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Reserve Bank says housing crash will not improve affordability.; Luci at it again
Topic Started: 28 Oct 2014, 01:04 PM (6,495 Views)
Bardon
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zaph
28 Oct 2014, 01:45 PM


Luci points out the effect of supply on any possible crash, and rightly so. If we were to experience a massive supply side response then a crash would be inevitable. I highly doubt we will get a generalised oversupply response in oz.

IMO we will get, and we are now seeing a moderate supply response. It's likely to result in a flattening of prices rather than a crash.
Something that most commentators do not address when discussing increasing supply is that you cannot increase the supply of land. Unlike other assets and commodities land is fixed and immobile, you cannot move it. The other thing is that it is already owned by someone as well. So if the price of bananas was shooting up in Balmain then if you were a banana seller you could cop the transport cost and transport your bananas to Balmain with the view that the increased price more than compensated for the additional transport cost. On the other hand the existing banana sellers of Balmain would be unhappy about this increase competition to local supply reducing the demand and prices for their bananas. ouY simply cannot do this with land. Just as you cannot move your poor demand land in Detroit to downtown Manhattan either.

Any supply response is obviously then limited due to the impossibility of providing more land in areas of high demand. Sure you can play around with the structures on top of the land but there aint much you can do about the supply of it.
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zaph
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stinkbug
28 Oct 2014, 02:10 PM
We didn't see hordes of people swooping in to buy bargains in the US when they had their big drops. I don't think things would be much different here if the same thing happened.
Strangely the hordes seem to swoop when the price is high, not low.

But there were certainly people buying (or the price would have dropped even further) in the USA. The companies buying up entire apartment blocks or suburbs. The evil foreigners (those slanty eyed white Australians) buying up big - take a look at SS.

One thing that could make us different is NG.


Bardon
28 Oct 2014, 02:21 PM
The other thing is that it is already owned by someone as well. So if the price of bananas was shooting up in Balmain then if you were a banana seller you could cop the transport cost and transport your bananas to Balmain with the view that the increased price more than compensated for the additional transport cost. On the other hand the existing banana sellers of Balmain would be unhappy about this increase competition to local supply reducing the demand and prices for their bananas. ouY simply cannot do this with land. Just as you cannot move your poor demand land in Detroit to downtown Manhattan either.

Any supply response is obviously then limited due to the impossibility of providing more land in areas of high demand. Sure you can play around with the structures on top of the land but there aint much you can do about the supply of it.
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Something that most commentators do not address when discussing increasing supply is that you cannot increase the supply of land. Unlike other assets and commodities land is fixed and immobile, you cannot move it.


BS. I have ~700 sqm of land. I can leave it as a house. I can put a couple of homes on it. Or I could combine with the neighbour and build 50 units on it. As REAs would say STCA!
Edited by zaph, 28 Oct 2014, 02:55 PM.
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Sydneyite
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zaph
28 Oct 2014, 02:44 PM
BS. I have ~700 sqm of land. I can leave it as a house. I can put a couple of homes on it. Or I could combine with the neighbour and build 50 units on it. As REAs would say STCA!
I would argue that is not creating more land - simply changing the utilisation / productivity of existing land.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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zaph
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Sydneyite
28 Oct 2014, 03:28 PM
I would argue that is not creating more land - simply changing the utilisation / productivity of existing land.
That effectively creates more land. If my 700sqm block goes from being able to accommodate one home to two, three or four + then I've effectively created more land - in the context that there is nor more land/they are creating no more land.
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skamy
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herbie
28 Oct 2014, 01:31 PM
Agreed. (Ellis is talking crap.)

For the majority who wish to enter the market, houses would be more affordable after a correction of course.

Though those who lose their jobs are in trouble obviously.

Salaries tend to be very 'sticky' even in a recession is my thought.

From the article: "In order to prevent such a damaging crash, an American expert on housing said that Australia needs to be very wary of building too much while prices are high."

I do agree with that though. As builders don't seem to be very good at restraining their "animal spirits" in a boom. So overbuilding just could occur.
The observed reality in Ireland and in the US is that home ownership rates dropped. In Perth closer to home during the downturn nobody bought land or built homes, why? because their perception, and that of the banks and lending institutions, was that there was more inherent risk in the market. Banks wont lend and people are reluctant to borrow as they fear for their jobs. So the perception of affordability changes.

It is a dream shared by Veritas and Zaph that if property prices crash they will find a home more affordable. It is not true. Their jobs become less secure, they may have to work less hours, they will lose overtime. They will not get pay rises, bonuses are non existing etc etc.

Two years ago Perth land was cheap as chips and builders were offering fantastic incentives, the Perth property market was experiencing a correction. Why did Veritas not buy? because investors were prepared to enter the deflated market before him and he missed the boat.

This happened in the UK in the 90s, it happened in Dublin and all the US cities that are now into recovery.

When the market picks up and people start spending again, retail picks up, people get overtime and bonuses again and the banks are more willing to lend when the crash fears abate. Then homes become affordable again for the majority.

It is a bear fantasy that they will find it easier and more affordable to buy a home in a crashed market.

The only people who find homes more affordable are cash rich ie bankers, investors and homeowners with lots of equity. To a first home buyer the purchase of a home becomes much more difficult. That is the reality of it.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Emmanuel
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skamy
28 Oct 2014, 03:33 PM
The observed reality in Ireland and in the US is that home ownership rates dropped. In Perth closer to home during the downturn nobody bought land or built homes, why? because their perception, and that of the banks and lending institutions, was that there was more inherent risk in the market. Banks wont lend and people are reluctant to borrow as they fear for their jobs. So the perception of affordability changes.

It is a dream shared by Veritas and Zaph that if property prices crash they will find a home more affordable. It is not true. Their jobs become less secure, they may have to work less hours, they will lose overtime. They will not get pay rises, bonuses are non existing etc etc.

Two years ago Perth land was cheap as chips and builders were offering fantastic incentives, the Perth property market was experiencing a correction. Why did Veritas not buy? because investors were prepared to enter the deflated market before him and he missed the boat.

This happened in the UK in the 90s, it happened in Dublin and all the US cities that are now into recovery.

When the market picks up and people start spending again, retail picks up, people get overtime and bonuses again and the banks are more willing to lend when the crash fears abate. Then homes become affordable again for the majority.

It is a bear fantasy that they will find it easier and more affordable to buy a home in a crashed market.

The only people who find homes more affordable are cash rich ie bankers, investors and homeowners with lots of equity. To a first home buyer the purchase of a home becomes much more difficult. That is the reality of it.
That's it Skamy. The only people who win are those with skin in the game. In any scenario, we cannot lose.
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zaph
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skamy
28 Oct 2014, 03:33 PM
It is not true. Their jobs become less secure, they may have to work less hours, they will lose overtime. They will not get pay rises, bonuses are non existing etc etc.

Two years ago Perth land was cheap as chips and builders were offering fantastic incentives, the Perth property market was experiencing a correction. Why did Veritas not buy? because investors were prepared to enter the deflated market before him and he missed the boat.

This happened in the UK in the 90s, it happened in Dublin and all the US cities that are now into recovery.

When the market picks up and people start spending again, retail picks up, people get overtime and bonuses again and the banks are more willing to lend when the crash fears abate. Then homes become affordable again for the majority.


The only people who find homes more affordable are cash rich ie bankers, investors and homeowners with lots of equity. To a first home buyer the purchase of a home becomes much more difficult. That is the reality of it.
Quote:
 
It is a dream shared by Veritas and Zaph that if property prices crash they will find a home more affordable.


Are you deaf, dumb and mute? If property prices crash then those that maintain employment will find housing far more affordable. 80% of people!

Quote:
 
It is a bear fantasy that they will find it easier and more affordable to buy a home in a crashed market.


Depends as I have said. "All you need is love".

Quote:
 
investors and homeowners with lots of equity


Mostly wrong as I have pointed out.
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Bardon
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zaph
28 Oct 2014, 03:32 PM
That effectively creates more land. If my 700sqm block goes from being able to accommodate one home to two, three or four + then I've effectively created more land - in the context that there is nor more land/they are creating no more land.
Effectively in that situation you haven't created more land and you haven't made the value of the land more affordable either.
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Timo
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zaph
28 Oct 2014, 01:04 PM


For some maybe, but I don't follow her logic for most.

If prices crashed the buy in price would be cheaper. The deposit would be a greater percentage of the purchase price and any loan required would be less. Interest rates would be lower.

Of course finance would be more difficult to get and more people would be unemployed (but still, most people would be employed).
Twisted logic to make the housing bubble sound ok, is this how blinded we've become?!?!
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
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stinkbug
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Timo
28 Oct 2014, 03:43 PM
Twisted logic to make the housing bubble sound ok, is this how blinded we've become?!?!
Can you even read??? That's not what it was about at all!
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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