Agree - its because the market PRICE has fallen. I'm not sure who you are debating with here?
The same as if the PRICE was $10M or $1. (Note: price, cost and worth (or value) are three very different things - it be less confusing if you stop interchanging the terms)
Prices trend around cost over time. Sometime above, sometimes below. Best way to visualise it is via the diagram below.
That diagram looks a lot different to ( and shows a much different relationship) to this one and others like it.
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
Well for one Veritas's chart is nearly a decade out of date now! But I don't think that's what you are referring to......
It doesn't matter.
It shows the much famed "structural shift" you chaps are always crowing about.
b_b
30 Sep 2014, 05:47 PM
It should look very different for two reasons.
Do you know why?
No, your chart shows replacement cost rising at constant rate with prices doing the old snake in a tunnel around them.
This chart shows a massive upswing following the deregulation of the financial markets/ lower interest rate environment/ emergence of the property speculator society.
Your replacement cost thesis really does not explain why prices increased so much in such a short space of time.
Cheap money and a slew of speculative investment does though.
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
It shows the much famed "structural shift" you chaps are always crowing about. No, your chart shows replacement cost rising at constant rate with prices doing the old snake in a tunnel around them.
This chart shows a massive upswing following the deregulation of the financial markets/ lower interest rate environment/ emergence of the property speculator society.
Your replacement cost thesis really does not explain why prices increased so much in such a short space of time.
Cheap money and a slew of speculative investment does though.
log scale
Any expressed market opinion is my own and is not to be taken as financial advice
I think some of the switched on and genuinely enlightened thinkers here miss the point that that many first time investors are drawn to new builds for lower stamp duty and depreciation benefits. For right or wrong, doing the sums and investing in a brand new property is often very tempting to joe six pack who pays too much tax. Of course they may have been better off buying something established, but they don't often know that when they sign the papers.
I do believe that implementing NG on new builds only would add to supply. What happens to the people who would take advantage of such policy is anyone's guess.
Part of it is that infrastructure costs were charged to developers. That occurred around 2000 and added significantly to the price of land. Your replacement cost thesis is valid in regards to the price and construction of houses on the fringes of the city. It just isn't readily transferrable to the prices of property in the inner city except for providing an absolute floor for prices way below what most of these properties are worth.
You also have several different types of dwelling being built at the moment. 1. Inner city high rise. 2. Middle and inner ring medium density and subdivision. 3. Detached housing on the fringe.
Population growth and rising prices is obviously a spur for construction.
You managed to avoid my question about the replacement cost of a $1.2M inner city detached dwelling.
It shows the much famed "structural shift" you chaps are always crowing about. No, your chart shows replacement cost rising at constant rate with prices doing the old snake in a tunnel around them.
This chart shows a massive upswing following the deregulation of the financial markets/ lower interest rate environment/ emergence of the property speculator society.
Your replacement cost thesis really does not explain why prices increased so much in such a short space of time.
Cheap money and a slew of speculative investment does though.
1 as you correctly point out, my chart was illustrative only so as to help elastic understand the difference between price and cost 2 replacement cost (especially land cost - which your chart excludes) does not increase gradually. New fees and charges are added to normal inflation. So replacement cost usually Increases in steps. This is a critical missing component on your chart making it irrelevant to the discussion on replacement analysis.
But enough with the theory. Let's look at reality
Your chart implies massive development margins - ever increasing since the 1950s. Yet the is zero evidence of these margins in the public accounts of listed land developers (like stockland) or apartment developers (like Mirvac). Englbo costs sweet fa, so who is getting the margn?
Moreover your chart would further imply constant supply since the 1950s (because of said margin). Yet the evidence suggest supply is deeply cyclical - in fact, it recently is seems to rise and fall in sync with house price performance. Funny that.
3. Supply begins to slow back to 2011/2012 levels which will detract c$30bn from the economy or 1.7% of GDP 5. Less supply with same pop growth places pressure on rents
Supply will fall?? Mate what evidence do you have that suggests housing supply is directly linked to investors buying with NG. Rhetorical because the answer is NO, if this was remotely true then we wouldn't have a supply issue, in fact given investor activity is 40% or higher, especially over the last 24 months then we would have an over supply.
The more I think about it the more your arguement seems flawed at best.
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