Australia housing bubble

[zipping]

Why do people think we are seeing such high prices for houses particularly in Melb/Syd and other capital cities? Interest rates being low by our standards is one major factor.

Texas is actually doing well economically atm yet its median house price is quite low.

https://www.zillow.com/ca/home-values/

California on the other hand has always had the highest prices in the US

https://www.zillow.com/ca/home-values/

Here is an article on California housing that I believe is a great explanation for what we are seeing in Australia atm.

http://www.lao.ca.gov/reports/2015/f...sing-costs.pdf

Thought it may be a good discussion thread considering the impacts if it were to burst and the Feds seem to be making noises about addressing the issue in the next budget.

[zipping]

Anyone selling up to take advantage of the market or are people still happy to try get in or invest in a second property.

[GASWAGON]

Negative gearing has ruined it for everyone.

And the Chinese are taking buying up big in countries all over the world.

[zipping]

Negative gearing is where a loan is used to buy an asset and there is a loss because the income generated is lower than the interest repayments. It's often used to explain a property purchase but it can equally apply to a share purchase or other investment.

It's been with us for a long time. In 2010 there were 1.2 million Aussies with a negatively geared property which is 14.3% of individuals that lodged a tax return owned investment properties while a greater 19.2% of individuals that reported a taxable income owned investment properties.

http://blog.corelogic.com.au/2013/05...inancial-year/

Whilst some pressure comes from negative gearing when people speculate on prices going up is it really the driver behind the sharp rises we are seeing?

Some more recent info here

https://www.businessinsider.com.au/s...the-rba-2016-2

Good article

http://theconversation.com/policyche...g-reform-58404

It does provide an incentive for people to invest in property just on balance it seems to me unlikely to be the driver behind the last 4 years price expansion.

[asagaai]

As CoolBFWagon said, the Chinese are a huge country, becoming very wealthy, and they like investing their hard earned in a stable country in bricks and mortar that is safe. Property is very expensive there in their big cities, and Australia is good buying for them.

So Sydney, Melbourne are seeing big inputs of Chinese purchasers.

Also, SMSF re now being used to purchase properties which further increases prices.

So the older more well heeled are further using negative gearing/SMSF to buy property and cash in on capitals returns, and in effect will have the young slave away to pay for their capital gains, all while getting the young to pay their rents as the young cannot get into property.

[Polyal]

Its a pretty crap situation all round.

One idea I had was governments properly investing/encouraging companies to move to more "regional" areas.

It would move people out of the cities to follow the jobs, the cities are big and ugly enough to fend for themselves.

Alot of these regional areas have been hit with the industrial down turn and really could do with a spruce up.

You then also take some demand for housing from the cities and outlying areas and the market will naturally sort itself out.

[FairmontGS]

OK. So 20 years ago I was encouraged by Gov-Co to invest for my own retirement and avoid the public teat. I did so all my life and have done pretty well. Went without on many fronts and invested instead.

Now I'm to blame (as a greedy investor) for the unaffordability of housing and the smashed avocados are being given every advantage Gov-Co can muster...

Go figure.

[zipping]

Great point Fairmont.

Median house price in Melb is nearing $800k In 2010 it was $465,000. Spectacular return for investors. In 1997, 20 years ago it was $125k.

https://www.domain.com.au/news/melbo...170123-gtvh6k/

https://services.land.vic.gov.au/lan...2011Sample.pdf

Dam the second link is Victorian median price not quite apples with apples but illustrates the rise.

[Mercury Bullet]

I don't care, I own my own house and owe nobody nothing.

I know lots of people in Perth who have bought investment properties there and are currently being burnt big time. Most of them thought they were buying a money tree, problem is there's no-one to water it.

[Pepscobra]

Why the hate towards Negative Gearing?
Without it there would be no financial reason for people to buy investment properties. Who would then provide the properties to service the rental market? The Government?
Negative Gearing is basically the governments way of providing housing through private ownership.
I know it's easy to blame NG for high property prices, but its impact is minute.

[Raptor]

It's the negative gearing + capital gain tax discounts together. Investing is meant to be a risky business, the above policies have pretty much made it as safe as houses (see what I did there) for the past few decades.

Time for a major correction IMHO - driven by sensible policy adjustment.

If the above policies were meant to add to the housing supply - they have failed whenever an investors purchases an existing property (i.e. most of the time).

If the capital gains tax discount was to adjust for the erosion caused by inflation - why is it still so high whilst inflation is now so low?

Housing should be for living in, investors money should be spent on more productive assets.

Wonder why the retailers etc are doing it so tough, not employing anyone and generally grinding the economy to a halt? It's because after people pay for rent or their mortgage there's SFA all for anything else.

.

[b0son]

Pepsicobra, people dont invest in rental properties with a view to earn a steady rental income, they do so to get a capital gain. Being able to negative gear along the way removes a lot of the risk of speculative investing because the taxpayer effectively picks up the tab for managing your cashflow. And when you have limited supply but low barrier to entry, you inevitably end up with demand exceeding supply and price growth.

[FairmontGS]

Originally Posted by b0son

Pepsicobra, people don't invest in rental properties with a view to earn a steady rental income, they do so to get a capital gain. Being able to negative gear along the way removes a lot of the risk of speculative investing because the taxpayer effectively picks up the tab for managing your cashflow. And when you have limited supply but low barrier to entry, you inevitably end up with demand exceeding supply and price growth.

I'd have to disagree with that point B0son - I know I have invested for the income stream that my properties provide, as have all my friends.

But you may be right nowadays, maybe the focus has swung too heavily on speculation of gain from price increases.

[zipping]

Originally Posted by b0son

And when you have limited supply but low barrier to entry, you inevitably end up with demand exceeding supply and price growth.

This gets to the heart of the matter. It's great for those in the market but governments all over are suppressing supply through zoning, regulations and tax. NSW and Vic governments through stamp duty are seeing.

It's in their interests because of the taxes collected.

http://www.pitcher.com.au/news/vic-s...property-taxes

Literally a transfer of wealth from private to public hands.

[vztrt]

Originally Posted by CoolBFWagon

Negative gearing has ruined it for everyone.

And the Chinese are taking buying up big in countries all over the world.

Negative gearing has been around since the 80s yet house prices didnt start to deviate from its normal tangent line (median house price vs average wage) till the government halfed the cgt. Making housing more desireable wasnt a good move.

This needs to be scaled back as the market needs a correction. The house prices in my area are rediculous.

[zipping]

Originally Posted by vztrt

Negative gearing has been around since the 80s yet house prices didnt start to deviate from its normal tangent line (median house price vs average wage) till the government halfed the cgt. Making housing more desireable wasnt a good move.

Yes but increasing CGT would impact the stock market greatly I would assume?

[Trump]

The root cause of the housing affordability problem (and the rest of the economic woes) isn't negative gearing or capital gains related, nor is it about supply and demand. It exists along with the other economic maladies because the banks control the currency and not the treasury. Because as it stands, for every dollar in the form of cash, there are ten more that are credit-derived (any form of bank-sourced credit).

Sound money issued by the treasury and only the treasury (whether it be in the form of physical notes and coins, their electronic equivalent, gold and silver or a combination of all three) wouldn't allow the banks to issue credit hand over fist and fuel a speculators paradise.

[FairmontGS]

Originally Posted by Trump

The root cause of the housing affordability problem (and the rest of the economic woes) isn't negative gearing or capital gains related, nor is it about supply and demand. It exists along with the other economic maladies because the banks control the currency and not the treasury. Because as it stands, for every dollar in the form of cash, there are ten more that are credit-derived (any form of bank-sourced credit).

Sound money issued by the treasury and only the treasury (whether it be in the form of physical notes and coins, their electronic equivalent, gold and silver or a combination of all three) wouldn't allow the banks to issue credit hand over fist and fuel a speculators paradise.

No no no no

It is entirely about supply and demand. Look at Sid-en-knee - we're full to the gills! There's no more viable land and what is available is down the Hume with rubbish infrastructure.

And yet, Gov-Co continues to allow people to settle there - up to 80,000 short-fall of people looking for a dwelling in the city last year. Add that to the existing back-log, plus he fact that there's so much money washing around looking for an investment, and there's your problem.

But you can't force people into settling away from where they want to live - that's called China, a command economy.

I don't know what the answer is...

[FairmontGS]

Originally Posted by zipping

Yes but increasing CGT would impact the stock market greatly I would assume?

There would be a rush away from housing to equities. That's not necessarily a bad thing but then the price of stocks will rise - not because they are better stocks but because they will be bid up. Dangerous territory.

[AUXRII]

Fractional lending and printing money in a manner reminiscent of the Weimar Republic. Would somebody lend me a wheelbarrow?

[Trump]

Originally Posted by FairmontGS

No no no no

It is entirely about supply and demand. Look at Sid-en-knee - we're full to the gills! There's no more viable land and what is available is down the Hume with rubbish infrastructure.

And yet, Gov-Co continues to allow people to settle there - up to 80,000 short-fall of people looking for a dwelling in the city last year. Add that to the existing back-log, plus he fact that there's so much money washing around looking for an investment, and there's your problem.

But you can't force people into settling away from where they want to live - that's called China, a command economy.

I don't know what the answer is...

If the economy was truly a free market capitalistic creature, I'd agree 100% with you. Supply and demand are the cornerstone of a free market economy. However, the beast we have has the outward appearance of a free market economy, however it is anything but due to so much manipulation at the hands of so few.

[FairmontGS]

Originally Posted by Trump

If the economy was truly a free market capitalistic creature, I'd agree 100% with you. Supply and demand are the cornerstone of a free market economy. However, the beast we have has the outward appearance of a free market economy, however it is anything but due to so much manipulation at the hands of so few.

You know what meme I'm going to post up if you persist with this, don't you?

[MattSAU2XR8]

I think a large part of the problem would indeed be supply and demand

Assuming there are around 25 million people in Australia and average household size is about 2.5 people, this means 10 million dwellings are needed

If nearly all available rentals are taken then landlords can continue to increase rents, which in turn increases what the rental property is worth, i.e. a property that can charge $500 per week is 'worth' around $500k, putting aside speculation

Now assume that all the rental properties are full and the government imports 50,000 extra citizens - they are of course going to be competing in the existing market and so prices go up further

On the other hand if the government said 'no extra citizens' and instead fast-tracked some land development, or even unit complexes with reasonable land prices then the pool of properties would increase in size, landlords would be at a relative disadvantage, rents would come down, and so would property values.

Also, if land were made available a little cheaper then more people could but heir own home and again less competition for rentals.

Certainly where I live on the sunshine coast there is plenty of land within 10 kms of the coast being used for low yield farming and agistment that is certainly not worth $300k per quarter acre, even with roads and plumbing installed...

[Trump]

Originally Posted by FairmontGS

You know what meme I'm going to post up if you persist with this, don't you?

You're cruisin' for a bruisin' Mr GS...

[zipping]

Originally Posted by Trump

The root cause of the housing affordability problem (and the rest of the economic woes) isn't negative gearing or capital gains related, nor is it about supply and demand. It exists along with the other economic maladies because the banks control the currency and not the treasury. Because as it stands, for every dollar in the form of cash, there are ten more that are credit-derived (any form of bank-sourced credit).

Sound money issued by the treasury and only the treasury (whether it be in the form of physical notes and coins, their electronic equivalent, gold and silver or a combination of all three) wouldn't allow the banks to issue credit hand over fist and fuel a speculators paradise.

Can you expand on this. I get what you mean in regards to 10 more credit dollars for every dollar but isn't currency controlled by world markets as the free flow of capital is highly transferable. How does currency relate to property prices not seeing the link.

[Pis-ton broke]

please explain,trump

[Trump]

Originally Posted by zipping

Can you expand on this. I get what you mean in regards to 10 more credit dollars for every dollar but isn't currency controlled by world markets as the free flow of capital is highly transferable. How does currency relate to property prices not seeing the link.

It isn't about currency and forex transactions. Readily available, cheap (on the surface) bank issued credit is what has made it possible for house prices to rise exponentially. It has made it possible for anyone to buy into the market, regardless of their ability to afford the repayments now and into the future.

If the local currency was only issued by the treasury, it wouldn't be possible for irresponsible lending to occur and it would severely curtail speculative "investing" simply because the money wouldn't be there for it.

[zipping]

Originally Posted by Trump

It isn't about currency and forex transactions. Readily available, cheap (on the surface) bank issued credit is what has made it possible for house prices to rise exponentially. It has made it possible for anyone to buy into the market, regardless of their ability to afford the repayments now and into the future.

If the local currency was only issued by the treasury, it wouldn't be possible for irresponsible lending to occur and it would severely curtail speculative "investing" simply because the money wouldn't be there for it.

If that's the case why isn't the US going through a housing boom? After all they have been at zero interest rates for a long period and actively pushing as much credit as they can into their economy (to prop it up).

I do agree credit seems too readily available but banks are really engaged in a form of leveraging the same as they always have. I'm not sure that the leverage formula they use has changed in recent times are they not limited by RBA in terms of their exposure to available cash?

[Raptor]

Originally Posted by zipping

If that's the case why isn't the US going through a housing boom? After all they have been at zero interest rates for a long period and actively pushing as much credit as they can into their economy (to prop it up). ...

Isn't the US system different? Default (unable to pay) the mortgage and you simply hand in the keys to the bank and walk away, then the bank wears the consequences of reselling to clear the debt. In strayla the buck stops with the purchaser, not the bank, so no one ever defaults unless it's absolutely impossible. Also the reason no one ever wants to see the market drop, as they may have to sell and realise a loss.

How's the Aussie bank profits and share prices been these past few decades

It's a RORT.




.

[Trump]

Originally Posted by zipping

If that's the case why isn't the US going through a housing boom? After all they have been at zero interest rates for a long period and actively pushing as much credit as they can into their economy (to prop it up).

This is because the US is buried up to its eyeballs in debt (at the personal, governmental and corporate levels).

- the US government has a declared debt of almost $20 trillion, with other unfunded liabilities running into the hundreds of trillions.
- personal debt (in the form of credit cards and other credit instruments like car loans and student loans) is close to $3.3 trillion.
- mortgages are running at $8.8 trillion.
- corporate debt in the US was $51 trillion last year.

You also have to remember, the sub-prime collapse in 2008 shook their housing market to the core, and it is yet to recover. However the debt binge since hasn't flowed into the housing market, it went into keeping the carcasses moving to maintain the illusion of an overall economic recovery.

Some sources for your perusal:

https://www.nerdwallet.com/blog/aver...ebt-household/

http://www.cnbc.com/2016/07/20/crexi...-trillion.html

http://www.usdebtclock.org/