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Saul Eslake's six reasons for the Australian housing bubble
Topic Started: 28 Oct 2014, 11:08 PM (689 Views)
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From the SMH blog, Saul Eslake’s 6 reasons for the Australian housing bubble:
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http://www.smh.com.au/business/markets-live/markets-live-miners-energy-under-pressure-20141028-3j0h5.html

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• First, research suggests homes in cities with populations of over 1 million tend to attract a premium, and the “proportion of Australians living in cities with populations of over 1 million is higher than in anywhere else in the world, apart from Hong Kong and Singapore”.

• Second, Aussies cities are spread out, and public transport and arterial roads in the outer suburbs are “generally inadequate”. Hence city dwellers prefer to spend more on housing to live nearer the centres of work to cut commuting time.

• Third, our properties are bigger than other countries.

• Fourth, we have become a lot richer over the past two decades. And rich people like expensive housing.

• Fifth, we have a shortage of housing. Supply has not kept up with our relatively large immigration intake.

• Finally, Aussies are more likely to invest in housing than other populations thanks to “substantial incentives” from the tax system.

Eslake adds that all this doesn’t mean house prices are set to rise further, or that they are likely to fall, although he notes that to see a decline “it would require a combination of circumstances that are difficult to envisage occurring any time soon”.
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miw
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28 Oct 2014, 11:08 PM
From the SMH blog, Saul Eslake’s 6 reasons for the Australian housing bubble:
First a correction: Saul Eslake did not give the reasons as "reasons for the Bubble". In fact, if you read his last statement carefully, it is pretty obvious that he doesn't think there is a housing bubble. The only mention of the word "bubble" comes from the cross-poster, who is clearly being dishonest again.

Beyond that, I would tend to agree with all of Eslake's reasons and even think he has them pretty much correctly in order of importance.

I don't think he has the final reason quite right. Many other countries give even stronger incentives for purchase of real estate but have lower multiples. But to the extent that removal of the incentives would probably lower prices by a small amount, it is technically correct. But the way housing is taxed overall certainly contributes to the price a lot. Compared to most other countries, taxes that amount to being holding costs and transaction costs (rates, land tax, stamp duty) tend to be low, while taxes on supply (GST, developer contributions, planning fees, stamp duty etc) are very high. This basically means that, on average, supply will always be constrained.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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Emmanuel
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miw
28 Oct 2014, 11:32 PM
First a correction: Saul Eslake did not give the reasons as "reasons for the Bubble". In fact, if you read his last statement carefully, it is pretty obvious that he doesn't think there is a housing bubble. The only mention of the word "bubble" comes from the cross-poster, who is clearly being dishonest again.

Beyond that, I would tend to agree with all of Eslake's reasons and even think he has them pretty much correctly in order of importance.

I don't think he has the final reason quite right. Many other countries give even stronger incentives for purchase of real estate but have lower multiples. But to the extent that removal of the incentives would probably lower prices by a small amount, it is technically correct. But the way housing is taxed overall certainly contributes to the price a lot. Compared to most other countries, taxes that amount to being holding costs and transaction costs (rates, land tax, stamp duty) tend to be low, while taxes on supply (GST, developer contributions, planning fees, stamp duty etc) are very high. This basically means that, on average, supply will always be constrained.
Now you're making some sense.

1. Saul has embedded in his words the fact that "there is no bubble".

2. Our supply is constrained partly because of tax. This keeps people in work through the public sector and it keeps public revenue flowing.

You've nailed it.
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