The future of Australian property prices

Value Collector said:

You also don't have to go large from the start you can start in a smaller home or apartment.

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That's a novel thought these days.

That brings the reply "Why should we, why can't we and I'll super size it and add fries"

Value Collector said:

why would they want to save up the full purchase price, you only need to save a deposit.

I mean if you don't buy a house your going to have to pay rent anyway, so you only have to save enough deposit to get into the house and then you can use your normal rental payments + the $20,000 / year savings to pay it off.

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was comparing to Pixels post where he saved and bought a house outright

Value Collector said:

Interest will be equal to rent in first year, then decrease exponentially as the loan reduces, rent will increase exponentially with inflation.

The expenses of owning are lower than the rent you pay, and interest as i pointed out is temporary, it reduces every year till its gone.

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Ah okay, please show me the law which says this ?

Because my place is $300 a week in rent and the interest on it would be $330 a week, plus 70-100 a week for body corporate and rates ect.. plus maintenance, which as a tenant I don't pay for so I'm interested when the government will force me to pay this difference.

Or better yet those Sydney properties with extremely low yields where the bank will just refund the difference !

sptrawler said:

That's a novel thought these days.

That brings the reply "Why should we, why can't we and I'll super size it and add fries"

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The point is that those properties are unaffordable. Investors buy them because they were cheap, forcing up the prices.

How a forum of people who buy stocks can't understand that additional buyers = higher prices is beyond me.

sptrawler said:

That's a novel thought these days.

That brings the reply "Why should we, why can't we and I'll super size it and add fries"

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On that point I agree, A lot of people aim to buy to big, they also aim to rent to big, and when they rent to big, they get discouraged because they are un able to save because of large rent payments, and they know they could never afford to buy the home.

Mrmagoo said:

Ah okay, please show me the law which says this ?

Because my place is $300 a week in rent and the interest on it would be $330 a week, plus 70-100 a week for body corporate and rates ect.. plus maintenance, which as a tenant I don't pay for so I'm interested when the government will force me to pay this difference.

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I said if you put a decent deposit down your interest payment should be about 1 year, $30 difference is pretty close, But what size deposit did you use in your calculation? If you were concerned just save for a few more months and put a large deposit.

But even if your interest was $330 and rent $300, that $330 interest will be getting less and less each year and the $300 rent would be going up.

It's up to you, but I would rather be on the side where my costs reduce each year down to a nominal rate, rather than the side where they will continue to increase forever.

Mrmagoo said:

How a forum of people who buy stocks can't understand that additional buyers = higher prices is beyond me.

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Investors also help bring more stock to market, many development projects would not get off the ground if investors hadn't purchased off the plan, or investors knocking down old houses and rebuilding duplexes of town houses, or investors subdividing horse paddocks etc.

Mrmagoo said:

Ah okay, please show me the law which says this ?

Because my place is $300 a week in rent and the interest on it would be $330 a week, plus 70-100 a week for body corporate and rates ect.. plus maintenance, which as a tenant I don't pay for so I'm interested when the government will force me to pay this difference.

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I understand your frustration Mrmagoo, however if someone purchases something they can afford, then when their equity improves sell it and upgrade.
If people chose to keep renting, eventually time runs out for them, as baby boomers who are nearing retirement, are finding out.
Some of my friends are in a terrible situation.

Value Collector said:

I said if you put a decent deposit down your interest payment should be about 1 year, $30 difference is pretty close, But what size deposit did you use in your calculation? If you were concerned just save for a few more months and put a large deposit.

But even if your interest was $330 and rent $300, that $330 interest will be getting less and less each year and the $300 rent would be going up.

It's up to you, but I would rather be on the side where my costs reduce each year down to a nominal rate, rather than the side where they will continue to increase forever.

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Okay your calculations are wrong. Im not arguing this they are factually wrong.

Value Collector said:

Investors also help bring more stock to market, many development projects would not get off the ground if investors hadn't purchased off the plan, or investors knocking down old houses and rebuilding duplexes of town houses, or investors subdividing horse paddocks etc.

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90% of "investors" buy pre exisiting properties, so the benefit they provide is well and truly out weighed by the increase in demand when supply is so restricted.

https://www.youtube.com/watch?v=o6udqn_tOlA

Bob Day did his maiden speech and focused on youth unemployment and the craziness of house prices in Australia.

The single most important factor affecting housing affordability has been land. In no other area of the economy has the interference of government been so pronounced, so unsuccessful in its implementation and so catastrophic in its effect. The deliberate policy to limit urban growth””that is, limiting the supply of land on the urban fringes of our cities by introducing urban growth boundaries and, at the same time, promoting urban densification””has been a disaster socially, economically and environmentally. And it was all designed for one purpose: to make money. It had nothing to do with the environment, the cost of infrastructure, public transport or any other reason put forward.

Land developers, in cahoots with state government land management agencies, have made billions of dollars and, at the same time, ruined the home ownership prospects of a whole generation of young Australians. If there is one commodity Australia is not short of, it is land. Yet, to buy a block of land on which to build their first home, young couples are forced to camp out overnight by rent-seeking land developers and their state government cronies for the privilege of paying an exorbitant amount of money for a measly one-tenth of an acre of former farmland””land that developers and state governments between them managed to convert from $10,000 a hectare to $1 million a hectare. It leaves all other forms of price gouging in its wake. When challenged about this and asked, ‘Why are you letting this happen?’, a senior state government politician admitted, ‘We need the money.’ It is why politicians are so easily captured and conned by the constant procession of rent-seeking crony capitalists whose job it is is to enrich one group of Australians””themselves””at the expense of another: first homebuyers. Rent seekers are the scourge of business and politics. They tarnish the political process, distort the market and, in the case of land development, distort the entire economy.

The second barrier is the proliferation of federal, state and local government planning and building controls, which add cost, confusion and delay. Let me give you one example. A few years ago I bought a block of land on a very busy main road in one of Australia’s capital cities. I submitted plans to the local shire council to build 12 semidetached home units on the land and, as the zoning allowed for such a development, I did not expect any problems. That was, of course, until I came up against the shire council town planner, who said he would recommend the development for approval subject to the provision of noise attenuation devices across the front of the property. ‘Noise attenuation’ is a fancy name for soundproofing.

I tried to point out to him that there were thousands of kilometres of main roads across the country with many hundreds of thousands of dwellings along them and that it seemed to work in most places without sound attenuation. In any event, I told him that the project was actually geared towards older people, many of whom prefer the noise of traffic and pedestrians. They say they feel safer on a main road than in some quiet backstreet or cul-de-sac. But he was having none of it. He wanted his noise attenuation devices. Naturally, I tried commercial arguments on him, saying that people who did not like noise would not buy them and that the market would sort it out. But, for reasons known only to town planners but obscure to common sense, he rejected all my pleas and I had an acoustic engineer design a front fence to assist with noise attenuation. No sooner had I finished the job than the royal society for the deaf bought the units””all 12 of them. The point in telling that story is not just to mention the addition of unnecessary cost to say that there is no greater insult to the integrity of a human being than for the state to presume that it knows what is best for you.

sydboy007 said:

A renter investing the difference between renting and a mortgage into income producing assets would have access to inflation hedging. .

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Yes, depending on the underlying asset, eg cash based assets such as bonds would not offer the inflation hedge.

They'd also be in a far more secure situation as selling shares / bonds is easier than a house.

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That is providing they ever got around to saving and buying the shares. Generally renters just fritter away most of the savings they make. home ownership is like a forced saving plan.

sptrawler said:

I understand your frustration Mrmagoo, however if someone purchases something they can afford, then when their equity improves sell it and upgrade.
If people chose to keep renting, eventually time runs out for them, as baby boomers who are nearing retirement, are finding out.
Some of my friends are in a terrible situation.

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That is the point. What is affordable these days ? Nothing more or less. Even small units far out cost a bomb especially for what they offer.

Mrmagoo said:

That is the point. What is affordable these days ? Nothing more or less. Even small units far out cost a bomb especially for what they offer.

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That's true, but history does show that the capitalist system requires inflation to function.
It is a bit like Value Investor says, even if there is a correction, it won't go back to what it was 10 years ago.
This is because wages, prices and therefore underlying value has increased.

It is always difficult, but depending on a persons age, the old motto of the worst house in the best street still holds true

sydboy007 said:

90% of "investors" buy pre exisiting properties, so the benefit they provide is well and truly out weighed by the increase in demand when supply is so restricted.

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that's not the important thing, because even existing properties can be converted to duplexes, knocked down and rebuild as town houses etc.

The important thing is how much of new development is funded directly or indirectly by investors, eg buying an existing property from a developer allows the developer to develop another property etc,

If there is one commodity Australia is not short of, it is land.

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and land is cheap outside of the capital cities, How does the fact that Australia has abundant land help Sydney house prices when 3million + people are hell bend on squeezing into a section of land boxed in by the ocean to the east, mountains to the west, and national park north and south.

Try it yourself, go invest in sub dividing some land 100Km west of bourke and see how you go

http://www.smh.com.au/comment/sydne.../02/2014-edtrs_socialshare-all-nnn-nnn-vars-o

Doesnt reference the statistics, but states that houses in Sydney now take 9 times the average salary, when it was 3 times not that long ago.

So in real terms, not matter what way you slice it, affordability has gone down.

prawn_86 said:

So in real terms, not matter what way you slice it, affordability has gone down.

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it also depends what they are using to measure as a house, In a city with an expanding population land will increase faster than wages growth, because as the population grows housing becomes more dense, more dwelling fit on each block of land. So if the measurement is being taken using a house and land it may be false.

Also the average household has a large number of wage earners these days. in the past there was a greater number of single income households, as the number of households with double incomes increases, families will bid more to secure a house, this leads to higher prices.

On top of that the average new home build has a lot more features than the average home build 30 years ago, it's larger, with more mod cons,

Compare the homes that are built today with the ones you grew up in. all these things add up.

What about the risk of being wrong. You sit out of the market and it doesn't drop. Now prices are higher and your rent bills are going up. Not having atleast one property could be considered a risk.

What about the fact that despite all your metrics on valuation its possible your timing is wrong. If there are people willing to pay higher prices they will buy it. No one knows when the tipping point will be.

There has been a lot of doubters and nay sayers about property in this thread over the past few years. They make good points. real wages, real incomes, income to price ratios etc etc, they are all true, but if the market is willing to pay more for house prices, spend more of their disposable income on a mortgage and live that dream then so be it. your analysis is wrong

A well planned, well executed property investment 2,3,4 years ago would have provided a return better than almost any other option. Add to that value add techniques or actually having the ability to subdivide etc and I'd say theres plenty out there who have proven the skeptics wrong.

kid hustlr said:

What about the risk of being wrong. You sit out of the market and it doesn't drop. Now prices are higher and your rent bills are going up. Not having atleast one property could be considered a risk.

What about the fact that despite all your metrics on valuation its possible your timing is wrong. If there are people willing to pay higher prices they will buy it. No one knows when the tipping point will be.

There has been a lot of doubters and nay sayers about property in this thread over the past few years. They make good points. real wages, real incomes, income to price ratios etc etc, they are all true, but if the market is willing to pay more for house prices, spend more of their disposable income on a mortgage and live that dream then so be it. your analysis is wrong

A well planned, well executed property investment 2,3,4 years ago would have provided a return better than almost any other option. Add to that value add techniques or actually having the ability to subdivide etc and I'd say theres plenty out there who have proven the skeptics wrong.

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All very true, but as has been pointed out the only areas that have really sky rocketed are capital cities.
Those that are not in the housing market, may have to look further afield and consider travelling.
This may have to be the case for retirees also, those nearing retirement may have to look at prices in country towns with facilities.

As time runs out so do options, as you say sitting on the sidelines waiting for a correction, is risky. One has to have a plan 'B' .

Value Collector said:

that's not the important thing, because even existing properties can be converted to duplexes, knocked down and rebuild as town houses etc.

The important thing is how much of new development is funded directly or indirectly by investors, eg buying an existing property from a developer allows the developer to develop another property etc,





and land is cheap outside of the capital cities, How does the fact that Australia has abundant land help Sydney house prices when 3million + people are hell bend on squeezing into a section of land boxed in by the ocean to the east, mountains to the west, and national park north and south.

Try it yourself, go invest in sub dividing some land 100Km west of bourke and see how you go

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But the stats show that 90% of investors are buying pre existing dwellings. If you are buying a property from a developer I would consider that to not be a pre existing dwelling. Developers do not build properties with the goal of holding onto them. They want a sale as fast as possible. over 50% of the property sales in NSW have been to investors for a large chunk of the year. That's not a sustainable or rational market. FOMO is what's driving first home buyers to camp out for a few nights to get a $500K block of land on the city fringe. How is that affordable?

So unless investors are actually providing the capital for developers to bring new apartments and houses onto the market, all they're really doing is using NG and probably their existing primary residence as a way to out bid first home buyers and those looking to trade up / down.