The future of Australian property prices

[sydboy007]

Housing affordability is a very important issue FxTrader .. don't get me wrong. My issue is using "mean averages" when the likes of Sydney and Melbourne prices is skewiffing the results. It is not good logic to only look at one small piece of the equation and come to an "informed" opinion on the subject matter. Sydboy007 is on the side of it's all to hard, ponzi scheme, affordability, housing bubble (insert negative aspirations here) side but only a few posts ago he was bragging how cheaply he bought a house in inner city Sydney and how much it is worth today. Hypocritical at best IMO ... no?

I am unsympathetic when people demand that it is their right to own a penthouse in the CBD and walk to work as a FHB. This truly sticks in my craw as the new age of entitlement Gen ? whatever's want their cake and eat it too. My first house was a 3 bedroom in the outer burbs, no driveway, no paint to walls, no window sills, no insulation, tiny bedrooms, small kitchen .... you get my drift right?

I am merely pointing out that by posting "the mean average house affordability is 7 times the average wage compared to 1970 when it was only 3" is not exactly the truth the whole truth and nothing but the truth. Yeah sure it is a statistic but there are many outliers and variables that need to be considered as to WHY this has happened which no one seems to mention when they post. Just another headline and not much substance as to WHY this has occurred. Nevermind the house we live in at 2014 is 4 times the size of the house in 1970. Nevermind the loan we have on the aforementioned house also has consolidated the car loan/credit card and big screen TV in every room. Getting warmer now?

As for my posting style it is not for the feint hearted. If people are willing to post redonkolous claims without any substance other than charts stolen from Steven Keenes website then I was under the impression that there is a right of reply with equal amount of redonkolous claims the other way. If this is interpreted as denigrating or patronizing to their opinion then I apologize in the first instance if I have offended their over sensitive egos.

As I actually dabble in real estate and have a little bit of practice on the subject matter at hand other than buying one house and being a slave to a mortgage than I assumed (wrongly as it turns out) that my experience would be taken with more than a grain of salt.

But I digress ... real estate is a commodity like any other that can be bought and sold to make a profit. It is all in the timing and location. I currently have 4000m2 of zoned CBD for either a 30 unit motel site or 2 storey town houses. As the market in the city where it is located has gone off the boil I am prepared to sit on it until the market cycles yet again.

But what would I know ...

TS

I wasn't bragging, just stating the facts, and I've said many times on this forum I think someone willing to pay $900K or more for my house is just crazy. The main cause of the value increase has been the sky rocketing land values. You'd probably argue that it's my prime location, yet when I show you that even on the UGB the value of land has taken off, and the effect of UGBs is to cause higher land price inflation within the boundary than outside, you seem to ignore it.

The fact is there is not much affordable in Sydney these days. Yes you can get a small old 2BR apartment out at Liverpool then spend an hour or more each day getting to work, possibly spending another $100+ on tolls and petrol too if the sad public trasnport doesn't conveniently get you to where you need to go. It might get you into the market, but once you think about starting a family you'll most likely need to move.

You don't seem to think that the current planning system is to blame for much of the affordability issues those outside the market for shelter face. When even a simple renovation has to go through multiple stages of the local council and hope there's no complaints form a neighbour, or someone who can't even see the renovation - I've received a number of council notices about renovations that I should in no way be asked to comment on yet that's the system we have.

Somehow those in the market seem to think it's Ok to say I want things to stay the way they are ie very low density housing in the suburb - but then feel it's Ok to criticise FHBs who are priced out of the market for having the temerity to complain. If you restrict the new supply of land, if you restrict increases in density, then the only logical outcome of a legislated lack of supply is an increase in price. It's a false scarcity. There's probably 2 decades worth of land that COULD be released on the edges of Sydney, yet it's sitting there idle and being brought to market in dribs and drabs.

Factor in we now make FHBs pre pay for all their infrastructure, and the public authorities force developers to gold plate it by building at far higher standards than they would, is just another nail in the affordability coffin.

We're basically following the British approach and it's failing woefully. It's time we looked at other countries or cities that have been able to provide affordable shelter and see what they are doing right and start to introduce those measures here. I'll say again, that Texas has been able to cope with wages growth in line with Australia, population growth equivalent to Australia yet around 15% smaller than NSW, is something to be celebrated. maybe not everything they've done can be translated to here, but surely it's worth investigating rather than waiting for a major crash to reset things. Maybe we could look to Germany which has had little in the way of real increases in house prices for decades - central to this is that German municipal authorities consistently increase housing supply by releasing land for development on a regular basis. The ultimate driver is a central government policy of providing financial support to municipalities based on an up-to-date and accurate count of the number of residents in each area.

Artificially high land prices are killing the economy. It's destroying what should be a massive competitive advantage to us. High land prices force business rents and fixed costs to be higher. It forces wages to be higher because otherwise staff can't afford to rent or pay the mortgage. Then we have the issue of our foreign debt ballooning to support the massive borrowing binge we've been on. It literally caused the banks to be insolvent. If the Govt hadn't stepped in to guarantee the banks we'd have been in financial Armageddon. This because over 60% of bank lending was foreign sourced.

We also have the lunacy of NG which 95% of "investors" use to buy a pre-existing dwelling, so at a net cost of some $8B a year we're further locking out FHBs for little social gain. Add in half CGT on sale and no wonder it's gear up and pray the capital gains outweigh the losses over the next X years.

 

[Julia]

For me to buy the house I grew up in is about $350,000k now which I cannot really afford as I now only earn 88k a year which works to about $1200 a week after tax. I could only just afford to pay it off after 30 years on my current income if rates never went up and I never had any actual human adult wage earning expenses. That is the contrast between now and 30 years ago. My folks driving a taxi and working at Coles could buy something I can't afford on a supposedly decent wage. Before you kick me in the guts and say 88k plus super is peanuts (which I know it is peanuts) it is also a fairly hard wage to get. Unless you are a tradesman or something in which case you are probably already a property owner. I earn more than literally every other graduate I know. So I don't know where all these engineering/com sci ect graduates on 100k a year with 5 years of experience are, I guess there are not many. That is what most of my friends did and I out earn them. The only ones who out earn me are TRADESMEN. And they are all loaded.

When you quote the house as being now about $350K, you don't say whether it's in a city, an outer or inner suburb, a regional centre.
I wouldn't have thought most people would regard $88K as peanuts. In fact would have thought that unless paying very high rent (not just proportion of rent when sharing with others) it would be possible to save for a house deposit on that level of income.

We don't know how old you are, how long you've been working or any other detail. I'm not asking, but just observing that no one could make much of an assessment of your situation - or offer any suggestions - when much is unknown.

Syd, I appreciate the points you're making. But perhaps remember that you're talking about capital city situations. It's absolutely different in much of Australia's regional areas.
Anecdotal only, I acknowledge, for regional SE and Central Qld but prices are still very depressed, still about 20% at least below levels before the GFC. Minimal sales for investment also because the net yield would be lucky to be 3%.

 

[sydboy007]

Syd, I appreciate the points you're making. But perhaps remember that you're talking about capital city situations. It's absolutely different in much of Australia's regional areas.
Anecdotal only, I acknowledge, for regional SE and Central Qld but prices are still very depressed, still about 20% at least below levels before the GFC. Minimal sales for investment also because the net yield would be lucky to be 3%.

The issue is there's little job prospects in those areas. The majority live in the capital cities due to the fact they have to work to pays the bills. If we had some way to redistribute the jobs to larger regional cities we'd be better off, but that's not how modern economies work. You'll find that certain sectors will aggregate due to the network effect. The more similar companies in a particulaur suburb or city the greater the synergies. Possibly we could force that to happen, but I've not read of any Govt program to do this that has been terribly successful.

Sydney's pop is over 4.5M while the rest of NSW supports just 3M.

Brisbane pop is over 2M and the rest of the state supports just 2.6M

Victoria is worse with Melbourne supporting 4M and the rest of the state just over 1.7M.

If we can fix planning rules, force supply of land to meet demand, bring uniform medium density regulations for our cities so construction can occur more quickly, stop forcing new developments to prepay for all the infrastructure then I'd say new housing stock could be brought to market at least 20% cheaper.

When most new subdivided blocks on the edge of Sydney have over 50K developer levies. If we say that $300-400K is the median affordability level for a couple, then we're adding ~15% to the purchase costs. In Texas they use MUD (Municipal Utilities District) bonds to solve this issue. The below link has some details on how it works. It seems a more sensible option that what we've got today. Get the interest rate right and I'd say you'd be swamped with buying from the SMSF sector. Would be perfect for an IAB (Inflation Adjusted Bond) that provides a certain yield above CPI for 20 years.

http://us2.campaign-archive2.com/?u=368ce55919dfdca57fc0d8cb6&id=c7358f05bf&e=fefa04b54f

An MUD is statutory authority or water district that has a board of directors, and is responsible for providing water service to its residents who pay an ad valorem tax to finance it. Developments are typically around 400 to 500 acres (202 hectares), although some are much larger, up to 12,000 acres.

These developments are done in stages; typically after the first stage, when enough value has been created, the MUD can issue bonds against that value (typically 20 years) to finance the rest of the development. To recoup the investment, it can charge a tax of up to $1.50 per $100 of value in two parts: a debt servicing charge and an operational charge (to run the utility). For a house worth $300,000 this means $4,500 a year. However, over time as the debt is retired, this component reduces; for residents in some MUDs, the charge for services is as low as 17c per $100 of value: a utility tax rate of 0.17%. For the same house worth $300,000, this is $510 per year [note typical starter homes in Houston cost around $150,000 only - the median household income is 50740].

 

[medicowallet]

Exactly Syd,

Having come from a regional area originally, the lifestyle people gravitate to in cities baffles me.

Govt needs to lead the way and relocate govt agencies to regional areas etc.

But, once again, politics will always rule over common sense.

MW

 

[sydboy007]

Exactly Syd,

Having come from a regional area originally, the lifestyle people gravitate to in cities baffles me.

Govt needs to lead the way and relocate govt agencies to regional areas etc.

But, once again, politics will always rule over common sense.

MW

maybe the Govt could move some jobs to those areas, but then I don't think it would be fair to move them al to regional centres. Looking to the USA only NYC and LA are comparable to Australian cities in size. Chicago and Houson are slightly larger than Brisbane.

So in a country of 300M there's only 4 major cities with a population > 2M. Phoneix at number 5 is smaller than Perth's population, and only 9 cities above 1M population.

If only we could get the population distribution like that, but with a country mostly desert it's not so easy.

 

[McLovin]

maybe the Govt could move some jobs to those areas, but then I don't think it would be fair to move them al to regional centres. Looking to the USA only NYC and LA are comparable to Australian cities in size. Chicago and Houson are slightly larger than Brisbane.

So in a country of 300M there's only 4 major cities with a population > 2M. Phoneix at number 5 is smaller than Perth's population, and only 9 cities above 1M population.

If only we could get the population distribution like that, but with a country mostly desert it's not so easy.

Err...I think you're misinterpreting those populations. The city population would be the equivalent of how many people live in the City of Sydney LGA. Metro areas are what counts.

NYC: 20m
LA: 13m
Chi-Town: 10m
DFW: 7m
Houston: 6.5m
Killadelphia: 6m
DC: 6m
Miami: 6m
ATL: 5.5m
Boston: 4.5m
SF: 4.5

And so on...

 

[Mrmagoo]

Nonsense, jobs are in the big cities because of the relatively low population in Australia meant there was nowhere else to locate the business.

The reason they jobs haven't decentralized is because of corruption. There are too many people making too much money and taking too many kick backs out of making our cities ****.

If you don't think that Australia (or at least NSW) is fantastically corrupt, then you are a much more positive person than myself.

Do you think it is an accident things are the way they are and that certain parties are making a fortune ? Don't get me started on commercial real estate.

 

[Mrmagoo]

The problem with creating jobs is that unless the towns or small cities can take it it just ****s everything up and makes the place expensive and hallows out the economy. Like what happens to the small mining towns.

I don't know how you can create any jobs with unions the way they are. When a sparky costs 150k a year what are you going to do ? On the world market, someone needs to pay that or they can invest somewhere else in a developed economy and get one for probably 1/8 of the cost.

 

[trainspotter]

In comparison, a six-year-old, four-bedroom home at 4 Galloway Court, Greenvale, sold at auction for $620,000.
The property had modern features on a 350sq m floorplan.
He said estates popping up along Mickleham Rd were also steering the Greenvale market and building on the interest in the suburb.
Mr Biner agreed, saying volume builders were offering house-and-land deals at the newer estates for between $400,000 and $550,000, which could cause established house prices to stabilise as competition intensified.

http://www.news.com.au/finance/real...r-cent-in-a-year/story-fndbawks-1226961389869

Sydboy007 - Let's discuss land size to price ratio later once you have comprehended that house SIZE has significantly increased which in turn is increasing the loan amount which in turn is increasing the income to price ratio blah blah blah. Also all the references to the USA is wonderful but will never be implemented in Australia as it would take a complete overhaul of the system currently in place. Not gonna happen.

Mrmagoo - do you believe that historically the "modern family" has significantly deceased numerically? In the 50's it was not uncommon for a family unit to have many siblings (my reference to 6 kids) who all lived in the 3 bedroom bungalow? Just because your experience is not what I was referencing does this mean the general information supplied is incorrect?

McLovin - Keeping it real !! As you have been to the USA I am sure you are right. Statistics are there to be manipulated to match the opinion of the person making such bold statements. Or they have completely misread the facts.

Tyler Durden - Market is still "popping" in CERTAIN areas but it is the last gasp of the needy and the greedy who always buy too late for too much and when the downturn comes they bleat as to how much money they lost. Same old same old. The trick is to get in when the market is in the "lull" and sell in the "high" - just like the stock market the majority of the money gets dumped into the bull market in the last 2 years prior to the correction.


On that note my fellow ASFers I am off on an extended holiday and I bid you a fond farewell - until next time - TS.

 

[Junior]

Nonsense, jobs are in the big cities because of the relatively low population in Australia meant there was nowhere else to locate the business.

The reason they jobs haven't decentralized is because of corruption. There are too many people making too much money and taking too many kick backs out of making our cities ****.

If you don't think that Australia (or at least NSW) is fantastically corrupt, then you are a much more positive person than myself.

Do you think it is an accident things are the way they are and that certain parties are making a fortune ? Don't get me started on commercial real estate.

High speed rail, Melbourne - Canberra - Sydney - Brisbane.

Every stop in between these 4 cities can grow around the train station.

 

[skc]

For me to buy the house I grew up in is about $350,000k now which I cannot really afford as I now only earn 88k a year which works to about $1200 a week after tax. I could only just afford to pay it off after 30 years on my current income if rates never went up and I never had any actual human adult wage earning expenses.

Are you sure? $88k is a decent wage and according to this online calculator you should be able to afford something at $350k.


http://www.aussie.com.au/borrowing-calculator.htm

A single income family with 2 dependents would be stretching it... but a single person at this income should quite comfortably afford a $350k home in the current rates environment. You could even rent out the spare rooms to help things out (with corresponding tax implications of course).

That is the contrast between now and 30 years ago. My folks driving a taxi and working at Coles could buy something I can't afford on a supposedly decent wage.

Have you compared how they spend vs how you spend? Plus they do have double income.

 

[Mrmagoo]

Are you sure? $88k is a decent wage and according to this online calculator you should be able to afford something at $350k.

View attachment 58435
http://www.aussie.com.au/borrowing-calculator.htm

A single income family with 2 dependents would be stretching it... but a single person at this income should quite comfortably afford a $350k home in the current rates environment. You could even rent out the spare rooms to help things out (with corresponding tax implications of course).



Have you compared how they spend vs how you spend? Plus they do have double income.

Please stop doing that. It doesn't reflect the true cost of owning a home. Do you think I am an idiot incapable of adding and multiplying numbers ?

 

[Mrmagoo]

http://www.news.com.au/finance/real...r-cent-in-a-year/story-fndbawks-1226961389869

Sydboy007 - Let's discuss land size to price ratio later once you have comprehended that house SIZE has significantly increased which in turn is increasing the loan amount which in turn is increasing the income to price ratio blah blah blah. Also all the references to the USA is wonderful but will never be implemented in Australia as it would take a complete overhaul of the system currently in place. Not gonna happen.

Mrmagoo - do you believe that historically the "modern family" has significantly deceased numerically? In the 50's it was not uncommon for a family unit to have many siblings (my reference to 6 kids) who all lived in the 3 bedroom bungalow? Just because your experience is not what I was referencing does this mean the general information supplied is incorrect?

McLovin - Keeping it real !! As you have been to the USA I am sure you are right. Statistics are there to be manipulated to match the opinion of the person making such bold statements. Or they have completely misread the facts.

Tyler Durden - Market is still "popping" in CERTAIN areas but it is the last gasp of the needy and the greedy who always buy too late for too much and when the downturn comes they bleat as to how much money they lost. Same old same old. The trick is to get in when the market is in the "lull" and sell in the "high" - just like the stock market the majority of the money gets dumped into the bull market in the last 2 years prior to the correction.


On that note my fellow ASFers I am off on an extended holiday and I bid you a fond farewell - until next time - TS.

Has family size grown since the 1950s ? I don't know and I don't flapping care. I am not a demographer. For the 1950s you're talking about grandparents. People who fought in a combination of WW1 and WW2 and a combination of immigrants and refugees so you're talking complete nonsense about a time that doesn't matter anymore.

Why not just bring up cavemen and dinosaurs ? I hear for dinosaurs a first home was very expensive cause you could get eaten which forced up house prices close to public transport as TREX only has small arms so doesn't like using the train.

 

[Wysiwyg]

High speed rail, Melbourne - Canberra - Sydney - Brisbane.

Every stop in between these 4 cities can grow around the train station.

Is the demand there? I don't think so as rail will never be faster or less expensive than plane.

 

[Mrmagoo]

Is the demand there? I don't think so as rail will never be faster or less expensive than plane.

Really ?

Taxi to and from airport sets you back a minimum of $100. With a train you just jump on the in CBD and 3 hours latter you are where you want to go...

Been to Europe and used their system ? It is amazing. So uncomfortable flight either. You sit in your chair and play on your laptop enjoying the sights.

It is 1st world stuff. Flying is primitive.

 

[Wysiwyg]

Are you sure? $88k is a decent wage and according to this online calculator you should be able to afford something at $350k.

A single income family with 2 dependents would be stretching it... but a single person at this income should quite comfortably afford a $350k home in the current rates environment. You could even rent out the spare rooms to help things out (with corresponding tax implications of course).

Have you compared how they spend vs how you spend? Plus they do have double income.

88k gross is about $1200 in the hand per week or $4800 per month. With your calcs. repaying $2233 / month plus $3000 expenses is $5223 per month. Magoo would have to adjust living expenses to suit.

 

[Mrmagoo]

88k gross is about $1200 in the hand per week or $4800 per month. With your calcs. repaying $2233 / month plus $3000 expenses is $5223 per month. Magoo would have to adjust living expenses to suit.

Plus body corporate, rates, taxes, strata.. or rent for $300-$350 a week. Or just rent... for not much.

Only time you need to buy is when you've got kids. Otherwise the sums don't work.

 

[Wysiwyg]

Really ?

Taxi to and from airport sets you back a minimum of $100. With a train you just jump on the in CBD and 3 hours latter you are where you want to go...

Been to Europe and used their system ? It is amazing. So uncomfortable flight either. You sit in your chair and play on your laptop enjoying the sights.

It is 1st world stuff. Flying is primitive.

You reckon a 1000klm trip from Sydney to Brisbane in around 4 hours is gonna be cheap? Going on snail train costs today it definitely won't be less.

 

[Junior]

Is the demand there? I don't think so as rail will never be faster or less expensive than plane.

I think so..Melb to Syd is one of the busiest air routes in the world. High speed rail can be integrated into existing metro rail networks. No security/customs, more comfortable, no driving or taxi to and from airports. The 2 or 3 major stops between melb/syd could grow into cities, with high density commercial development in a radius around the train station.

It would take pressure off inner city property prices and population growth in Melbourne and Sydney, and create job opportunities and growth in other parts of the country.

 

[sydboy007]

Are you sure? $88k is a decent wage and according to this online calculator you should be able to afford something at $350k.

Have you compared how they spend vs how you spend? Plus they do have double income.

That loan would be 50% of after tax income for someone on 88K. The situation would deteriorate pretty quickly if rates were to ever get up around 7% or more. Might happen faster than people think with inflation already at 2.9% and any further fall in the AUD would see inflation take off even more.