The future of Australian property prices

sydboy007 · 10 June 2014

trainspotter said:
What a load of FAFF !! In the 1950s the average size of a new house was 115 square metres. By 1985 it had grown to 170 square metres, and in the last 15 years it has shot up to 221 square metres. As a result, the amount of space for each occupant in a new house has more than doubled since the early 1970's.

Maybe the rampant consumerism as well as the "Keeping up with the Jones's" has something to do with this eh? Statistics can be skewiffed to entail whatever outcomes the propaganda machine wants you to chow down on.

It is also not three times HARDER ... it is three times LONGER

Which ever way you spin it the fact is home loans are massive compared to what they were a couple of decades ago, and more and more people are hitting retirement still with mortgage debt.

The inescapable fact is the value of the land for housing is the MAJOR determinant to the cost increases for shelter. We've seen the average plot of land fall from 700 sqm to just 500 sqm. So the size is reduced by 28% but the cost went up 500%

The ACT has recently cut back on new land sales to help prop up the market. Pretty much any time the market tries to get back to some semblance of affordability some level of Govt steps in to keep the ponzi going. Not sure how many more re-inflations it can go through before the final bursting.

Research showing median prices per hectare of vacant land on Melbourne’s urban fringe increased following the introduction of the Urban Growth Boundary (UGB) in 2003. Measured in 2008 dollars, vacant land inside the UGB rose from $308 843 in 2003 to around $1.2 million in 2006. At the same time, land prices outside the UGB increased much slower from $98 378 per hectare in 2003 to just short of $200 000 in 2008””a doubling of land value as opposed to land value increasing by four within the UGB.

Fix up land supply and you pretty much fix the affordability issues.

trainspotter · 10 June 2014

sydboy007 said:
Which ever way you spin it the fact is home loans are massive compared to what they were a couple of decades ago, and more and more people are hitting retirement still with mortgage debt..

Ermmmmm you did not get what I posted obviously. The home loans are MASSIVE because the house sizes are a lot larger. Surely syd you of all people can recognise this fact? If they have hit retirement age and still have a mortgage debt is mainly due to them SPENDING on filling their BIGGER houses and keeping up with the Joneses' with the latest doodads that they must have. Consumerism and all that ... we are no longer content to raise 6 kids in the 3 bedroom bungalow and keep the single roof over our heads ....... OH WHY BOTHER !

You are right .... property is doomed we should all just do a Steven Keen and sell now and avoid losing 50% of our home value when this massive ponzi scheme comes crashing down

satanoperca · 10 June 2014

trainspotter said:
Ermmmmm you did not get what I posted obviously. The home loans are MASSIVE because the house sizes are a lot larger. Surely syd you of all people can recognise this fact? If they have hit retirement age and still have a mortgage debt is mainly due to them SPENDING on filling their BIGGER houses and keeping up with the Joneses' with the latest doodads that they must have. Consumerism and all that ... we are no longer content to raise 6 kids in the 3 bedroom bungalow and keep the single roof over our heads ....... OH WHY BOTHER !

You are right .... property is doomed we should all just do a Steven Keen and sell now and avoid losing 50% of our home value when this massive ponzi scheme comes crashing down

TS, has the cost of the housing per m2 gone up or down in the last 30 years after adjusting for inflation?

I would have thought that a 2 bedroom house 30 years ago would have cost the same as a 3+study house today?

Cheers

trainspotter · 10 June 2014

satanoperca said:
TS, has the cost of the housing per m2 gone up or down in the last 30 years after adjusting for inflation?

I would have thought that a 2 bedroom house 30 years ago would have cost the same as a 3+study house today?

Cheers

Hi there satanoperca ... if you have been picking up what I am putting down you would comprehend what I am banging on about. CONSUMERISM ... houses are a lot bigger then what they used to be which in turn entails that there is more furniture/whitegoods/electronics/knick nacks/etc going into the houses along with a new car in the driveway. Airconditioning, Foxtel outlets, insulation, state of the art hotwater systems, I could go on but I will desist here as I have been through this tirade several times already.

In the 1980s things started to rapidly change. The banking industry deregulated, more banks entered the market and lending criteria was relaxed. All that was needed was something to entice people to borrow the large sums on offer. So Australia was introduced to the mighty American McMansion, a mass-produced mini-mansion even the middle-class masses could aspire to build, with the help of the banks.

Unlike their frugal parents, the baby boom generation was not afraid of debt so they started to trade in their modest first houses to build these super-sized houses and so started a period of major change to Perth’s entire suburban character.

A decade or so later the children of the baby boomers, the so-called Generation ‘X’, were also ready to own a McMansion – with all the extras. This generation was raised in a world of conspicuous consumption and, like their parents, embraced debt. These latest houses range in size from around 220 to 350 square metres. Most are upward of 300 square metres. They all have a home theatre, a restaurant-standard kitchen, a special space just for using computers and the children’s bedrooms are all the size of a traditional master bedroom. Other rooms include a living room, an activity room, a home office and a master bedroom more like a hotel suite with its dedicated parent’s retreat and Jacuzzi. Of course any modern house is not complete without a large roofed alfresco area resplendent with tiled floors, an outdoor kitchen and a bar and because modern mothers all feel compelled to drive large four-wheel drive vehicles the garages are huge. The living areas alone in these houses are around 100 square metres which used to be the size of an entire family home just a few generations ago.

http://www.aiuswa.org.au/resources/Affordability-through-Modesty--AIUS.pdf

P.S. Building codes as well as materials have changed radically to answer the question with any relevance satanoperca as I would not be comparing like with same.

P.P.S. A lot of the debt has been consolidated into the housing loan to pay for these goodies !

Serpentis · 10 June 2014

I totally agree with you trainspotter. The greed and consumerism of the baby boomer generation has resulted in unnecessarily large houses, which younger generations simply don't want. I don't know anyone who wants these big houses, they want smaller, comfortable apartments. But instead of building these smaller, affordable places that younger generations want to buy the construction industry keeps building lavish or large places, leaving the investors to fight it out instead.

Younger generations will always be the main driving force for purchasing property, but this current generation is largely shunning it. They are very much aware it's bad value and they don't want these houses, they only buy out of necessity to avoid the dreadful renting laws in this country. When the foreigners run out of money and the investors want to cash in, I'd hate to be the one left holding the mortgage.

trainspotter · 10 June 2014

Adding further to the changing of the bank lending standards has also contributed to this increase in borrowings. Once upon a time the bank would only lend against the house and you could not add in the car loan on top nor consolidate your credit card debt etc into the housing loan. IP's also incurred extra fees to set up the loan and a higher interest rate to boot. You also had to have a proven savings history with said bank as well as a substantial deposit as there was no such thing as LMI. My how things have changed

Meanwhile the kettle has come off the boil somewhat in the housing industry. Even the home renovations shows are attracting less viewing audience, so using my brilliant powers of deduction (dartboard while drunk) I would be predicting we are very near peak saturation.

qldfrog · 10 June 2014

a young colleague just signed a contract in Brisbane Forest Lake for a 310k first house;(established)
he got it nearly 10% less than asking price and for less than a buyer proposed a few month ago.
I believe the trend is down here in Brisbane..but with no job, not surprised

banco · 10 June 2014

Somehow Trainspotter I doubt you are living in a shack somewhere, living off your own vegetables and recycling your urine to drink as you rant against consumerism.

sydboy007 · 10 June 2014

trainspotter said:
Ermmmmm you did not get what I posted obviously. The home loans are MASSIVE because the house sizes are a lot larger. Surely syd you of all people can recognise this fact? If they have hit retirement age and still have a mortgage debt is mainly due to them SPENDING on filling their BIGGER houses and keeping up with the Joneses' with the latest doodads that they must have. Consumerism and all that ... we are no longer content to raise 6 kids in the 3 bedroom bungalow and keep the single roof over our heads ....... OH WHY BOTHER !

You are right .... property is doomed we should all just do a Steven Keen and sell now and avoid losing 50% of our home value when this massive ponzi scheme comes crashing down

So you're saying that if someone built the exact same house on the exact same block of land as it was 30 years ago that in inflation adjusted terms it would be the same price?

You're ignoring the fact that the value of the land for a new property, be it a house or apartment, has gone up much faster than any other cost. The fact that blocks of land in new releases are smaller than a coupe of decades ago, yet costs 5 times as much. Land inflation has been ridiculously high, mainly due to land banking, urban growth boundaries and nimbyism over medium and high density living

Prices rising faster than wages growth is not sustainable. A property market that's nearly 50% investors is not sustainable. An investor market that see's continually falling yields as prices rise faster than rental yields is not sustainable.

sptrawler · 10 June 2014

sydboy007 said:
Which ever way you spin it the fact is home loans are massive compared to what they were a couple of decades ago, and more and more people are hitting retirement still with mortgage debt.
.

Aren't they the selfish fatcat baby boomers?

sydboy007 · 10 June 2014

sptrawler said:
Aren't they the selfish fatcat baby boomers?

Could be. Could be the fact that the land component of housing has sky rocketed while the actual cost to build hasn't gotten much more expensive in real terms over the years.

Once you establish a UGB land within takes off and land outside increases much more slowly, and you then force people to leapfrog even further out to get affordable shelter.

sptrawler · 10 June 2014

sydboy007 said:
Prices rising faster than wages growth is not sustainable. A property market that's nearly 50% investors is not sustainable. An investor market that see's continually falling yields as prices rise faster than rental yields is not sustainable.

I think that is the most accurate thing you've posted, greed isn't age related.

sptrawler · 10 June 2014

sydboy007 said:
Could be. Could be the fact that the land component of housing has sky rocketed while the actual cost to build hasn't gotten much more expensive in real terms over the years.

Once you establish a UGB land within takes off and land outside increases much more slowly, and you then force people to leapfrog even further out to get affordable shelter.

Land values close to CBD's of major financial or business hubs, always increase.
When the GFC hit, prices in central London hardly moved.
Likewise in Australia, as the population increases, land prices inner city Sydney, Melbourne, Brisbane and Perth, will escalate.
These are the cities that will grow as our economy grows, due to their fiscal and business infrastructure, or proximity to the mineral and energy reserves.
As our population and business activity increases, the pressure on land values near the cbd grows, this in turn puts pressure on land further out.
Then the land further out becomes inner city, when the population of the city goes from 2million to 10million people.
I think speculators are expecting it to happen quicker than what it is, and an oversupply is imminent.

trainspotter · 11 June 2014

banco said:
Somehow Trainspotter I doubt you are living in a shack somewhere, living off your own vegetables and recycling your urine to drink as you rant against consumerism.

Once again banco you have missed the point. The reason home loans are so LARGE these days is that people are building and borrowing LARGER homes/amounts. They are also consolidating their credit cards and personal loans into the home loan. This was not allowed prior to the deregulation of the banks. And you are right ... I am not recycling my own urine ala' Bear Grylls style

trainspotter · 11 June 2014

sydboy007 said:
1) So you're saying that if someone built the exact same house on the exact same block of land as it was 30 years ago that in inflation adjusted terms it would be the same price?

2) You're ignoring the fact that the value of the land for a new property, be it a house or apartment, has gone up much faster than any other cost. The fact that blocks of land in new releases are smaller than a coupe of decades ago, yet costs 5 times as much. Land inflation has been ridiculously high, mainly due to land banking, urban growth boundaries and nimbyism over medium and high density living

3) Prices rising faster than wages growth is not sustainable. A property market that's nearly 50% investors is not sustainable. An investor market that see's continually falling yields as prices rise faster than rental yields is not sustainable.

1) Errmmmm that is not what I am saying at all.

2) I believe sptrawler has answered this Q on my behalf.

3) Maybe you should chat to Steven Keene and form a circlejerk as you both seem to share the same point of view !

Quincy · 11 June 2014

trainspotter said:
Once again banco you have missed the point. The reason home loans are so LARGE these days is that people are building and borrowing LARGER homes/amounts. . .

What about purchasers taking out home loans for Units / Apartments / Townhouses / Villas ? Unit floor space for new Units in Sydney/ Melbourne is generally decreasing in size but prices have (generally) been increasing substantially.

trainspotter · 11 June 2014

Quincy said:
What about purchasers taking out home loans for Units / Apartments / Townhouses / Villas ? Unit floor space for new Units in Sydney/ Melbourne is generally decreasing in size but prices have (generally) been increasing substantially.

I believe sptrawler said it best:

Land values close to CBD's of major financial or business hubs, always increase.
When the GFC hit, prices in central London hardly moved.
Likewise in Australia, as the population increases, land prices inner city Sydney, Melbourne, Brisbane and Perth, will escalate.

I was also referring to the loan amount becoming LARGER and not just the house size.

trainspotter · 11 June 2014

sydboy007 said:
So you're saying that if someone built the exact same house on the exact same block of land as it was 30 years ago that in inflation adjusted terms it would be the same price?

You're ignoring the fact that the value of the land for a new property, be it a house or apartment, has gone up much faster than any other cost. The fact that blocks of land in new releases are smaller than a coupe of decades ago, yet costs 5 times as much. Land inflation has been ridiculously high, mainly due to land banking, urban growth boundaries and nimbyism over medium and high density living

Prices rising faster than wages growth is not sustainable. A property market that's nearly 50% investors is not sustainable. An investor market that see's continually falling yields as prices rise faster than rental yields is not sustainable.

I think this article pretty much sums up what I have been alluding to:

One difficulty with long-run property price data is that fact that observations are typically based on median house prices, which does not take into account changes in the quality of houses. The median house in 2009 may be “better” than the median house in 1955 and changes in price may reflect this change in quality as well as price appreciation.

Stapledon has attempted to take this into account by constructing an index for Australian house prices (six capital cities) that is adjusted for both inflation and standardised to “constant quality”. The trend in real prices, adjusted for quality over the period 1955-2009 has been an increase of 2.1% per annum over inflation. This compares to an increase of 2.7% per annum over inflation without adjusting for quality. So, at a national level, quality changes overstate the trend growth rate by 0.7%. While Stapledon has not constructed a quality-adjusted index for Sydney, assuming that the national trend applied would lead to the conclusion that Sydney house prices have a trend growth rate of 2.4% over inflation.

http://www.stubbornmule.net/2009/06/property-prices/

Houses like everything else we buy depends on WHAT (and where) you buy.

GTHO Phase III in 1971 = $5300.00 .... same car today in concourse condition INXS of $350,000.

But what is this? Surely this cannot be right? Effects of Housing Quality

Houses have many attributes, including size, garages and swimming pools, central heating and air conditioning, kitchens of various qualities, and so on. Generally the quality of dwellings rises over time. For example, the size of new homes has increased over many years by around 2 per cent per annum. Between 1984-85 and 2002-03, the average floor area of new houses in Australia rose by 40 per cent (from 162 m2 to 227.3 m2) and the average floor area of other new dwellings rose by 35 per cent (from 99.2 m2 to 134 m2).

http://www.econ.mq.edu.au/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf

The future of Australian Property prices? You should have bought in March 2011

sydboy007 · 11 June 2014

trainspotter said:
I believe sptrawler said it best:

I was also referring to the loan amount becoming LARGER and not just the house size.

yet land values on the urban fringe are more expensive than ever. They're getting smaller too. How do you explain that?

ps could you forgo your snide remarks. they're not appropriate in a public forum.

medicowallet · 11 June 2014

Gee, get a room you two!

Unfortunately both of you are right.

Houses are bigger, with better finishings now (although I question the quality of the build of some of the newer ones)

However one can not deny that some developers / people are making an absolute killing out of the government's ridiculous support of a booming sector of the economy which imo only has negative impact on the future prosperity of the nation.

MW
Then again the older statespeople around here have seen this all before, and we will see the fall (unfortunately probably after it comes!)

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