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
@Kangal: What aspect of Supply and Demand?
Supply and demand of homes, supply and demand of a type of home, supply and demand of where that home is located, supply and demand of the availability of credit?
I believe the last one is the most important and drives everything else.
@pogichinoy: More so from a quantitative perspective.
Eg/
1- We have 10.01 Million Residential Houses
2- Median House has 2 BDR
3- 20.01 Million citizens
4- 29.99 Million total population
…
Therefore, we can conclude we have a housing shortage for roughly ~9.99 Million people. We need these hard numbers. Otherwise, we simply don't KNOW if it is just hype/bubble, or if we have an actual problem. The census might be able to shed some light on this issue. And if it is a real problem, then we now have the nuance if it is because of some people hoarding properties, or if it is a case of too many babies made last generation, or too many immigrants, loss of properties due to natural disasters, decommissioning of houses, etc etc.@Kangal: There will always be housing that is available for sale. The difference is housing at the right price.
The price has always been the problem.
@pogichinoy: Not true.
If you have a supply issue, then you will artificially inflate demand. Then prices will rise. The price is not the disease, it is the symptom.If there's 3 Million people living in Sydney, and housing for 4 Million, then you don't have a supply issue. So then you can look closer if there are property hoarders, and how much of the market they occupy. Then work your way through other factors, from the largest affecting to the least, ergo, Low hanging fruit first.
If I need housing, I will choose what I can afford. And so will 99% of other residents. We control half of the market. The other half is controlled by land availability/builders. Fiscal policies affect the small factors, but these factors can stack up significantly.
@Kangal: Ok, I'll play your game. Census claims there are 4.8M people in Sydney, with 1.8M dwellings.
https://quickstats.censusdata.abs.gov.au/census_services/get…
Where is the oversupply or undersupply?
Again, your logic does not make sense. If you need housing, you can rent or buy. Are there any places to rent? Yes. Are there any places to buy? Yes. Ergo, there is no supply issue.
@pogichinoy: I'm still on my phone/not home, so I can't do a thorough research. Then again, I'm not sure I want to spend too much time on it.
But, can't you see my point? The statistics actually matter. Just because there are rents available, or houses available, does not mean that there isn't a supply issue.
Based on the old census, there's roughly 4.9 Million people in Sydney and only 1.9 Million houses. So the average dwelling should house 2.6 people. If there's an average of 0.8 children per family, and average of 1.9 parents per family, then you should be looking at 2.7 people per house.
In other words, with the amount of people expected per house, and the amount of people there are; 4.9/2.7=1.82; there should be 1.8 Million houses in Sydney. When we correlate what should and what is, we realise that there isn't a supply issue.
So then the symptom must be caused by another agent. We then need to look at renters vs owners, and how many people own more than one property. See where I'm going with this? We peel back one layer at a time to find the cause.
@Kangal: I get what you're trying to do but I don't believe some of your arguments warrants a quality discussion point. Btw you cannot make the assumption that there are 0.8 children per family. Mentioning children is a weak argument because how do children fall into the mix on affordability? Are you leading towards giving families special considering because they have children?
So you just disproved yourself on the claim that there is a supply issue.
High housing prices as been done to death with the numerous factors outlined here and in past posts. I have no issues about discussing these factors but I think some of the claims that are put forward, like yours, can come forward to be disproven.
Here are some facts for you RE: owning more than one property.
According to Corelogic:
There are 10.5 million dwellings in Australia with a total value of $7.1 trillion
There is a total of $1.85 trillion in outstanding mortgage debt.
5% of Australian household wealth is held in housingThe Australian taxation office tells us that in the 2017-8 tax year (the latest statistics available)
How many investment properties does the average Australian have?
The most recent taxation statistics show there are 2.03 million individual investors, which implies most property investors own only one rental property, with an average of 1.28 investment properties per investor.
According to the ATO, a total of 2,097,392 Australians own 1 or more investment properties. This means that 8.7% of the Australian population can classify themselves as property investors…
How many Australians own 1 investment property?
The ATO data states that 1,494,837 own one investment property, which is equal to 6.2% of the population. This also means that 71% of property investors own a single investment property only.1.6% of Australians own 2 investment properties
A total of 395,924 Australians are fortunate enough to have two investment properties, which is a fairly sharp decline (1,098,913 less to exact) from the 6.2% with one investment property. This also equates to 18.9% of all property investors.How many Australians own 3 investment properties?
A grand total of 122,639 own 3 investment properties meaning that 0.5% have 3 investment properties… you read that right, less than half a percent.When we get to 4 and more investment properties, the percentages start to get really small. There are only 45,162 (0.19%) people with four properties; 18,863 (0.07%) people with five properties and 19,967 (0.08%) with six or more properties. This means that there are less than 100,000 people Australia wide with four or more investment properties.
How does this affect affordability, especially for first home buyers?
Note again, there is not a single cause.
@pogichinoy: Well, the only reason you're losing the argument is because you're arguing with yourself. I'm not arguing. I'm not taking sides. I just want the data, that's what I've been saying this whole time. Sooner you realise this, the better for me/you.
The 0.8 children figure is from the link you gave me. I'm not making any concessions for parents/children. But this figure is obviously important, because in that 4.9 Million figure, well that's the total figure which includes children too. Does it make sense?
I didn't disprove myself. I just proved myself… that I'm looking for the cause. Like a doctor diagnoses a patient, they move from most likely to least likely prognosis, slowly as more data is available and they can make a more accurate understanding.
High housing prices has been done to death because, well, it's still a major problem. A big percentage of our population are squeezed by increased rental prices, and they're unable to make the leap to purchase a home for themselves to live in. So what is the cause? You made the statement but didn't link any past comments for people to look into. Some of the claims should be disproven. Unlike mine, because I didn't make any claims, I only postulated causes/effects.
The first candidate is Low Supply. And we've just looked at it, and doesn't seem to be so. Next step to look at, is it due to "wealth concentration", where a small group owns many assets which actually starve the market for the rest of the people.
Then we slowly go through the rabbit hole until we find the cause.
Remember, the high-prices are the symptom.(warning all figures have been rounded off)
So let's go over the figures you provided, and some from abs.gov.au :
25.8 Million population of Australia
10.5 Million dwellings (households?)
3.7 Million (0.35 x 10.5) total renters
6.8 Million (0.65 x 10.5) live-in-their-home
8.3 Million (10.5 - 2.2) people who Own-One-Home
1.5 Million people who Own-Two-Houses (investors)
0.7 Million people who are Owners-Multiple-Houses (bigger investors)So based on these figures, things don't look good for property owners in Australia. Or they do. I'm not sure. We're talking about 2.2 Million, out of 10.5 Million houses (21%) of residents who don't own a house. The cause of the issue may in fact be "wealth concentration", where the top niche are buying more than their needs and its heating up the entire market. Plausible. The 21% figure might be high or low, really depending on your viewpoint, or comparisons to other nations. Otherwise, it might just break down to how much is rent is %-wise compared to mortgage. If rent cost is 105% of mortgage, then there is an issue, if 21% of people are essentially "ripped off". Unless there are other issues (eg If there was a law preventing non-citizens from buying property, and that's what this 21% demographic represented). Or the same could be true if that figure was 65%-of-mortgage, or something else. I don't know what the figure is, or should be. But I do know, people will choose not to be property investors IF they cannot afford to be property investors. So perhaps the dichotomy needs to be explored professionally by ethical people. For example, laws to reduce rental collection. Hence, the solution might be a fiscal/political one, since the problem looks to be cultural.
See where I am poking at?
So let's dig a little deeper. How BAD is the symptom?
I mean, median figure is statistically speaking the more true-to-form or real-life figure. The median income is $49k. The average income is $91k. There's a pretty sizeable difference (54%) of $-42k between the two figures. And apparently the Average weekly expenditure is $1,430, which comes to $74k per year, leaving $17k monies left on-average for that average individual. So we can make a (huge) assumption, and say the MEDIAN expenditure is the same (54%) proportionality. So a median-weekly-expenditure of $770 comes to $40k, leaving $9k monies left on-median for the individual. The median house price is $750k, and the average is $950k. Which means we can calculate how much difference between available funds versus cost. For the average figures, $950k/$17k, leaves us a factor of x55… and that 20%-deposit is $190k for a factor of x11. Wowza. For the median figures, a 20%-deposit for $750k is $150k, and 150/9 is a ridiculous x17… for a total factor of x83.In a best-case scenario; 750/17 = x44
In a worst-case scenario; 950/9 = x105
Now the uproar makes total sense! Eat the rich? (that's a joke)@Kangal: LOL you did disprove yourself because you hypothesised if there was an undersupply of homes, then concluded that there is no undersupply.
And no I am no losing the argument, I am guiding you on path so you don't waste yours and others time.
My point is, the data is there, and what you're attempting to do is make sense of the data on talking points that are nothing new as it's already been discussed numerous times in the past, so instead of trying to create new talking points with data, you should look at what's already been done.
Reasons why people do not own a home.
https://www.investopedia.com/financial-edge/1112/reasons-ren…
If rent costs 105% of mortgage.
Non issue as from the rental yield in all capital cities is quite poor and knowing that it's cheaper to rent than own in most cities.
if 21% of people are essentially "ripped off"
No. How can anyone be ripped off if they were never in contention or they chose not to compete in the housing market?
But I do know, people will choose not to be property investors IF they cannot afford to be property investors.
Correct, and the same can apply to some renters. They choose not to buy IF they cannot afford to own property.
So perhaps the dichotomy needs to be explored professionally by ethical people
No. Ownership is not like healthcare where the latter has more ethical grounds. Shelter has ethical grounds which is different to ownership. I think you're under the impression that ownership is a right when it is in fact a privilege.
For the median figures, a 20%-deposit for $750k is $150k, and 150/9 is a ridiculous x17… for a total factor of x83.
Big no on this hypothetical. You are making a big assumption in your calculation that what's leftover of average people with average expenses is there savings for a deposit. Huge no on this one.
As you know average expenses is made up various goods and services, most of which do not apply to people who are saving for a home. I and many others know that when saving for a deposit, you save hard. You minimise buying alcoholic beverages, clothes, furniture, transport, recreation, etc
See what I mean? Why would you even think this is a logical calculation?
Please, do yourself a favour, and read the the existing studies on these.
Increase interest rates. That’ll see prices go down when the market is flooded with houses people can’t afford anymore
The RBA won't do that . The Baby Boomer's only enjoy it when they can retire 10 times over .
Most of it will be enjoyed 6 foot under .
This really is the answer and for more than this reason alone. Investors are getting close to no returns on bank interest and many other traditional investments, instead their money goes into property where the return is high and again the interest rates are low. Increase interest rates = more term deposits and other investment types, less goes into property..
I’m glad you are not running the economy
why, whats wrong with that logic?
So you think interest rates will never rise? They tried that in Japan and it's called the lost decades.
This isn't controversial, the RBA is well aware that low interest rates are overheating the property market.
Their mandate is to increase economic activity, unaffordable housing is being ignored as a matter of policy
Interest rates are not just for controlling property prices. In fact, that's not really their main purpose. They're an important lever to control - amongst other things - economic growth, inflation and indirectly Australia's export competitiveness (via impact on FX).
There are other tools to control property prices without changing interest rates (which might have unintended consequences throughout the economy) - such as requiring banks to much stricter on lending guidelines and clamping down on investment property loans.
Yep - as other replies have said, this is the main cause right now. While certainly things like negative gearing are also having negative impact, I can not understate just how much of an impact having interest rates at 2% has on overall house purchase prices. When interest rates are low, repayments are lower, meaning you can afford to borrow more on the same repayment amount. If interest rates go up, borrowing power is severely diminished.
Problem is, it's very difficult for them to go any lower than they are right now - so this isn't likely to have a great impact for too much longer. When interest rates start to swing the other way, it's going to hurt. Remember - a 1 percentage point increase in interest rates is a LOT more significant when it goes from 2% to 3% than if it goes from 8% to 9%.
Future generations will be screwed.
Get some parents/family that have money or as a brave politician once said "get a good job that pays good money".
Doesn't help.
Have a good job that pays good money and then have a big time paying taxes. You pay more tax the more you earn.
If you are a big businessman and wealthy, it's different ball game altogether. The more you earn, the less you pay tax.Yeah, I used to work 2 jobs while in uni, trying to earn and get savings quickly.
Then you realise you're paying more tax. So I gave up one job and just took it easy
I don’t understand your logic. Yes you pay more tax but your net take home pay will still be higher.
I started my career at $55k and now earn 6 digits, so what, I should have just kept the jobs paying $55k to avoid more tax??
its not how much you make, its what you do with it
Well, yes and No.
You earn more for sure but with every profile and job change, your expenses go higher. Also, the tax bracket changes. so you'll pay more % of tax with increase in Salary and then there is Medical Levi. You move from a 10 year old car to a new SUV, you start getting a better Medical insurance, you start going to costlier restaurants and Bar compared to before.
It's just a human nature. In the end the more you earn, higher your expenses will be with lesser savings.
And then there is Side effects of Royal commission.
Low intetest rates, and at the moment more buyer's then seller's
Because the Australian housing market is just a massive Ponzi scheme…
That's the whole economy, though, right?
Unless there is a visionary politician brave enough to take the short term pain for the long term gain of the country…
Bill shorten, Kevin Rudd and Julia Gillard all tried and failed.
Bill Shorten, Kevin 07 and Julia Gillard all tried to stop the RBA driving interest rates into the ground? I must have missed that news story.
A general lack of fiscal stimulus is a large part of why the RBA has taken up so much of the slack. See Lowe's very cautious comments in 2019 on this issue, if the government wasn't allergic to stimulus the interest rates would not be forced so low.
Our gracious, honest Bill. Oh wise and upstanding Bill. Shame.
You mean like Labor at the last election, where their reward was a massive right wing scare campaign by the Murdoch media monopoly?
Like Mediscare?
In 5 years from now someone else will will post Why were Houses So cheap Here in 2021?
in 20 years time, there are going to be people here complaining about how they are still paying off their parents housing debt, or "is a 60 year term on a house loan a good deal??"
as they do in Japan…..
wow, just read about that. crazy.
what if they don't want to take on the debt, or live there.
Why don't you go live somewhere where houses are cheaper? Clearly you're only looking at metro areas.
Have you ventured outside your house? Everything is sky rocketing even rural areas.
You can to inspect property…
I live in regional VIC. Prices are rising faster than metro because everybody's looking to move here!
21.5% in my LGA. Diamond hands
If only there were other states you could possibly live that are cheaper
Well why don't you look in Melbourne metro, then? (///////////////s)
Check out this animation of housing costs in Australia over the past 50 years.
https://datamentary.net/australian-house-prices-over-the-las…
There are few places in the world where housing prices have stayed fairly low with the amount of growth that Australia has had. Houston Texas is one of the few places which has had a lot of growth without housing increasing dramatically in price. They have no zoning.
If you could built even more high rise where people want housing (Sydney and Melbourne) housing prices could be controlled.
Check out the YIMBY movement for people who want to change zoning rules and may be able to reduce prices.
Pretty cool article. But it doesn't seem to talk much about population or refute that house prices here are pretty crazy if you look at them from any perspective other than mortgage repayments.
One cool thing I got from the article was that while Sydney and Melbourne are the hottest cities as far as housing. That hasn't always been the case (though Sydney has done pretty well most of the time). 🤔
One cool thing I got from the article was that while Sydney and Melbourne are the hottest cities as far as housing.
Yes, definitely. Don't get the hype IMO. Had a mate move down to Hobart. Bought a $700K house, now lives a 5 min drive from the city. Life seems great there.
Does the lack of zoning mean developers can stick industrial right next to resi? If so, that would solve the demand for industrial land/properties we're currently seeing!
What zoning rules would you want to change specifically?
I'm a planner. I think you would find that in pretty much every LGA in the country, we are WELL under the threshold of what can legally be built within the current zoning and DCP controls. Other than a handful of historic centres where you might have specific height limits that are really low for example.
People always come back to this 'supply' question - but it's really not the issue. There's plenty of supply. Developers keep it artificially low even when there is plenty of demand.
Developers are making a killing on the current situation (low supply, high demand). Why would that change? If anyone came in and said 'lets build the maximum allowed in the zone, flat out', housing prices would dramatically fall, and those developments would no longer be feasible.
Can yah tell me where some zoning changes are happening and I can retire this year m8 ?
Lmao you have to be mates with the pollies to get in front of those mate.
Would have been great to be one of the blokes who got massively 'compensated' for his land at the new airport.
nice article. Thanks for sharing.
Monetary policy, fiat money, money printer going brrr. The list goes on
Lithgow is now Western Sydney and you can get a 2bd luxury city side apartment for 700k
People say expensive property coz they do not count west side of Strathfield as Sydney at all.
They are ashamed?
To be fair Mt Druitt average house price now is $800k, which is far from affordable to people starting out.
This is why i'm working doubly hard to buy more so i can pass them down to my kids.
Give the kids out for adoption, work less, enjoy life more.
"work less, enjoy life more." No sir, we don't do that here.
Maybe the person wants to work hard and subsequently earn, invest and get ahead of others?
Kudos to them.
Because you live in Rose bay.
Awesome where do I get my keys?
Because this is what we do in Australia. We import people to grow the economy, the imported people need a place to live so house price sky rocket. Plus very favourable tax treatment for investors, low interest rate, lack of infrastructure spending, council red tapes for new constructions.
Fun fact: in the year 2000, the ABS estimated that Australia's population would reach 25m by 2051 or 23m by 2021. We gone past the 25m mark in 2018 and forecasted to reach 30m in the next 10 years.
Other countries grow their economies by developing high tech industry or life saving vaccine technology (hello mRNA), we grow our economy by importing people and building shitty apartments to house them :)
Don't forget about coal. While other countries are moving to reduce emissions and finding other alternative for energy, we're still stuck digging up rocks and convincing people it's viable for the next 20 years.
Yep agree with all this + digging holes. Then when that doesn't create enough jobs we put ppl into compliance we create and roads. Our economy is a joke :(
Oh and don't forget the shitty educations we charge through the nose for in exchange for residency!
Except we’ve barely had any immigration for nearly 2 years and house prices are still skyrocketing.
This is because we undervalue STEM degrees and science research, and overpay the trades/construction industry which require no more than a high school diploma. Australia is content to be digging dirt to sell to China and leave the heavy lifting of humanity progress and science research to USA/Europe/China.
liberal arts society has been very disappointed with this comment!
So proud to be an Australian :')
Greed. I agree that boomers and their offspring have essentially raped future generations and done much damage to the future economy & social fabric of Australia
Who negged me…it”s 100% true
100% Long term debt cycle - what is borrowed now stimulates the economy in the short term, look at the wages of tradies… then in the long term all that debt will have to be repaid. If wages do not outgrow debt you get a depression. Economics 101.
debt will never be repaid - play the game or be poor, your choice
@botchie: There is more debt in the world than actual money to pay the debt back. Now you need debt to pay for the debt.
Very sweeping and vauge critiscim, being alive in Australia right now is better than any other time before. I think there are issues that the boomers could have a handled better but future generations are inheriting a great country and we can start trying to make it better instead of bitching about boomers.
sounds like your boomer parents didn't leave you anything? did you ask them why?
Yeah yeah go mine some bitcoin and buy an iPhone.
They are expensive because they are of such high quality and excellent construction.
Haha
I've seen better-constructed sheds.
All this talk of green energy…..firstly we need to get the houses built to a decent standard, with insulated wall cavities, insulated lofts, and double glazing.
Yes, most serious environmentalists include improving energy efficiency as a priority way to reduce greenhouse gas emissions. But that would require the government to do… literally anything. Which they won't, because they apparently want us all to suffer.
the best sarcasm ever.
I love how you don't even need a sarcasm tag
Haha
I know I will get negged but I will post anyway - immigrants from a particular country are driving up prices in Sydney.
4 bedroom house (2 bedroom granny flat) beside my house (built for $450k 12 months back) sold for $1.9m 8 weeks back.
Owner drives a cab and I have been wondering how he can afford the mortgage.
6 weeks ago 2 people move into the Granny flat.
5 weeks ago a young couple moved in the house.
Last week another young couple moved in.Owner has 4 lots of tenants effectively paying off his mortgage and giving him a cash surplus to boot.
What a genuis.
Probably not declaring taxes on this income either. What a top bloke!
few quick phone calls will fix that :)
You know what to do, otherwise you're part of the problem.
Don't be all talk and no follow through.
How did he get loan for 1.9m property!?
Are you part of the neighborhood watch program?
Empty houses and unused land are still considered investment products despite the fact that people need stable living places.
@Kangal: If we replaced houses with food… Would we try to calculate with your parameters if we have an imbalance between Supply and Demand of food? I would assume we'd just increase supply until food is affordable to everyone.
In a way I do feel that we should treat both equally. The availability of both are important to anyone's life and wellbeing, and supply shouldn't be constrained just to ensure the financial wellbeing of those who have invested in a place.
However, I might also argue that the majority of people who complain about not being able to afford a place aren't looking at places they can actually afford. Their "requirements" for a place for them to purchase does not meet their financial ability.