but at the end of the day something is only worth what someone is willing to and able to pay for it. the perfect property everyone might LOVE and do anything for, but at $50mil a pop, no one will be able to afford.
Thanks professor,
i just find it hard not to look at the progressions of the prices vs wages. even if demand is through the roof with great infrastructure, transport opportunities. . .bla bla bla, all the growth "factors", but at the end of the day something is only worth what someone is willing to and able to pay for it. the perfect property everyone might LOVE and do anything for, but at $50mil a pop, no one will be able to afford.
Let me start by saying I agree that property (atleast the market I study) is properly due for some stagnation or possible down ward pressure. but who knows what will i happen short term, I certainly don't.
However, I don't fully agree with your idea that it is impossible for property to grow faster than the rate of inflation longterm.
Over time land uses and population densities change and this gives rise to price increases that are out of wack with with normal affordabilty calculations.
For example, what was considered an average family home in the 60's and was affordable to someone of average means may now sell for upwards of $2M and be way out of reach of someone of average means, Does this mean that the property in over valued and will some how fall in value to better reflect the rate of inflation. probally not.
The property could attain a $2M price tag because over the past 50 years density may been increasing and developers will buy this property and put 10 apartments on it and sell or rent the apartments to those of average means, or high income earners that don't want to live in apartments will bid up the prices of the areas that aren't being developed.
you can see examples of this all over sydney, I have seen a house sold in my suburb that was in an unlivable condition for $2.3M, along with the 2 houses either side it was turned into an apartment building, While on the other side of the suburb houses that aren't in the correct zoning to be developed still sell for over $2M because there are high income earners willing to pay that much not to live in an apartment but still live close to the city.
To be honest their Tyson, what your saying makes no sense what so ever im sorry to say
[snip]
If we take overall disposable household incomes between end 2007 and end 2009, growth has been 11.5 per cent. In comparison, capital city house prices have risen by nine percent. Amazingly, the rest of state markets have grown by just 3.2 per cent between end 2007 and end 2009. On a per household basis, the disposable income growth over this period was about 7.6 per cent.
Sorry, had to pull you up on the bolded bit - AWOTE has been increasing faster than inflation for years, and I would expect that the property price growth (once the current period of property price consolitaion/stagnation is factored in) would come close to matching the average AWOTE rate for the first announcement next year.Hey Guys first time writer long time reader,
I have an economic and law background and have been doing a bit of research into this particular area and have concrete views. I am not sure if this theory has been discussed but it is quite simple and impossible to argue against.
Anyone that understands economics knows that wages rise with CPI and inflation which is currently around 3% (2-3% target), which is restricting affordability.
However history shows that property prices are increasing by 7-10% p.a. and due to compounding this difference is magnified.
Gordon_Gecko - What Tysonboss wrote is 100% correct. It has nothing to do with how long it took an average wage earner to pay off their house in the 60s vs now. His point was that specific property and specific sub-markets can and do increase in value at a rate greater than inflation, and it is because the "exclusivity" if you like of a location/piece of land increases over time as population density increases and a city grows. In theory a market response to this to address affordability should be the provision of more housing in areas with lower land value, including the growth of smaller towns into future cities. This does eventually happen but is a macro/long term response.
The other thing you are forgetting is productivity growth. Since 1900 wages have compounded by a rate in excess of CPI consistently due to productivity improvements: The result being that a far smaller proportion of an average wage (which is actually $66k now by the way) is now needed for the basics of living (food/clothing/transport etc) today than in the past. Another way to say this is that DISPOSABLE income can and does grow at a rate in excess of inflation, and this is likely to continue to be the case. House prices are driven more by disposable household income than by the gross single wage.
Anyway we have actually been through many of these points on this forum many times before. Go back and read the "House prices to fall for years" and the "House prices to rise for years" threads, especially the first few pages, and you will see all these things and more discussed 2-3 years ago, then see who turned out to be right.
EDIT: Just to add more to my points above, here's a statement from the latest RP-Data house price release:
What this shows, is that the over-all national house price growth figures can mask some interesting trends. The above shows that right now, the big and high growth cities have house prices rising far more rapidly than in the regions. Affordability over time will cause a drift towards the more affordable centres, skewing median stats etc accordingly, but that won't stop values in the big and high growth cities from growing well in excess of inflation over the long term.
PS: In the short term, I have no doubt that are currently somewhere near a "top", which means an end to the big growth numbers seen last year. A minor correction may ensure, in the order of 5-10% IMO, but then things will steady in most cities and start to slowly grow again. Sydney may out-perform IMO, due to it already having seen a 20% correction in real terms between 2003 and 2008.
Cheers,
Beej
Tyson,
Inner city suburbs of a rabidly growing and prosperous city will have additional dynamics that will push prices much higher because of extraneous value factors as you detailed.
The affordability argument is about average family homes of more or less equal demographic.
Your second argument stating that houses were just as affordable in the 60's and now are worth 2M is is not correct.
Thats not what I am saying,
What I am saying is that Houses in suburbs within 10k's of the city, were once affordable 3 bed family homes that were affordable on an average wage.
However with the density increases, those properties from the 60's have increased faster than inflation to the point where they are completed unaffordable on the average wage.
But that doesn't mean a person of average means can't live in that suburb.
Because as I said developers will knock down the house and put 10 apartments on it, and suddenly a $2M block of land is really affordable when the cost of the land is shared between 10 apartments that know sell for $390,000 each.
And the houses where the Zoning doesn't allow developers to build up will also grow invalue as people that refuse to live in apartments bid up the price to secure a family home.
To expect every one in sydney should be able to afford their own 1/4 block on the average wage is crazy, their is simple not enough land in sydney.
But feel free to move to a regional area.
Your arguement only works in a city that has no growth in population or density.
Not likely when the current correlation is that apartments are on par if not more expensive than the average house price.
Cheers
House prices soar to 25 million for a standard home and you think developers will buy the land and sell each individual apartment for even 1 million. Not likely when the current correlation is that apartments are on par if not more expensive than the average house price.
Cheers
Well I have no idea about adelaide, But the figures in my suburb of sydney are similar to the ones I used in the example,
Houses in my suburb are generally over $2M and apartments in the same suburb start at around $390,000.
Offcourse just like houses, apartment prices vary with quality and location,
You can't compare a penthouse apartment with veiws of the harbour bridge with a two bedroon ex housing commision home in the a$$ end of the western suburbs, and say I told you apartments are just as expensive as houses.
But my description of housing density growth is happening all over sydney,
So your telling me that a property in Sydney is worth 2M when an apartment with similar attributes and similar quality is worth 390K, tell me where to sign bud
So your telling me that a property in Sydney is worth 2M when an apartment with similar attributes and similar quality is worth 390K, tell me where to sign bud
So your telling me that a property in Sydney is worth 2M when an apartment with similar attributes and similar quality is worth 390K, tell me where to sign bud
Tysonboss - sounds like you are on the north shore somewhere??
Cheers,
Beej
Plenty of North shore/Northern suburbs like this. Houses are ridiculously priced.
There is one thing for sure when everybody is saying this is going to last for ever and it is different this time. It is time to watch out, consumer spending is dropping like a rock and the RBA are going to push it, or maybe the banks will drop their bundle and tighten lending. Maybe something will come out of the blue and everyone say S#!+ I never saw that, but one thing is for sure nothing is forever.
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