If you look at demographics and the generational mix, our parents ( I am 51 ) have enjoyed the most beneficial period of humanity in human history. We need to frame this discussion within that context. Our beliefs have been formed within the context of cheap oil, a willing reserve bank system in regards to pushing for growth, and an uneducated populace….so to just target the RE industry is unfair. RE has become almost a religion that worships at the alter of financial success…..what ever that is. But the fine print reads something like a script to a horror movie. Mass selling of souls…all for the facade of ‘success’.
Perceptions…….how people understand the environment they are observing. With regards to RE; the feedback we as a nation have received back from the coalface is what has led us to the place we now find ourselves in. Price HAS doubled every 7-10 years….irrespective of logic or common sense. This is unsustainable, naturally, but the populace have the runs on the board so therefore the future will/must resemble that past. No thought on ‘what if this is wrong’ will enter the thought process. The evidence is there for all to see…and I suppose you cannot blame them. The outcomes from this belief system are manifest in higher prices, a true sense of gratification that the investor is ‘more intelligent’ that the bloke next door and an elevated perception of importance. The feedback loops in this game are massive. Do it once, see the value rise and feel important. Do it again….and again…and again.
The limits to beliefs……hmmm.
How long is a piece of string? Men go mad in crowds and slowly, one by one,regain their senses.
With regards to RE…..while the system remains stable to a degree why would investors doubt the efficacy of their strategy? The system works till it doesn’t….and most investors are not looking for the risks….only the next opportunity. The strategy still works, right? With this in mind the limit can only be forced on them…they will not stop willingly. The evidence backs their choices and quite rightly so too. With the advent of foreign money competing with locals, a new twist has come to light. Agree or not, this competition will bring forward the closure of this chapter of investing in RE. The trigger for the climax could come from any source, such is the inter-connectivness of the global economy. I do believe that the end game is drawing near. I think it will be an offshore event that will crack the system though. The biffo between the Russkies and the Yanks could blow up. My take on that is the US is trying to negate the strength of Russia via oil/gas drilling in Ukraine ( so they can supply EU )….before the Russians negate the power of the US dollar via Brics dealings and de-dollarizing. It is a race to the end….because oil trumps all, and it is depleting at an increasing pace. This may end our love affair with RE. If not, then we have to run out of buyers before the fat lady sings……and if prices remain stable or rise from here then that just equals opportunity to the investors so she had better sleep in tomorrow as her services are not required yet.
We cannot look to the regulating bodies to kill this beast……the trigger has to be from offshore.
We cannot look to the regulating bodies to kill this beast……the trigger has to be from offshore.
I'm starting to think that too. Macroprudential would do little to stop the hoardes with the hot/dirty money at the moment
It's pretty scary stuff, just watching the big economies with their foot to the floor on the printing press, it's like a monetary mexican stand off, with interest rate rises as the trigger for the bloodbath.
Unfortunately for us in aus we will just get swept along in the madness of whatever ensues.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness. "Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
We have pretty much built an entire socio-economic edifice with perpetually rising real estate prices as the cornerstone - no government regulator in their right mind would dare to try and dismantle it, regardless of the negative effects it continues to have.
If you regard broadening opportunity for home ownership as social progress then social regression is the future here.
If we desire the current trend to continue then we might need to look to places like Germany, where home ownership is given much lower importance by the public at large but where tenants rights are strong. But strengthening tenants rights would no doubt be staunchly opposed by investor lobby groups so expect to see the current inequality continue to expand.
We have pretty much built an entire socio-economic edifice with perpetually rising real estate prices as the cornerstone - no government regulator in their right mind would dare to try and dismantle it, regardless of the negative effects it continues to have.
If you regard broadening opportunity for home ownership as social progress then social regression is the future here.
If we desire the current trend to continue then we might need to look to places like Germany, where home ownership is given much lower importance by the public at large but where tenants rights are strong. But strengthening tenants rights would no doubt be staunchly opposed by investor lobby groups so expect to see the current inequality continue to expand.
HI Lefty,
Some interesting comments.
Do you have anything comparing the tenancy rights of Germany and Australia.
My initial observation is in Australia tenants can sign 6 month leases - which does not provide the landlord with much income security.
Do you have anything comparing the tenancy rights of Germany and Australia.
My initial observation is in Australia tenants can sign 6 month leases - which does not provide the landlord with much income security.
How does the German system help the renter?
My experience of 20 years renting is that landlords are not keen to sign up for longer periods when you ask them. So I'm not sure that argument has any legs.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness. "Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
My experience of 20 years renting is that landlords are not keen to sign up for longer periods when you ask them. So I'm not sure that argument has any legs.
what typically happens in germany is that people sign very long term leases and are almost impossible to evict.
My experience of 20 years renting is that landlords are not keen to sign up for longer periods when you ask them. So I'm not sure that argument has any legs.
Not trying to make an argument.
It is a genuine enquiry.
I have read a few comments here and on other sites about how much better it is for tenants in Germany versus Australia. I was wondering if anyone has seen a report detailing the typical allowances for German tenants which are not allowed in Australia (or vice versa).
I have read a few comments here and on other sites about how much better it is for tenants in Germany versus Australia. I was wondering if anyone has seen a report detailing the typical allowances for German tenants which are not allowed in Australia (or vice versa).
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
what typically happens in germany is that people sign very long term leases and are almost impossible to evict.
Actually not "very long term leases" but perpetual leases. Leases have no term, they just have a notice period. After a while this notice period becomes *very* long (i.e. > 1 year), and the LL is also restricted as to the allowable reasons for giving notice as well. There is also a cap on rent increases (from memory 5% per year)
On the other side the tenant is responsible for almost everything except for the structure of the building and typically is required to repaint at regular intervals. Fair wear and tear is the tenant's problem.
So as a tenant you get many of the advantages and disadvantages of ownership. You get tenure, but you also get responsibilities.
The system works, but it has a lot of problems that the starry-eyed German-system fans never mention.
* In cities where rentals are tight, initial rents are *very* high compared to property value. There is a huge penalty for moving after you have been in a place for a while. Even worse, the tenant has to pay the commission to the agent when they move in, and that could be as much as 2 months' rent.
* The landlord has almost no incentive to fix anything, including the things they are supposed to fix. You can take them to court and have the rent reduced based on loss of utility, but in many cases they are still better off eating the reduction in the hope that the tenant will get sick of the squalor and move out, and *THEN* fixing things up and advertising at a much higher rent.
*When you move in it is not unusual to have to bring your own stove, light fittings, and even taps.
* There is a high prevalence of sub-letting. If someone has a sweet deal and they have to move, often they will sublet rather than give up the lease. This is typically allowed. It really is a lot like commercial tenancies in oz.
I've rented in Australia and Germany. If you are a student or early in your career or otherwise footloose and fancy-free, then the German system sucks for renters compared to Australia. If you have a stable job and are raising a family, the German system will probably work out better for you.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Actually not "very long term leases" but perpetual leases. Leases have no term, they just have a notice period. After a while this notice period becomes *very* long (i.e. > 1 year), and the LL is also restricted as to the allowable reasons for giving notice as well. There is also a cap on rent increases (from memory 5% per year)
On the other side the tenant is responsible for almost everything except for the structure of the building and typically is required to repaint at regular intervals. Fair wear and tear is the tenant's problem.
So as a tenant you get many of the advantages and disadvantages of ownership. You get tenure, but you also get responsibilities.
The system works, but it has a lot of problems that the starry-eyed German-system fans never mention.
* In cities where rentals are tight, initial rents are *very* high compared to property value. There is a huge penalty for moving after you have been in a place for a while. Even worse, the tenant has to pay the commission to the agent when they move in, and that could be as much as 2 months' rent.
* The landlord has almost no incentive to fix anything, including the things they are supposed to fix. You can take them to court and have the rent reduced based on loss of utility, but in many cases they are still better off eating the reduction in the hope that the tenant will get sick of the squalor and move out, and *THEN* fixing things up and advertising at a much higher rent.
*When you move in it is not unusual to have to bring your own stove, light fittings, and even taps.
* There is a high prevalence of sub-letting. If someone has a sweet deal and they have to move, often they will sublet rather than give up the lease. This is typically allowed. It really is a lot like commercial tenancies in oz.
I've rented in Australia and Germany. If you are a student or early in your career or otherwise footloose and fancy-free, then the German system sucks for renters compared to Australia. If you have a stable job and are raising a family, the German system will probably work out better for you.
All of which is perfectly suited for the structure of the German economy. i.e. Germany is a production economy, not a trading economy. * The German population is very de-centralised, interlinked by an excellent and well serviced rail (passenger and freight) and highway system. * German industry is also de-centralised through the Mittelstand system of small specialist manufacturers who make up the supply chain for the German behemoths. * The German university/technical college system is also de-centralised. Most Germans do tertiary study close to their home town.
The German housing system discourages mobility, as the German economic system discourages mobility. As opposed to the British economy which is a trading economy, which encourages migration to port cities to centralise all economic activity around trade and the industries that service trade (i.e. finance and insurance).
In Australia the economic policy for the past 20 years has been to develop a trading economy, even though there is no reason for Australia to be a trading hub, given our geographical location and our small population. As a result, we get the worst of both worlds.
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