# No long-term wealth from housing boom



## krisbarry (11 August 2006)

AUSTRALIA'S recent house price boom is unlikely to have created real long-term wealth for the economy, a report shows.

Falling interest rates accounted for much of the house price appreciation in Sydney and other capital cities that began in the late 1990s and moved into top gear around the turn of the century.

Lower interest rates allowed borrowers to take on larger amounts of debt than would have been possible under a higher interest rate scenario.

In trying to contain the fallout from last week's interest rate rise, the Government continues to repeat the mantra that rates are well below the 17 per cent achieved under the Labor government.

However, we believe the effect on the household sector may not be much different now than in the early 1990s.

Debt was a fixed amount that needed to be serviced and repaid.

In tough times, property owners are less likely to sell and repay the debt because of the lack of a housing substitute.

Housing was a basic need and property owners would cut back on discretionary spending before sacrificing housing repayments.

The point of all this is that a housing boom in itself does not create real long-term wealth for the economy.

While certainly many people have done well from the boom, there are just as many others who are now looking at taking on massive debt to satisfy a basic need.

Failing that, many would continue to rent and lack the security of home ownership.

A housing boom only generates lasting wealth when deserved - that is, when population growth and rising average incomes push prices up.


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## Realist (11 August 2006)

Mate, you are obsessed with the housing boom, and living in Perth it must get to you. Fair enough - it got to me in Sydney 4 years ago.

My tip, leave Perth and see the world for a couple of years, come back with some money saved, and buy. It'll be much cheaper then.

Forget your bloody super for the moment.


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## tech/a (11 August 2006)

Unfortunately Kris is from my home town.Adelaide

To suggets that inflationary growth is the only credibly sustainable growth in pricing,shows clearly his level of economic knowledge.

Kris in my view will never be able to rise above mediocrity due to his predjudiced views.

Pity as he is young enough to take advantage of opportunity presented--if only he would view it as opportunity.


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## krisbarry (11 August 2006)

Well at the moment I have enough money in my superannuation account to afford myself at small block of land in a rural country town and a rundown 2nd hand caravan....!

God only knows where I could find work in a shanty dust-bowl town.  But that is what I am being told to do, leave the city and head to the outback to afford the great Australian dream.

Its just get better and better by the day


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## It's Snake Pliskin (11 August 2006)

Stop_the_clock said:
			
		

> Well at the moment I have enough money in my superannuation account to afford myself at small block of land in a rural country town and a rundown 2nd hand caravan....!
> 
> God only knows where I could find work in a shanty dust-bowl town.  But that is what I am being told to do, leave the city and head to the outback to afford the great Australian dream.
> 
> Its just get better and better by the day




I suggest you grow up and stop whinging about what you don`t have or can`t get. Losers are negative and destructive. The middle east is a good example as is latin america - the emotional negative attitudes that foster there are terrible and detrimental. 

GROW UP!


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## Julia (11 August 2006)

Stop_the_clock said:
			
		

> Well at the moment I have enough money in my superannuation account to afford myself at small block of land in a rural country town and a rundown 2nd hand caravan....!
> 
> God only knows where I could find work in a shanty dust-bowl town.  But that is what I am being told to do, leave the city and head to the outback to afford the great Australian dream.
> 
> Its just get better and better by the day



I'm not sure why you mention your superannuation account since you can't access it at your age anyway.

I do agree it's really difficult for young people to access property when they are having to pay rent and try to save for a deposit at the same time.  However, from memory, you are not paying rent, Kris, so why can't you get together enough for a deposit on a small unit in an lesser suburb.  Or are you not working at all?  If not, why not?

Julia


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## krisbarry (11 August 2006)

I tried that, saved up $20,000 for a bed-sitter that cost $65,000, but not one bank would lend me the money due to the size of the property.  Banks do not touch bedsitters.

That is all I could afford.

So in the end, gave up and just paid off my HECS debt, and now I have to start all over again.


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## clowboy (12 August 2006)

What a load of baloney.....

If the bedsitter was that great a deal you would have found a way to get the money, I mean hell it was only 40k, well actually from memory the story goes that you put an offer in for 5k less so it is only 35k.  If a mere 35k was all that was holding you back and you couldn't find any way at all to buy it then I think there lies the problem.


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## Smurf1976 (12 August 2006)

I think the whole debate about housing fits into two categories:

1. Whether or not someone _can_ buy a house.

2. Whether or not someone _should_ buy a house in view of the likely direction of the market.

Using my own income level and location (Hobart), 1 is quite doable but so far point 2 has since 2004 strongly favoured renting. With the cost of buying a similar house (as opposed to an "average" house which changes over time) falling more than rent would have cost over the same period, a mortgage is simply dead money. The assumption there being renting or buying a 3 bed house in a middle suburb.


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## WaySolid (12 August 2006)

Borrowing money is difficult in Australia? Perhaps it's a different country to the one I left three months ago or perhaps you need some better contacts.

20k deposit..... Gosh you should come along to an investors meeting (like BIG in Brisbane) and listen to what some of the young kids have done starting with less than that.

If you are genuine then just keep plugging away, hang out with some investors and you will be amazed what people can achieve when action replaces excuses.

Not sure what deserving wealth has to do with gaining it unfortunately, and I can't comment on what wealth the boom created for the economy but I'm sure smiling.


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## Realist (12 August 2006)

Smurf1976 said:
			
		

> I think the whole debate about housing fits into two categories:
> 
> 1. Whether or not someone _can_ buy a house.
> 
> ...




Exactly.

In Sydney point 2 favours renting for the moment, that will change soon, but at least not for 6 months and maybe not for 5 years.


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## professor_frink (12 August 2006)

Kris/Stop,
For someone who doesn't own any property you seem to speak of little else. Why is that? Surely you can't be that bitter about missing out on the most recent housing boom. Don't worry, it'll get more affordable over time! If you stop putting all your money into your super, then you might even be able to afford one for yourself one day.

Keep collecting those census forms, watering down your milk and bludging free accommodation and you'll get a house soon enough


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## Mofra (12 August 2006)

Stop_the_clock said:
			
		

> I tried that, saved up $20,000 for a bed-sitter that cost $65,000, but not one bank would lend me the money due to the size of the property.  Banks do not touch bedsitters.




Yes they do under certain conditions - however, you would be better off trying a non-securitised lender who deals with PMI as their mortgage insurer, as they don't have a problem lending to studios/bedsitters at 70% LVR, provided it is not a huge development and you are moving into a reasonably sized property (generally 50m2 is the lower point cut-off).

As an aside, most major banks (at least my former employer) will lend more than $65k to someone on government allowances alone (except for the dole) - and do so every day. If you have been full time employed for longer than 6 months, you should be able to obtain a helluva lot more than $65k - and if you've been employed for 12 months or more, you could easily find a single bedroom apartment, borrow on a 97% lend and use the FHOG to cover a fair portion of your stamp duties.

I am also relatively young an do not own my own home, but this is a choice due to my personal circumstances and certainly not a reason to constantly whine about others who do buy. 

If you really want something find a way. A defeatist attitude gets you nowhere.


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## Julia (12 August 2006)

Mofra said:
			
		

> As an aside, most major banks (at least my former employer) will lend more than $65k to someone on government allowances alone (except for the dole) - and do so every day.




Mofra,

I'm astonished at the above.  So are you saying that if a person's sole income is, e.g. a disability pension, or old age pension, a bank will lend to them?  What sort of % deposit are they required to have?

Julia


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## nizar (12 August 2006)

Stop_the_clock said:
			
		

> So in the end, gave up and just paid off my HECS debt, and now I have to start all over again.




Bad move IMO...

Im a uni student and i debate with my friends all the time about whether to pay HECS or not... HECS only rises with inflation, its pretty much interest free

The catch is if u pay upfront u get a 25% discount; but if u could invest the money u will get much better returns, or at least the learning experience of investing will be enormous; by the time u are working full-time and u have 4-5 years experience in investing/trading under your belt, u will destroy the markets...

Why did u pay off your HECS debt? Was it like buying a house versus paying off your HECS ? There are many many better things u could have done with the money IMO...


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## robots (12 August 2006)

realist

you r dreaming on the property front.

I would suggest *quality property* in Sydney and most of aus is doing extremely well and if thats what people want to buy then get in as soon as possible.

if you can afford it (comfortably) then buy now, 

this could be units or houses, something with the WOW or I want it factor

do not wait for a dip on these properties, it wont happen

thankyou
robots


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## Smurf1976 (12 August 2006)

robots said:
			
		

> I would suggest *quality property* in Sydney and most of aus is doing extremely well and if thats what people want to buy then get in as soon as possible.



I'll have to check the facts here but I seem to remember high end properties (Sydney waterfront mansions etc) getting smashed big time in the last crash. That's just based on media reports so could be wrong.


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## wayneL (13 August 2006)

Smurf1976 said:
			
		

> I'll have to check the facts here but I seem to remember high end properties (Sydney waterfront mansions etc) getting smashed big time in the last crash. That's just based on media reports so could be wrong.




Oh yes! I remember it well. They got well and truly whacked.


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## robots (13 August 2006)

hello,

quality property doesnt have to be high end waterfront in Sydney

it could be a unit in inner cities or a house in outer suburbs for whatever value

something that has character, appeal and demand

whats happening now is the trash is getting sorted out

thankyou
robots


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## wayneL (13 August 2006)

Hello Robots



			
				Smurf1976 said:
			
		

> I'll have to check the facts here but I seem to remember high end properties (Sydney waterfront mansions *etc*) getting smashed big time in the last crash. That's just based on media reports so could be wrong.




Cheers


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## Jay-684 (13 August 2006)

are you talking of the property crash in the early 1990's, or over the last 3 years?

From what I've seen/read prestige properties havent suffered nearly as much as more common properties in the recent slump. With many many houses in Mosman selling for $10m+ the past 18 months, something must be keeping demand for those properties high.


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## Smurf1976 (13 August 2006)

I was referring to the crash of the early 1990's.

This time around it only seems to be the middle of the market that's falling. The bottom seems to still be holding up and the top seems to still be rising, thus holding up the price of an "average" house despite differences in price movements at different levels of the market. 

For this reason I prefer to track the price of "similar" houses rather than "average" houses as the latter is misleading unless all price brackets are moving in the same direction at the same rate.


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## Mofra (13 August 2006)

Julia said:
			
		

> Mofra,
> 
> I'm astonished at the above.  So are you saying that if a person's sole income is, e.g. a disability pension, or old age pension, a bank will lend to them?  What sort of % deposit are they required to have?
> 
> Julia



Julia,

Absolutely no difference to any PAYE employee. There are a few single mums out there with 3 or 4 kids and the same number of properties. 

You'd also be surprised how many people own a property or two but still receive rental assistance. Due to the privacy laws, bank staff are not allowed to report them to Centrelink. I used to ask for evidence that Centrelink was aware of their asset situation, but many lenders don't.

Your taxes at work.


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## Julia (13 August 2006)

Mofra said:
			
		

> Julia,
> 
> Absolutely no difference to any PAYE employee. There are a few single mums out there with 3 or 4 kids and the same number of properties.
> 
> ...




My initial response to this, Mofra, was "bloody hell"! But perhaps such a situation is better than said social security recipients not trying to "better themselves".  I was under the impression that Centrelink have fairly impressing cross-matching facilities and any undeclared income or assets will fairly quickly become apparent.

When you mention single mothers with three or four kids, then it does make some sense.  I see these young women all the time, and their fortnightly income from Centrelink, plus the $600 per child payment every year, amounts to more than many working one income families, plus they get rent assistance as you point out.  So they probably are indeed in a position to service a mortgage.  Though then they would not be eligible for rent assistance.  (One of the silly anomalies of the social security system - you can get government assistance if you pay rent but if you are paying off your home at the same level per week, no government assistance is available.)

To return to my original question, would a mortgage also be available to someone on, e.g. disability or age pension (around $500 per fortnight before rent assistance)?  That is substantially less than a single mother with several children who can be receiving more than $1000 p.w. in social security.

Julia


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