
The one thing which owning your own home does is force you to save.

This is the key point. Forget superannuation. Home ownership is a much better savings mechanism.

 

[cove]

We have not bought any residential real estate for close to a decade because the pricing is so unattractive. Sydney and Melbourne prices are quite ridiculous now based on the rental market returns. We live part time in Sydney and Melbourne so I watch what is happening and it is in need of a correction. The unit market correction has started.
Vancouver has brought in rules that have stopped real estate prices going up.

 

[penegal]

I hope the market correction can hold off 4 weeks!

I'm selling the house I live in. Anyone want to buy it? A few mil should do it

We had the first open today (a bit weird on a Sunday due to the GF. The remainder will be Thur/Sat until auction day).

I'm hopeful that we are close to the "top" of the market. It was hot last Spring and we have seen some good prices in my area this year, but there are fewer houses on the market this Spring. With any luck there are still a few cashed up (or leveraged up) buyers out there.

 

[penegal]

Sydney and Melbourne prices are quite ridiculous now based on the rental market returns.

What benchmark rate (and calculation) do you use for rental returns?

"Back of the envelope" sums?
Or taking into account BC/council/agent costs/etc to get the real yield?

 

[Jeffrey O'Neill]

For the regular joe home owner:
The one thing which owning your own home does is force you to save. I use the word "force" lightly here. I am not saying that people without a mortgage don't save at all, but having one certainly encourages a shift in priority. A small reduction in consumption and redeployment of funds to asset accumulation will grow the average person's net worth over time.

I've always said there's many non financial reasons to own your own home. it provides a lot of stability, but stamp duty can lead to decreased labour mobility so in some ways owning a home can force you into a longer commute or not moving to better job opportunities. this is one of the reasons I want SD replaced with a broadly based land tax, which would also make vacant apartments and houses more costly and so increase properties for rent.

let me get my soapbox out

When housing was around 3 times income there was prob a lot of financial reasons to own your own home, especially when combined with the tax advantages it provides, and the increase in pension - how is it sensible economic policy to hide the largest asset most people have from the pension assets test is beyond me, especially when assistance to the aged is already over $63B of a $450B budget, but it's somehow the $10.5B of support provided to the sick and unemployed that is going to bankrupt the nation. The aged pension cost is growing at roughly 7% each year, only beaten by the growing cost of super tax concessions. we have a tax expenditure crisis in this country rather than an expenditure one.

i'll put my soapbox away

the forced mortgage repayments is prob 1 of the best things about having your own home in terms of building wealth. it just annoys me that the australian mentality has moved from a house and home being for shelter and now it's just another assets like oil or coal, when it's a core human need. i think 1 of the biggest benefits of removing NG from existing dwellings would be to offset this mentality and have housing move back to primarily being about shelter.

we have a constipated planning system in australia, massive land banking by developers (some have 18 years worth of land), urban growth boundary policies which all help to force up the cost of land and then you get situations like in Adelaide where the UGB forces people whoc an't afford land in the city to jump out to Mt barker. A broadly based land tax would help to force developers to use their zoned land or wear the costs of the tax. why develop with the current system in play when doing nothing causes land price inflation multiples above CPI?

i'm not sure when millenials and younger gen x will revolt, but the current system is setting us up for an aged based war.

 

[Jeffrey O'Neill]

What benchmark rate (and calculation) do you use for rental returns?

"Back of the envelope" sums?
Or taking into account BC/council/agent costs/etc to get the real yield?

I've known far too many "investors" who have no idea as to what their net yield is. remember a guy I used to work with was pressured into investing as his wife felt left out of dinner party conversations and he didn't even know how much he was going to be able to rent the property out for, how much the holding costs were going to be, or how much he was going to have to cover in terms of paying the gap between his net rental income and mortgage payments.

If you're negatively geared, and based on the below rental yields most borrowers will be, you really have to believe that prices will continue to rise by 2 or 3 times income growth to make any money. unless we're going to wholesale sell the future of millenials and the next generation to foreign buyers, at some point that can't happen any more, and i think with debt levels where they are, these not much gas left in the debt tank to keep prices at a level that ignores the economic rent of the investment.



[FONT=Arial, Helvetica, sans-serif]The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186% of GDP. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all.[/FONT]

[FONT=Arial, Helvetica, sans-serif]1 thing I think people don't grasp is how high land inflation has a negative effect on productivity. higher rents or interest payments for purchasing lead to all businesses being less competitive than countries with cheaper land. how does an australian manufacture compete when the land for their factory is multiples of the land in a competing country? this is why retail is so expensive in australia, due to the ridiculous rents paid, due also in part to the zoning laws that limits competition.

my feeling for the last few years is only a recession will provide the will to make the changes required to resolve these issues. [/FONT]

 

[cove]

I hope you get a top price penegal. We sold the house next door and have never missed owning it. The rental return was rubbish after allowing for all the government charges like land tax and shire and water rates.

 

[Foreigner]

Returns on residential investments in my experience, limited to units, is around 3.5 pc at present.

Prices are strong atm, in part because supply is limited. Agents persuing listings will tell now is best time to sell and we're at peak of the market but no one really knows. I think my house will fetch 1m more now than 12 months ago. I'm considering downsizing but will sell when I've found a unit.

 

[drron]

From what I heard, the LNP sold out the Car industry for some dubious free trade deals... Sometimes I think the hard right of the LNP advocate Horse and Sparrow economics.

I remember when I was younger (and probably now), LPG was sold significantly higher to Australian car users compared to Japanese car users and the best industry could say it was in line with other hydrocarbon prices or something to that effect.

I think the problem was 2007. The Labour Government should have let the economy correct itself but were too scared of the politics to do the right thing.

So that's why Ford announced pulling out of Australia in May 2013-ie before the Election of the Abbott Government.
The others announced their closures not long afterwards before any talk of Free Trade agreements.
I would get new sources of information if I were you.

 

[Flying mermaid]

For the regular joe home owner:
The one thing which owning your own home does is force you to save..

I totally agree with this. When Dr FM started working, we nagged her into buying a place. As a doctor she was able to borrow 100% and it was structured into 2 loans, with one with a higher interest rate, so she didn't have to pay mortgage insurance. We equally nagged her into paying off the higher interest rate loan at a quicker pace. As an intern it was quite hard and we did help her a little with repayments, but she was soon able to cope on her own and has now discovered the power of compound interest . To be honest without a mortgage, she would have spent her first 5 years of working life frittering her money on travel and eating out (and shoes).

 

[whatmeworry]

So that's why Ford announced pulling out of Australia in May 2013-ie before the Election of the Abbott Government.
The others announced their closures not long afterwards before any talk of Free Trade agreements.
I would get new sources of information if I were you.

So you never heard of The Australia Thailand Free Trade Agreement? You know, the one introduced by little Johnny Howard in 2005.

This agreement has allowed Thailand’s subsidised vehicles into Australia without restriction but has not prevented Thailand imposing secondary restrictions that have totally prevented Australian vehicles from being sold into the Thai market. Australia’s three top selling vehicles in 2013; the Toyota Corolla (43,498 units), the Mazda 3 (42,082 units) and the Toyota HiLux (39,931 units) all came from Thailand. By comparison, for 2013 the Australian made Holden Commodore sold 27,766 units locally and the Toyota Camry sold 24,860 units locally.

What really killed vehicle manufacturing in Australia - » The Australian Independent Media Network