Author Topic: Why Australian house prices are so high  (Read 4050 times)

deborah

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Why Australian house prices are so high
« on: November 24, 2014, 05:24:47 PM »
The following is an interesting article about Australian house prices based on a report by a business ecomomist Saul Eslake of Bank of America Merrill Lynch:

http://www.canberratimes.com.au/comment/australias-housing-market-bubble-is-built-to-last-20141124-11t753.html


Minion

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Re: Why Australian house prices are so high
« Reply #1 on: November 30, 2014, 03:41:41 PM »
Thanks for the link.

waltworks

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Re: Why Australian house prices are so high
« Reply #2 on: December 01, 2014, 12:29:33 PM »
As someone who has no knowledge at all of the Australian economy or housing market, I have to say - you could take this article and publish it in 2005 with "United States" replacing "Australia" and people would eat it up.

I mean, did Australians *just decide* in the last 5 years to live on the coasts and in big cities? Did they *just* decide they wanted relatively big, detached houses? Or were those things true 10 or 20 years ago as well? If so, then they're not really useful explanations for a sudden rise in RE prices.

I'm certainly in no position to say anything is a bubble, but a sudden economy-wide change in the real price of a commodity like housing (especially if rents haven't risen to match, which it sounds like they have not) is a big red flag.

-W

deborah

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Re: Why Australian house prices are so high
« Reply #3 on: December 01, 2014, 01:34:22 PM »
My understanding is that house prices have for a lot more than 5 years been like this - for at least 20 - someone was saying at the meetup that it was at least 40 that they had been increasing about 2% (I think it was) per year more than wages. There is no sudden rise - it is just that the gradual rise has gradually been making things worse. When I bought my first house many years ago, people paid about 4 times their wage for a house even though if I quoted you a figure you would not believe it, because wages have gone up so much.

So they have crept up rather than bouncing up - which seems reasonable to me, because I cannot think of any year when there has been a sharp price rise over the board (I am excluding the mining bubble of Perth). But if you add 2% per year over and above what people are earning, it gradually becomes a very big thing. At the meetup, Ozstashe said that the 2% rise per year means that in 100 years nobody at all could afford any house. At some stage, the break point must be reached where the trend cannot continue.

Australians have always had a lot less people in the bush than other countries - even when I was in primary school our text books showed us that there were a lot less farmers in Australia per head of population than in other countries, and mechanisation of our farming practices has increased over the years. Farms have fewer people in them, so country towns are servicing fewer people. I'm sure you have seen the desperate efforts of country towns to retain their shops and their schools - the $1 rent houses being offered in some towns. When I was little, we caravaned from Queensland to Victoria each year. If I travel the same roads now, I see so many towns that have many more empty shops than then, and are no bigger.
 
Houses are also becoming bigger - in the same way, it has been gradual, and has been happening ever since Europeans came to Australia - we have doubled our standard of living (including our house) every generation - this was the theme of an MBA lecture. I'm sure that this is not sustainable either.

It is interesting that the article points out that once cities hit one million people, houses become much more expensive. In Australia that has happened to every capital city quite recently.

Other points the article says keep house prices up are artificial, and could (if governments of all kinds wanted to) be removed.

The problem (as I see it) is that many younger people are simply blaming their parent's generation for house prices, rather than the real culprits, so there is no impetus for politicians to change the rules. Especially as lobbyists exist for the real culprits. Of course, because the change has been so gradual, their parent's generation don't really think there is an issue - house prices have always been expensive.
« Last Edit: December 01, 2014, 08:27:24 PM by deborah »

marty998

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Re: Why Australian house prices are so high
« Reply #4 on: December 01, 2014, 02:04:07 PM »


So they have crept up rather than bouncing up - which seems reasonable to me, because I cannot think of any year when there has been a sharp price rise over the board (I am excluding the mining bubble of Perth).

2001/02? When the capital gains tax 50% discount was introduced. Before and after that prices were relatively stable. IN some parts of Sydney and other capital cities they fell in 07/08 before rebounding strongly.

The last 40 years have also seen the rise (or the necessity) of the dual income household.

Question is, what will be the next catalyst for price rises as inflation stalls and wage growth stalls. Immigration is still high, people have to live somewhere, and fewer and fewer people are willing to do the long commutes.

Interestingly, a few friends have said to me that commuting from Wollongong to the Sydney CBD will be more attractive once the F6 is built through the southern metro area.

This_Is_My_Username

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« Reply #5 on: December 11, 2014, 05:41:57 PM »
Quote
Question is, what will be the next catalyst for price rises as inflation stalls and wage growth stalls. Immigration is still high, people have to live somewhere, and fewer and fewer people are willing to do the long commutes.

I don't think continuing price rises in inner-ring suburbs (above wage growth) need a catalyst.  Just the continuing grind of little or no supply and ever increasing demand.

Already, the lower-middle class is priced out of inner-ring suburbs, and soon the middle class will be priced out also.   See central London for an example.

houses that cost 20-30 times the median wage will only be for rich people and their children.

gimp

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Re: Why Australian house prices are so high
« Reply #6 on: December 16, 2014, 04:12:37 PM »
Quote
The recent return of the delusion that building more expressways will reduce traffic congestion is unlikely to make things better.

Beg pardon, but what's the delusion here? If you build wider and faster roads, you get more commuters per hour.

Of course, that just means there's more building out and more people drive on the same roads and nobody actually gets anywhere faster, but more people get to the same place. The proper solution tends to be a combination of wider/faster highways, roads, and more public transit, so people have more options. And that does work quite well... especially as businesses build farther away from the center, so people don't have to live right near downtown to get to work quickly.

alsoknownasDean

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Why Australian house prices are so high
« Reply #7 on: January 10, 2015, 08:19:52 AM »


So they have crept up rather than bouncing up - which seems reasonable to me, because I cannot think of any year when there has been a sharp price rise over the board (I am excluding the mining bubble of Perth).

2001/02? When the capital gains tax 50% discount was introduced. Before and after that prices were relatively stable. IN some parts of Sydney and other capital cities they fell in 07/08 before rebounding strongly.

The last 40 years have also seen the rise (or the necessity) of the dual income household.

Question is, what will be the next catalyst for price rises as inflation stalls and wage growth stalls. Immigration is still high, people have to live somewhere, and fewer and fewer people are willing to do the long commutes.

Interestingly, a few friends have said to me that commuting from Wollongong to the Sydney CBD will be more attractive once the F6 is built through the southern metro area.

My suspicion is that 23 years of constant economic growth has helped prices along too. What would a recession do for prices?

The other issue is of course centralisation. Rather than encouraging people to commute from regional centres (or distant outer suburbs) to capital cities, what would take the pressure off housing prices in capital cities is improved employment opportunities in other cities.

Perhaps we need incentives for businesses to establish/operate in regional areas?

As per marty998's example, maybe the real solution is living and working in Wollongong (or Wagga Wagga or whatever) rather than living in Wollongong and commuting to Sydney?

Of course I'm a total hypocrite, I moved to Melbourne a number of years ago after doing a long commute from a regional area for a while. I'm not planning on moving back :)

deborah

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Re: Why Australian house prices are so high
« Reply #8 on: January 10, 2015, 11:42:22 AM »
Interestingly, a few friends have said to me that commuting from Wollongong to the Sydney CBD will be more attractive once the F6 is built through the southern metro area.
That is funny! When I worked at BHP, the workforce at Wollongong was being reduced dramatically. People were really happy that the train line was upgraded. They told me that commuting to Sydney from Wollongong was made faster than commuting from the outer Sydney suburbs because the train was so fast!

marty998

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Re: Why Australian house prices are so high
« Reply #9 on: January 10, 2015, 04:48:55 PM »
Interestingly, a few friends have said to me that commuting from Wollongong to the Sydney CBD will be more attractive once the F6 is built through the southern metro area.
That is funny! When I worked at BHP, the workforce at Wollongong was being reduced dramatically. People were really happy that the train line was upgraded. They told me that commuting to Sydney from Wollongong was made faster than commuting from the outer Sydney suburbs because the train was so fast!

Many commuters from the 'Gong drive up to Waterfall/Sutherland before getting a train into the City. When the freeway is built they could just keep driving all the way to say Rockdale or Wolli Creek/the airport.

Commuting from/to the anywhere in Sydney not serviced by a train line is truly awful. Because most drivers haven't experienced anything better, they just don't know how bad it is they have it.