Australian Housing Affordability Discussion

[pauly7]

I saw that the banks are altering what they can lend to investors in both size of loans and cost of loans. This has been brought about by the price bubbles in Melbourne and Sydney where hovels have been bought and sold for ridiculous prices.There has been a disconnection in the rental value and the price of the home. This will bring tears to those who get stuck with a dump or two.

Yes another tightening of the screw but won't really stop anything completely.... I guess they don't want to break the market just brake the market.

At the end of the day decent free standing stock within 10 clicks of Melb and Syd is still in horrifically short demand which will keep prices at a minimum flat. Outer burbs..... who knows - but with immigration at current rate people have to live somewhere!

 

[GarrettM]

Well we're getting closer to a new housing resolution. Have squeezed a little more out of a prospective buyers, while drilling our seller down a little bit at the same time. Not huge figures on either end, but makes a big difference to our cash reserves.

Just a matter of our buyer getting her own deal sorted and then lining up the dates.

 

[PDog]

Well we're getting closer to a new housing resolution. Have squeezed a little more out of a prospective buyers, while drilling our seller down a little bit at the same time. Not huge figures on either end, but makes a big difference to our cash reserves.

Just a matter of our buyer getting her own deal sorted and then lining up the dates.

good luck, hope it all works out for you!!

 

[whatmeworry]

RBA Governor wants the government to reassess the capital gains tax discount.

Governor Lowe lent his weight to calls to reassess the capital gains tax discount on Tuesday night, saying that one of the reasons investor loans and interest-only loans were climbing so fast was "the taxation arrangements that apply to investment in residential property in Australia".

Reserve Bank governor Philip Lowe has intervened in the debate over tax before the budget, blaming the tax arrangements for property investors as well as lax bank lending standards for the explosion in Sydney and Melbourne home prices.
In remarks addressed to a private dinner between Reserve Bank board members and the Melbourne business community to which television cameras had been invited, Governor Lowe said too many loans were being made "where the borrower has the skinniest of income buffers".

RBA governor Philip Lowe blames lax lending, tax concessions for house prices

 

[cove]

Other than for our social housing developments we haven't bought a residential place in Australia for about a decade. The price versus rental value is so far out of reality that you need to be very careful. I have done a valuation course at Uni so I am cautious about hovels selling for millions.
The $5 million visa rules for overseas citizens need to be changed to $50 million to slow down immigration for the wealthy foreigners.

 

[Jeffrey O'Neill]

sums up the issues we're facing

 

[eastwest101]

sums up the issues we're facing

View attachment 94987

Thats interesting but I would still love to see a similar chart with SYD and MEL broken out as separate lines to see if this really is a SYD + MEL problem or a Australian problem, there are numerous reasons why Sydney (and maybe Melbourne) house prices have run away/ahead of the rest of the nation:

local factors = land shortage, planning, lack of investment in in transportation/infrastructure, stamp duty revenue, immigration, high demand, low supply, chinese money entering the market, apartment building, different parts of the economy performing better or worse eg resource industry effect on the Perth market, amount of speculative buying vs real underlying demand, existing debt levels in overheated markets etc etc (I am sure there are more)

national factors = tax system and tax treatment of different asset classes, RBA and actual real bank interest rates, ease of lending money for housing vs difficulty borrowing money for business, low wage growth and lack of inflation, national demographics in population growth and ageing demographics, increasing centralization of jobs in larger cities etc etc (I am sure there are more)

Need to untangle and quantify all these drivers before we go using the blunt instrument of raising interest rates - which may kill off real estate speculation but also has unfortunate side effects of reducing disposable income of borrowers, reducing business lending/expansion and possible job generation, smashing real estate values in markets that aren't overheated, feeds unwanted deflationary pressures and raises the AUD vs all the other currencies which in turn makes our resource, service industry, agricultural exporters and tourism industries uncompetative.

The trick is for policy makers to slowly and quietly deflate the bubble or release the pressure without blowing up the rest of the Australian economy.

 

[whatmeworry]

Other than for our social housing developments we haven't bought a residential place in Australia for about a decade. The price versus rental value is so far out of reality that you need to be very careful. I have done a valuation course at Uni so I am cautious about hovels selling for millions.
The $5 million visa rules for overseas citizens need to be changed to $50 million to slow down immigration for the wealthy foreigners.

Even if you raised the bar for wealthy investor visas, their are so many other ways for a foreigner to buy a property. For example a temporary resident (eg. student) can buy an existing home whilst they are on a temporary visa. Not to mention the visa they offer to parents of foreign primary/high school students.

My brothers BIL just sold his home in Balwyn for 2mil to a 18 year old Chinese guy. So you now have this large family home being occupied by just one person.

 

[whatmeworry]

2 bedroom home in Box Hill listed for 7 mill plus.

The last time 1 Rodgerson Rd sold was in March, 1999, when it changed hands for just $206,000, according to CoreLogic.

If the property sells for $7 million, the price will have grown by 3298 per cent in 18 years.

Two-bedroom Box Hill house on the market for $7m-plus - realestate.com.au

 

[JohnK]

RBA Governor wants the government to reassess the calital gains tax discount.

I agree. The capital gains tax discount should be greater approaching zero capital gains tax.

 

[blackcat20]

2 bedroom home in Box Hill listed for 7 mill plus.



Two-bedroom Box Hill house on the market for $7m-plus - realestate.com.au

Development potential. There have been similar cases in Glen Waverley right behind the shopping strip.

 

[Jeffrey O'Neill]

Thats interesting but I would still love to see a similar chart with SYD and MEL broken out as separate lines to see if this really is a SYD + MEL problem or a Australian problem, there are numerous reasons why Sydney (and maybe Melbourne) house prices have run away/ahead of the rest of the nation:

macro prudential + removing land supply restrictions + removing tax distortions favouring speculation are required.

a move to a broadly based land tax would help to increase the use of zoned land being banked by various companies.

from january (iirc) http://www.demographia.com/dhi.pdf

with a bit of analysis by the guys at MB you can see that it is largely SYD and MEL that are totally out of whack with incomes. even Hobart is not cheap as anything above 3 starts to move into affordability issues.



I think the resource towns were the first canary to fall off its perch.

Perth is now undergoing a pretty decent correction of its bubble. The median price in Perth peaked at the end of 2014 and is now down 7.3% and still falling.

this chart of rental yeild is the main reason i've avoided buying an IP. My rationality has cost me a lot of money, but as mastercard says, the benefits of being debt free, priceless



Then we have the economics of vacant housing - https://www.prosper.org.au/wp-content/uploads/2015/12/11Final_Speculative-Vacancies-2015-1.pdf

Say you have a property that could sell for $500,000 if there is a sitting tenant in place, or $520,000 if it is vacant (a 4% price boost from vacancy). This means that the option to sell vacant is worth $20,000.

If you are considering selling in the near future because you want to time your exit from the market, then you may want to forgo rent in order to keep your option of selling vacant open. If the annual rent is $19,000, it might be worthwhile to forgo a whole year’s rent because it is less than the value of the option of selling vacant.

Quite clearly, if you're making this decision, you aren’t in the housing market to be a long term supplier of rental housing, but to time your exit and cashing your capital gains.

If I have a vacant site that I can build a economically build a 5 storey building on today, doing so removes my option of making even larger profits from building a 10 storey building in a few year’s time when price make a larger building more profitable. This happens in the absence of any zoning controls, since as prices rise, a larger scale of development becomes more profitable.

So vacant land is only vacant because the landowner is waiting for their development options to increase in value.

But this can be stopped. In my example, if there was a zoning limit of five storeys, there would be no future option of building a 10 storey building, only a 5 storey one at a later date. This makes the value of waiting less, and encourages faster supply.

The next question is to ask how many homes may be vacant primarily because of this speculative motive. Prosper uses water meter data to cough whether a property has been vacant. By looking at properties that have used no water over a 12 month period (25,000 dwellings), and those that used less than 50L per day over a 12 month period (82,000 dwellings), they make a judgment that these extremely-low-water-use homes are vacant.

When scaling up Prosper’s results from Melbourne we can be conservative, and instead of taking the 4.8% number as the share of vacant dwellings, take a clean 4%. We can also make some other (somewhat) justifiable downwards adjustments for other states where the value of the “vacancy option” is lower because prices have been more stable. The table below shows this calculation.



As a ballpark, around 300,000 out of 9.8 million dwellings are likely to be sitting vacant each year, or about 3% of them. For the last five years the country has built about 153,000 net new dwellings each year, so these vacant homes represent about two years of new supply at our recent historically high rates of dwelling construction.

 

[RAM]

sums up the issues we're facing

View attachment 94987

Everyone probably noticed this but just in case you missed it...

1. It is a "real" housing price index. That means it has been adjusted (downwards) by some measure of house price inflation. NEVER assuming as most graphs produced, just like most tables etc, are often produced to show a desired outcome. I suspect this is the case here. What was the 'price index' used? Was it Aust wide CPI? The GDP deflator? The various state CPIs to adjust each state housing series? As house prices have not been collected 'accurately' since before the late 80s - the timeline is also very deceptive.
2. Inflation was in double digits for the late 70s and early 1980s so the $$ house price vs any 'adjusted series' or real price series will flatten significantly - take out 12% a year from price increases and a few recessions does tend to knock real house prices (many research papers on that).
3. Australia is credited as either 1st or 2nd in expanding both dwelling sqm AND quality/quantity of fixtures. A typical house bought today is radically different to a 1960s weatherboard - for example. Insulation, inside toilets, 1-2 brms becoming 3-4 etc etc.

... the graph tells a story but not an accurate one by any means.

From 1980 to 1983 - house prices fell in nominal (sticker price) terms in Sydney and Melbourne which accounted for close to 50% of all housing stock. Prices did not rise in the other areas either.

Inflation was double or high single digit(s) over that time frame. There was also a recession. So a real house price index SHOULD be showing about a 25% decline at least.

This graph doesn't = not anyway accurate.

 

[Jeffrey O'Neill]

Everyone probably noticed this but just in case you missed it...

for some reason we've decided to become indebted for housing - first 2 graphs are a % of GDP



which has ballooned out total household debt to mind boggling proportions



all while income growth is racing towards 0 and probably turning negative with the rotation of 150K truck drivers from the mines stacking shelves at woolies or offering tips at bunnings...suppose some might be able to turn into baristas.



gen x and y will not have the luck of high inflation and mandated wage rises to help inflate their housing debt away.

 

[Jeffrey O'Neill]

mortgage debt mountain. just compare where we are to the recession we had to have.



consider the banks were able to gear at roughly 80 times due to internal models (A-IRB) and reducing mortgage risk weights down to mid-teen levels.

Factor in genworth currently has $1 of capital for every ~$130 of mortgage debt and we're facing a future like ireland / iceland.

i'm suspecting some of the banks will have to be nationalised.

 

[whatmeworry]

An FOI request by the ABC found the Federal Government looked into tax breaks for housing in 2016 but failed to do anything.

Federal Cabinet formally examined the impact of tax breaks on Australia's booming housing market in early 2016 but decided not to act, an ABC investigation has revealed.
[h=2]Key dates:[/h]

• February 11—19: Date range for which the ABC sought documents about negative gearing and capital gains tax
• February 13: Federal Opposition announced proposal to restrict negative gearing and halve the capital gains tax discount
• February 18: Treasurer Scott Morrison said "there are excesses" in negative gearing and the Government was considering changes
• February 19: Prime Minister Malcolm Turnbull launched the Government's blistering attack on Labor's "very crude" policy

Amid rapid price growth in many capital cities, the Government has indicated next month's budget will include a housing affordability package.
But instead of making changes last year, the Coalition embarked on a blistering campaign against Labor's plans to curb property tax concessions.

Government looked into impact of tax breaks on housing market but did not act: FOI investigation - ABC News (Australian Broadcasting Corporation)

 

[CaptJCool]

Yes another tightening of the screw but won't really stop anything completely.... I guess they don't want to break the market just brake the market.

At the end of the day decent free standing stock within 10 clicks of Melb and Syd is still in horrifically short demand which will keep prices at a minimum flat. Outer burbs..... who knows - but with immigration at current rate people have to live somewhere!

I think there's two things to note about Sydney

prices in international cities just keep giving. Think New York, London, San Fran. Very few homes are sold in the inner ring of Sydney in any year, but the pricing of mansions boosts the average something chronically....and urban infill is all about getting the going rate for ever reducing land size. The "all blocks in this inner suburb sell for $500,000" regardless of size

urban sprawl means finding cheap cheap homes will always mean on the 'new' outer ring next to the at that time green fields. The trouble with this is the myopic view that distance from the city is the same as when "I was buying my first home, or my elderly parents" it's not. It's a long, long distance further. The reality simply doesn't match the memories of days long gone by.

 

[RAM]

I think there's two things to note about Sydney

prices in international cities just keep giving. Think New York, London, San Fran. Very few homes are sold in the inner ring of Sydney in any year, but the pricing of mansions boosts the average something chronically....and urban infill is all about getting the going rate for ever reducing land size. The "all blocks in this inner suburb sell for $500,000" regardless of size

urban sprawl means finding cheap cheap homes will always mean on the 'new' outer ring next to the at that time green fields. The trouble with this is the myopic view that distance from the city is the same as when "I was buying my first home, or my elderly parents" it's not. It's a long, long distance further. The reality simply doesn't match the memories of days long gone by.

and then add in that Australia is rated as #1 or #2 destination for corrupt money and you get a perfect storm of 'washing' or 'safe-guarding' funds from foreign corrupt officials and friends.

Keeps getting reported but for some reason no State Govt nor Fed Govt actually does anything concrete about it. Did you know that RE agents are exempted from reporting cash transactions? So someone turning up with a bag of cash to settle a property is NEVER reported to anyone (other than to the RE agent's friends and future sellers). Even revealed that allegedly making above market bids for houses/land, paying a deposit and then walking away has been a very common method for paying bribes to Councils and others Australia-wide since the 1950s. Tracked down one case to a Council Town Planner in the late 60s.

It is the old case of "Watch what we say NOT WHAT WE DO" ..... or don't do in this case.


This first one is well worth reading through - live examples of known corrupt money and Aust Govt indifference:

[h=3]The Despot's Guide to Wealth Management: On the International ...[/h]https://books.google.com/books?isbn=1501708430
J.C. Sharman - 2017 - ‎Law
Australia is a significant destination country for funds derived from corrupt activities ... is that “Australia has a robust anti–money laundering and counter-terrorism ...

[h=3]What does a billion dollars of illicit funds from China say about ...[/h]transparency.org.au/wp.../2015/.../Illicit-funds-from-China-Australias-AML-system.p...


In late February 2015 in Paris, Australia's anti-money laundering and counter ... Australia was a significant destination country for funds derived from corrupt.

Australia used to launder PNG's dirty money - ABC News (Australian Broadcasting Corporation)
Australia has been singled out as the money-laundering destination of choice for corrupt Papua New Guinea politicians and officials.
Mr Koim estimates half of the PNG government's annual budget is lost to fraud and corruption through a "mobocracy" of unscrupulous politicians, public servants, lawyers and business people.
He believes tens of millions of dollars of that loss has been sent to Australia, with Cairns the most popular spot to clean dirty money. Mr Koim says six PNG politicians, who he cannot name because of ongoing investigations, have bought million-dollar properties in the city. "I think it's common knowledge that Cairns is a hotspot that most of Papua New Guinean proceeds have been invested in. It's a convenient place - just one hour flight [away]," he said. Last week Mr Koim delivered his message to a major reporters' meeting of the Australian Transaction Reports and Analysis Centre (AUSTRAC) in Sydney. He says Australia must do more to prevent the laundering of funds that are supposed to be spent on schools, hospitals and roads in PNG.

"What Australia should be doing is helping us put more scrutiny on those kinds of transactions," he said.

Corrupt Malaysia money distorts Melbourne market

An eight-month Fairfax Media investigation has traced suspicious money flows, court files and corporate records across three continents to uncover why Dudley House's purchase price was so high.

Its sale was part of a global money laundering and bribery scheme engineered by greedy local developers and powerful officials overseas who pocketed $4.75 million in bribes on this single deal.
Fairfax Media has also discovered that some of these same figures are linked to tax haven companies which are also behind the purchase of around $80 million in Australian properties.

Australian property seen as hot destination for money laundering

Australia needs to tighten safeguards against money laundering in its booming property market, which has attracted Chinese funds with likely links to corruption, an international anti-money laundering body said in a report released late on Tuesday.
The intergovernmental Financial Action Task Force said real estate agents and lawyers have been identified as a high money laundering risk in Australia, where regulations do not require them to report suspicious transactions.

Australia and Xi Jinping’s Corruption Crackdown | The Australia-China Story

Australia has been a focus of both Operation Fox Hunt and Operation Sky Net. This is because, according to Chinese state media, Australia is one of the top three popular destinations for corrupt cadres, along with Canada and the US. Australia is attractive because of its lack of an extradition treaty with China, the high quality of life, advanced financial system, robust legal protections for criminal suspects and public suspicion towards the Chinese legal process (particularly following reports of several high-profile cases of Australians being mistreated in the Chinese judicial system [topic link page]). Media investigations show that Chinese officials launder money into Australia through commercial investments, property purchases and directing bribe payments to spouses and children residing in Australia.
In October 2014, the Australian Federal Police (AFP) agreed to participate in Operation Fox Hunt by helping China seize the assets of Australia-domiciled suspects who had been placed on a jointly-agreed ‘priority list’. This priority list was compiled from a longer list of ‘less than a hundred’ corrupt cadres who China believes are living in Australia. Current media reports argue that there are at least seventeen corrupt officials now based in Australia, who are collectively accused of embezzling over A$1 billion.

_________________________________
​

Went to an auction nearby on Saturday - house on small plot (65 sqm bigger than semi plots in area) on street corner on route used as rat run 4 brm (3 close to doubles) and a cupboard stripped out as a home office (less than 1.2m deep and 2.1m long). Sold for just over $3m to suspected mainland Chinese family (speaking Mandarin amongst themselves). Auction took all of 6 minutes.

Does make you wonder how with an annual 'legal' limit of USD 50,000 a year able to be sent out of China - all these properties get purchased? Makes you wonder why neither the Fed nor State Govts have/want to extend the AusTrac system to developers and RE agents? Nothing to do with them being normally 5 of top ten donors to both sides of politics year in year out could it? Of course not!

If you read the 2nd link you will unfortunately find that AusTrac only issues 1 fine/penalty every 14 years!

Smoke and mirrors!

One of those fines was the insider trading case that was brought to them by a whistle-blower!

 

[whatmeworry]

Advertising for property in Sydney that was on reddit. Later finds its way into a news article.

Posted to reddit by user JonoColwell, the photo shows an ad at Sydney’s Town Hall station for a property expo later this month — written in English and Chinese.
The 2017 Australian Property Expo, hosted by Chinese media group FirstMedia, is billed as “Australia’s best and largest property trade show” and will feature “more than 100+ exhibitors, 5800 square meters, and 8000+ new affordable homes”.
“Something tells me they aren’t catering to the first home buyers crowd,” wrote reddit user PBandJthyme.

Housing affordability in Federal Budget 2017: This photo shows why package is useless

 

[cove]

Perth prices are still under quite a bit of pressure with many adult children heading back to live with their parents. Many experiencing mortgage stress are trying to rent out a spare room in their home for around $150 a week due often to a job loss. Perth is in the middle of an economic slump and lots of retailers figures are off by more than 20% compared with last year.
We now have a market where it is easy to buy and hard to sell.