Houses selling below replacement cost is a situation that can only persist for a limited time.
If houses are selling below replacement cost then eventually no new houses will be built until prices move back above replacement cost.
So ultimately the replacement cost still pins prices to a level somewhere above the replacement cost.
1. How long is a limited time? That could be many years.
2. Houses can be built to suit fashions that do not make economic sense. Eg very large houses that too few people are living in because of expectations of above inflation capital gains. Once the fashion changes these houses can be seen as maintenance headaches/white elephants and so forth. Meanwhile smaller new houses continue to sell and become more sensible and fashionable.
3. Prices are never going to be pinned to replacement cost at any given moment of time where that moment of time can be a very long period. We are talking here about a tendency over time with regard to suitable houses being built that match the economic strength of the economy and the populations buying power and so forth.
4. Australians are tending to live in large luxury houses where it has been a no brainer to buy a large luxury house because of the policies of the government and so forth etc etc. In an extended economic down turn the fashion is very likely to change.
Sounds like the baseline for house prices is zero, from which the replacement cost changes to meet the market.
No. Definately not. The overwhelming majority of current house owners are living there comfortably without stress and want to live in their own home and will have family to pass the house to regardless of their own situation so that a house is never going to be disconnected from its replacement cost. Replacement cost is a very strong guide to prices.
1. How long is a limited time? That could be many years.
2. Houses can be built to suit fashions that do not make economic sense. Eg very large houses that too few people are living in because of expectations of above inflation capital gains. Once the fashion changes these houses can be seen as maintenance headaches/white elephants and so forth. Meanwhile smaller new houses continue to sell and become more sensible and fashionable.
3. Prices are never going to be pinned to replacement cost at any given moment of time where that moment of time can be a very long period. We are talking here about a tendency over time with regard to suitable houses being built that match the economic strength of the economy and the populations buying power and so forth.
4. Australians are tending to live in large luxury houses where it has been a no brainer to buy a large luxury house because of the policies of the government and so forth etc etc. In an extended economic down turn the fashion is very likely to change.
How long? Until the supply of 'below replacement cost' homes has been consumed and people are forced to compete for houses again, thus pushing prices above replacement cost again and so encouraging developers to start building again. And yes, if developers choose to build smaller houses on smaller blocks then the relative replacement cost should fall, along with the baseline to which prices are pinned over the long term.
When was the last time replacement cost of housing in Sydney fell???
I think you guys have lost sight of all reasonable measure of why a house is valued at a certain price because it is government policy to allow asian immigration where asian populations are more or less unbelievably huge and the lifestyle benefits of living in Sydney are for many very very substantial. For years you were just an outpost of the UK, before long you are going to be having Chinese as a second language, a Chinese speaking PM and whatever you were before, whatever you become will be totally unrecognisable, and probably the population of Australia will still be relatively small.
Not currently, but I suppose it is 'theoretically possible' that a future baseline could be zero if homes can ever be created at no cost. Seems improbable though.
I think you guys have lost sight of all reasonable measure of why a house is valued at a certain price because it is government policy to allow asian immigration where asian populations are more or less unbelievably huge and the lifestyle benefits of living in Sydney are for many very very substantial. For years you were just an outpost of the UK, before long you are going to be having Chinese as a second language, a Chinese speaking PM and whatever you were before, whatever you become will be totally unrecognisable, and probably the population of Australia will still be relatively small.
Andrew, what exactly are you smoking today?
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
When was the last time replacement cost of housing in Sydney fell???
I think you guys have lost sight of all reasonable measure of why a house is valued at a certain price because it is government policy to allow asian immigration where asian populations are more or less unbelievably huge and the lifestyle benefits of living in Sydney are for many very very substantial. For years you were just an outpost of the UK, before long you are going to be having Chinese as a second language, a Chinese speaking PM and whatever you were before, whatever you become will be totally unrecognisable, and probably the population of Australia will still be relatively small.
While immigration / population growth, including the huge demand for that we get from our Asian neighbors, is a very relevant factor, I was referring more to the fact that the general price of land / monetary inflation, the cost of building (wages, materials), the developer levies, + the intro of GST etc etc have all resulted in continual upwards movement of the "replacement cost" of housing in Sydney for decades. Whilst I suspect the government side of this (up front levies etc) may have mostly ran it's course, I don't think we will be seeing any of those measures reduced or wound back anytime soon, if ever. GST may even increase in the not to distant future.
As far as "Asianisation" goes, I have no problem with this. We are in an enviable position where we can be selective in our immigration policy, because so many people want to come and live here - so we get the wealthiest, most motivated, best educated etc etc. More and more integration with Asia in business, trade, tourism both ways, culturally and in terms of population mix / ethnicity etc etc is I think is an unstoppable trend at this time in Australia and the world's history, due to the systemic rise of the Asian economies, especially China. The only debate we should be having is how fast *can* we grow, and can we build / provide infrastructure fast enough so as not to systemically undermine our standard of living - and yes this incldues pressure on dwelling prices. We should also be pushing for more de-centalisation as a proirity to take the pressure off the major population centres.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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