The future of Australian property prices

Tysonboss1 said:

Not true,

There are plenty of people living in what would have been an average family home 40years ago within 20km's of sydney that is now worth over $2M mostly land value.

The are heaps in my area, as the oldies die off the houses are sold enriching the kids and multi level apartments are constructed.

When thinking of "Multimillion dollar home" don't think of luxary homes on the gold coast. These pensioners are living in their family home in the suburbs, But they are sitting on massive land value that could be tapped to help fund their living expenses in their later years,

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"Not True". There's degress of truth.

My point is, with regards to retirees living in multi-million dollar homes (i.e. not just $2mill homes in inner sydney where land values are high), you would assume a large proportion of these retirees are self funded.

Agrees with Tyson.

I personally know of a few oldies living in $1.5m + homes that they purchased many decades ago that do not have a penny to their name. Many don't wish to sell because they wish to leave the property to the kids.

Freeing up these homes that are often large and only house a single occupant would seem like a good idea.

Cheers

Junior said:

you would assume a large proportion of these retirees are self funded.

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well they are not the ones we are discussing are they.

The gist of what I was saying, and what the government is also starting to look at, Is that if you take government payments and other forms of assistance, while also sitting on a large amount of equity, the costs incurred by the government in making the payments and providing the support should be recovered from the equity in the home.

This can be done without having to affect the persons living arrrangements or forcing them to sell until they die or are forced to move into a high level care facility.

satanoperca said:

Agrees with Tyson.

I personally know of a few oldies living in $1.5m + homes that they purchased many decades ago that do not have a penny to their name. Many don't wish to sell because they wish to leave the property to the kids.

Freeing up these homes that are often large and only house a single occupant would seem like a good idea.

Cheers

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Hmm Rates kill many of these retirees.

Their house of residence for 50 yrs becomes impossible to live in as their pension cannot pay the rates.
An absolute tradgedy---silently suffered by many.

And who cares????

tech/a said:

Hmm Rates kill many of these retirees.

Their house of residence for 50 yrs becomes impossible to live in as their pension cannot pay the rates.
An absolute tradgedy---silently suffered by many.

And who cares????

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I don't know about in your area, But here pensioners get rates at a very much discounted rate. Local coucils would have varying rules though I guess.

Many Esplanade properties have this problem.
some neighbours along our stretch have been forced to leave even with subsidy.

tech/a said:

Hmm Rates kill many of these retirees.

Their house of residence for 50 yrs becomes impossible to live in as their pension cannot pay the rates.
An absolute tradgedy---silently suffered by many.

And who cares????

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I'm not sure if that comment was toungue in cheek, they could sell their house to a family who will use it, live in a smaller house with all the mod cons and live a great lifestyle for their final years.

If they act stupidly and hold onto a house, too big for them that they can't afford to spend upkeep and heat it. I don't care. I don't want to subsidise their stupidity.

It gonna cause a recession.

How do you profit from that ? I want to learn how.

Seriously, which genious thought people sepending 40% of their income on rent would HELP the economy ? Don't back the retail industry I tell you that much. YOu gotta understand entire economies might be build on the fate of one or two super stores.

They cut hours it can reak havok among suburbs and towns.

Recession here we come and not a moment too soon.

Then watch what happens to property prices. Just you watch ....

This is just like 06. If I could be bothered digging up some old threads from other various forums about stock prices LMAO.

Julia said:

I'm very out of touch with the property market so would appreciate comments from others on the question:

should I expect if having a house built in this soft market that it will be cheaper than in the better times, or does the cost of labour and materials remain fairly inflexible?

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Julia,

Apparently, as trainspotter has indicated, it all depends. I had some work done on my home and I was lucky to get, what I believe, an honest person. Came up with a fixed cost after going through my requirements very thoroughly. Was there at various stages of the work and pulled up contractors to correct work which he considered unsatisfactory ("The plastering where that light has been moved needs fixing. Smooth it off, give it a proper finish and re-paint by tomorrow" sort of thing.) And the job was done within the time-frame.

I was surprised about a month after the job was completed when he came back just to ask whether I was happy with the outcome. I was even more surprised when I mentioned a very minor issue which I was going to fix. The response was "I'll fix that right now." Which he did; no charge.

However, over a beer or three at the end of the working day he did tell me horror stories. Asked to "fix" others work only to find the whole structure was unapproved with deck bouncing like a trampoline so $30,000+ already down the drain and now up for even more $$s. Being undercut on a quote by a hundred dollars or so simply to be asked at a later date to finish the job as the other builder "hasn't come back" despite being paid in full. That sort of thing.

So luck of the draw I suppose. Cheap may mean "less expensive" or it may mean "cheap." It all depends on the outcome.

I mentioned earlier that the best indicator of the future of property prices in Australia (or anywhere else) is HOUSING CREDIT GROWTH.

Some may dispute this but it explains every property bubble on the planet. Why did US house prices boom? Was the economy booming too? Or was it simply because credit was becoming easier to get? Think of sub-prime & NINJA loans if you're looking for an answer.

Look at Spain or Ireland too. Booming credit = booming house prices. When the GFC hit, nothing really changed overnight. Except for credit growth. It suddenly froze up. And house prices there? They crashed. Ireland still has many multinational companies there due to it's low corporate tax. It still has high employment and high wages in those areas. But take away the cheap & easy credit and housing came crashing down, almost overnight. Google "Irish ghost estates". Tragic mass delusion.

If you wonder why it didn't happen here, you just have to look at the gov response to the GFC, a $70Bn stimulus package, most of it going to banks, to stimulate credit growth. Plus govt is now buying billions of mortgage-backed securities. It's all about ensuring housing credit growth. Cos if they don't, the party ends.

And now this:

Australian Financial Review, Tues 25th Oct 2010
"MORTGAGE SLUMP CHALLENGES BIG FOUR"
"...in the 12 months to the end of August housing credit growth was just 5.8 per cent, well below the average 15 per cent growth across the last decade."

So over the past decade banks were lending out 15% more money for mortgages each year than the previous year. How much did the median Aust house price rise each year over that period? Difficult to tell, but I found some figures on median values 99-09:

Sydney $295k - $615k, or about 7.5% (per annum compounded)
Melbourne $230k - $513k, or about 8.5%
Brisbane $145k - $459, or about 12%
Perth $149 - $491, or about 12%
Adelaide $134 - $397, or about 11%

So this very rough guide would seem to indicate that housing in Australia rose by 10% per year over the last decade. That's a fantastic return! But it occurred during a boom in credit, when housing credit growth was increasing at 15% per year.

Now that housing credit growth is slowing in Australia, where does that leave us?

I am not yet sure of the correlation between the two, but there is one. Maybe house prices go up at two-thirds credit growth? Or maybe house prices go up at 5% less than credit growth?

I think the latter is more likely. Credit growth of 5% would allow for increasing population buying increasing built homes at the same price. Credit growth above that, say an additional 10%, would seem to indicate house prices go up 10% too. Simple.

Perhaps too simple. Perhaps there are other factors ie population growth, lack of home builds, booming economy. But perhaps not. I'm going to see if I can get some figures for the US/UK/Spain/Ireland etc to see how strong the correlation is.

More from the article:
"The most recent three months of Reserve Bank of Australia data show housing credit is growing at just 5.2 per cent a year, the lowest since the RBA began reporting official housing credit statistics in 1977."

So our population is increasing, more homes are being built, but housing credit growth is slowing? More people buying more homes, but now only a 5% growth in credit, compared to 15% pa for the past decade? Its pretty obvious why OZ RE ain't really going anywhere fast at the moment.

Keep an eye on housing credit growth! If you think its going to go back to 15%, then property capital growth will probably go back to 10%. But if it doesn't, property won't.

If housing credit growth slows (due to a Greek default/Euro bank collapse/China slowdown) so much that it actually goes negative, then housing in Australia will crash too (more people + more homes + less mortgages = cheaper homes). But until credit growth changes, house prices won't change much. Reckon I can safely wait to see what happens

tech/a said:

Hmm Rates kill many of these retirees.

Their house of residence for 50 yrs becomes impossible to live in as their pension cannot pay the rates.
An absolute tradgedy---silently suffered by many.

And who cares????

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Most councils in my experience have a minimum rate p.a., based on land values.
Everyone I know in this regional centre of 55,000 pays the same basic rate, with discounts for pensioners. Increased rates are applied to properties right on the Esplanade overlooking the sea.

Knobby22 said:

If they act stupidly and hold onto a house, too big for them that they can't afford to spend upkeep and heat it. I don't care. I don't want to subsidise their stupidity.

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I agree. I suspect a lot of elderly folk are being pushed about by their families who only have an eye to the potential value of the property they anticipate inheriting, with little care for the living standards of the elderly person.

I don't know any details, but I'm pretty sure if there's some likelihood the old person will have to go into care there's a significant difference in the fees payable when the assets are held in 'the family home' versus cash in the bank.

i.e. probably the issue is more complex than it appears on the surface.

Judd said:

Julia,

Apparently, as trainspotter has indicated, it all depends. I had some work done on my home and I was lucky to get, what I believe, an honest person. Came up with a fixed cost after going through my requirements very thoroughly. Was there at various stages of the work and pulled up contractors to correct work which he considered unsatisfactory ("The plastering where that light has been moved needs fixing. Smooth it off, give it a proper finish and re-paint by tomorrow" sort of thing.) And the job was done within the time-frame.

I was surprised about a month after the job was completed when he came back just to ask whether I was happy with the outcome. I was even more surprised when I mentioned a very minor issue which I was going to fix. The response was "I'll fix that right now." Which he did; no charge.

However, over a beer or three at the end of the working day he did tell me horror stories. Asked to "fix" others work only to find the whole structure was unapproved with deck bouncing like a trampoline so $30,000+ already down the drain and now up for even more $$s. Being undercut on a quote by a hundred dollars or so simply to be asked at a later date to finish the job as the other builder "hasn't come back" despite being paid in full. That sort of thing.

So luck of the draw I suppose. Cheap may mean "less expensive" or it may mean "cheap." It all depends on the outcome.

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Thanks, Judd. I've been talking with four builders. One I dismissed immediately as a 'corner cutting' type. The others are all impressive so far.

greebly24 said:

If you wonder why it didn't happen here, you just have to look at the gov response to the GFC, a $70Bn stimulus package, most of it going to banks, to stimulate credit growth

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Could you supply some detail of this? I don't recall $70 bn mostly going to banks.

YOu wanna know how to tell the state of the economy.

1) Walk down the street.

2) Put yourself in the positions of a hot chick or some guy with big shoulders and no education. Browse the jobs sites and compare it to average expenses and the cost of stuff and you'll have a pretty clear picture of whats going on.

3) During times of economic awesomeness people LOVE TO BUY PIZZA. I worked in one when I was 13-20 and when things were cheap and awesome and PEOPLE LOVED PIZZA. This probably applies to all fast food.

If you can walk into a pizza shop of a fridey night and see it is empty, speak to the owners ask how business is going.

I speak to successful small business owners, there is merit in this kidna stuff. MERIT.

Who is buying houses now ? Why, WHY NOT ? There will lie the answer of where property prices are heading.

Mrmagoo said:

YOu wanna know how to tell the state of the economy.

1) Walk down the street.

2) Put yourself in the positions of a hot chick or some guy with big shoulders and no education. Browse the jobs sites and compare it to average expenses and the cost of stuff and you'll have a pretty clear picture of whats going on.

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I don't know why, but there are a ton of hot chicks working for Sydney councils (various roadwork/pedestrian pavement stuff). Sometimes I see more of them than guys on site.

Julia said:

I'm very out of touch with the property market so would appreciate comments from others on the question:

should I expect if having a house built in this soft market that it will be cheaper than in the better times, or does the cost of labour and materials remain fairly inflexible?

Click to expand...

Julia,

I'm not sure if this answers your question, but I went through the process of having two townhouses designed, council approved and quoted on by several builders recently. I used a building broker to do these tasks and the town houses were to be built at the rear of my existing property, which is close to a trendy Perth suburb (Subiaco).

I was utterly shocked at the prices quoted and they seemed completely out of whack with the depressed state of the housing market. I could have bought two established townhouses of similar quality for nearly the same amount in this same area. In other words, by building I was giving away my land value for almost nothing and assuming huge risk in comparison to just buying. I decided to not go ahead with my approved plans.

My experience is consistent with what many are saying. Building costs are far in excess of replacement values, so why bother. This may just be a Perth thing, with the mining boom and consequent labour shortages, but I certainly wouldn't build in the current environment. Particularly with building costs continuing to rise and the cost of established properties falling.

Obviously if it is a place to live in, the issues are different. But for investment purposes I think one should hold tight and wait for prices to fall further.

bellenuit said:

Julia,

I'm not sure if this answers your question, but I went through the process of having two townhouses designed, council approved and quoted on by several builders recently. I used a building broker to do these tasks and the town houses were to be built at the rear of my existing property, which is close to a trendy Perth suburb (Subiaco).

I was utterly shocked at the prices quoted and they seemed completely out of whack with the depressed state of the housing market. I could have bought two established townhouses of similar quality for nearly the same amount in this same area. In other words, by building I was giving away my land value for almost nothing and assuming huge risk in comparison to just buying. I decided to not go ahead with my approved plans.

My experience is consistent with what many are saying. Building costs are far in excess of replacement values, so why bother. This may just be a Perth thing, with the mining boom and consequent labour shortages, but I certainly wouldn't build in the current environment. Particularly with building costs continuing to rise and the cost of established properties falling.

Obviously if it is a place to live in, the issues are different. But for investment purposes I think one should hold tight and wait for prices to fall further.

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That's pretty much how it is over here in NZ too.

bellenuit said:

Building costs are far in excess of replacement values, so why bother.

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Sorry, meant to say: "Building costs are far in excess of the cost of established properties, so why bother."

We knew what you meant.

You can build pretty cheaply in Melbourne, but not quality.
Land is the big expense.

I suspect Perth is probably worse due to lack of competition.

bellenuit said:

Julia,

I'm not sure if this answers your question, but I went through the process of having two townhouses designed, council approved and quoted on by several builders recently. I used a building broker to do these tasks and the town houses were to be built at the rear of my existing property, which is close to a trendy Perth suburb (Subiaco).

I was utterly shocked at the prices quoted and they seemed completely out of whack with the depressed state of the housing market. I could have bought two established townhouses of similar quality for nearly the same amount in this same area. In other words, by building I was giving away my land value for almost nothing and assuming huge risk in comparison to just buying. I decided to not go ahead with my approved plans.

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Thanks, bellenuit. I've been looking at established (built 1 - 2 years ago) houses in the same area that I'm considering building, and what you say absolutely holds true here. I looked through a house for sale which is about double the sq m I would want and the price (which the agent made clear is extremely negotiable!) is less than what building costs advised so far for my much smaller place on smaller block of land.

My experience is consistent with what many are saying. Building costs are far in excess of replacement values, so why bother. This may just be a Perth thing, with the mining boom and consequent labour shortages, but I certainly wouldn't build in the current environment. Particularly with building costs continuing to rise and the cost of established properties falling.

Obviously if it is a place to live in, the issues are different. But for investment purposes I think one should hold tight and wait for prices to fall further.

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Agree that as an investment the whole idea is nonsense. But it would be a place to live in, away from current problems of neighbouring trees etc.
However, that doesn't mean I'll throw away all reasonable financial sense for a change and a more desirable overall situation.

I'm also concerned, to paraphrase Donald Rumsfeld, about what I don't know that I don't know. Pretty much every day I think of another factor which would add to the cost.

tech/a said:

And who cares????

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Honestly this is not a socialist country. I don't think anyone should care too much about old people.

I'd much rather see young men and women getting a head start to start a family through job opportunities and cheap housing than seeing old people linger on in $2m mansions.

Self funded OR you depend on family or frankly, tough for you.

Bring on the land tax ! I want young couples with babies and newly built houses and infrastructure to fuel the economy. NOT inefficient immigration or an old person centric retirment home economy.

Mrmagoo said:

Honestly this is not a socialist country. I don't think anyone should care too much about old people.

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Are you forgetting who is in power.

The Labor Party is commonly described as a social democratic party, but its constitution stipulates that it is a democratic socialist party