How the Home Buyers Strike helped Inflate House Prices.
Crazy isn’t it, you would intuitively think that less buyers in the market meant less demand for housing and then the prices would gradually fall – simple – supply and demand has to rule the housing market. Well it does rule the market, but a potential home buyer choosing to go on a buyers strike doesn’t mean one less house is needed in the market unless they move into their mums basement.
As it turns out following generations still formed family units, or moved into a house or unit, either alone or with friends, either way the demand for housing remained more or less the same, except less people who needed a home, bought one, they rented instead.
So who bought houses and units to satisfy this demand – mum and dad investors of course. Perhaps it was slow initially, but the demand for rental accommodation was there and someone had to fill that need. That’s not hard for a couple who have paid off their home and have a solid household income. Any couple in their Fifties with the kids off their hands has spare income and they are looking for investments to add to their retirement nest egg. This group of people still don’t completely trust their superannuation savings to cover all of their needs (sorry financial advisers, they just don’t)
It’s a piece of cake for them, they buy an investment property and let a tenant pay it off for them. Not a problem at all, and they end up with a house fully paid off or at least with substantial equity that they can access if they choose to sell it at retirement.
You can see from this chart home ownership peaked in 2006 just before the GFC hit us. Since then in every state the level of home ownership has fallen, although in WA it has moved up since 2011. Home ownership rates have generally fallen by around 3%. There are over 9 million homes in Australia, so that’s about 270,000 plus homes in the hands of investors that would normally have been bought by home owners because they were talked out of buying. That’s on top of the 2.7 million homes that were already owned by investors.
So why did home ownership rates fall away after the GFC – house prices actually fell in 2008 and interest rates fell, so why didn’t PPOR buyers pile into the market and stay there in numbers, what scared them off. Was it Steven Keen who promised a 40% crash, or was it Gerard Minack, or was it the large number of people who claimed to understand the markets predicting market carnage which scared buyers off.
Let’s look at a few of them.
2011 – Here is Harry Dent predicting a fall of 50% within 2 years – in retrospect a great time to buy in Sydney and Melbourne.
2011 - Here is a video inviting people to join the Home Buyers Strike – it was actually a great time to buy in our two largest cities.
2012 - Here is a video from 2012 of the popular campaign to stop people buying homes at a time when they were far cheaper than they are today. The campaign was successful, but disastrous for those who took part.
2015 – Here is Roger with his annual property bubble video – you can set your watch by Rogers annual bubble calls.
There are hundreds of similar videos on You tube, and thousands of newspaper articles calling “House Price Crash”
OK we can establish that many young buyers have been scared out of the housing market and were replaced by investors, but why would that increase house prices?
That’s simple, in any transaction both the seller and the buyer have to be happy with price negotiated. These investors are not financially stressed, and their long term plan was to hang onto the house, not to sell after just a few years. We have a group of property owners who just aren’t interested in selling. They need some serious coin to tempt them. If they did sell then they would only want to buy another, and transaction costs are high on property – what’s in it for them to sell now? They are more likely to hold until after they retire than sell now, and for many of them retirement is still a long way off.
The members of this group are not upgraders, and they will be taxed on 50% of the capital gains if they sell now. Any capital gains are on top of their salary.
They may have made a tidy profit, but if they wait until after they retire, they will probably expect to make even more. After retirement their income dries up, and at that time their tax obligation on the capital gain made will be substantially less, especially if they are high income earners. Members of this group are not motivated sellers until after they retire, and even then some may just opt to hold onto the properties and use the rental income as part of their retirement income. This group haven’t bought the meme that house prices are crashing – just the opposite in fact.
If a home buyer wants to purchase a home from this group, they will have to offer them more. There will be no bargains to be had here.
Gives lie to the notion that Perth is hotbed of pent up demand.
Given the population growth in the city between the censuses its staggering that the homeownership rate increased by almost 2%.
So why wasn’t there a buyer’s strike in WA? Most likely because there was affordable product.
And why is that not true elsewhere? Because there was a relative lack of affordable product.
Or all those aspirant buyers in Sydney were spooked by Steve Keen.
You decide.
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
Gives lie to the notion that Perth is hotbed of pent up demand.
Given the population growth in the city between the censuses its staggering that the homeownership rate increased by almost 2%.
So why wasn’t there a buyer’s strike in WA? Most likely because there was affordable product.
And why is that not true elsewhere? Because there was a relative lack of affordable product.
Or all those aspirant buyers in Sydney were spooked by Steve Keen.
You decide.
Yes there are much bigger influences in the market than this subject - population growth, unemployment and interest rates matter more than this, but nevertheless when people choose to rent when they otherwise would have bought that means an investor has to fill the need for that households accommodation.
I expect the WA result was partly due to better priced houses as you state, but also the WA government had a much more enticing First Home Buyers scheme. Prices don't seem to be the whole story, if it was what explains the lower ownership rate in Qld where houses are quite affordable. Buyer confidence is a major part of the story, and that confidence was eroded by so many commentators. As it turned out they were wrong. Instead of households buying for their own occupation, investors bought probably at a slightly reduced price due to the strike, but what will it take to get them to sell. They have no intention of selling at this point in time.
Take risks - if you win you will become wealthy, if you lose you will become wise
Yes there are much bigger influences in the market than this subject - population growth, unemployment and interest rates matter more than this, but nevertheless when people choose to rent when they otherwise would have bought that means an investor has to fill the need for that households accommodation.
I expect the WA result was partly due to better priced houses as you state, but also the WA government had a much more enticing First Home Buyers scheme. Prices don't seem to be the whole story, if it was what explains the lower ownership rate in Qld where houses are quite affordable. Buyer confidence is a major part of the story, and that confidence was eroded by so many commentators. As it turned out they were wrong. Instead of households buying for their own occupation, investors bought probably at a slightly reduced price due to the strike, but what will it take to get them to sell. They have no intention of selling at this point in time.
Don't forget Keystart.
No deposit? No problem.
I wonder why other States don't have a State backed mortgage lender with these kind of results.
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
I wonder why other States don't have a State backed mortgage lender with these kind of results.
NT has something similar but I don't know the details.
It can be counter productive for states to get directly involved in lending, they don't have the expertise. What they once did was build housing commission homes which they would sell to long term tenants who paid on time over some years. They would lend to that home buyer at a reasonable rate and they would use a portion of past rents paid as the deposit. That helped a lot of non-wealthy people buy homes that they wouldn't otherwise have been able to buy.
Take risks - if you win you will become wealthy, if you lose you will become wise
NT has something similar but I don't know the details.
It can be counter productive for states to get directly involved in lending, they don't have the expertise. What they once did was build housing commission homes which they would sell to long term tenants who paid on time over some years. They would lend to that home buyer at a reasonable rate and they would use a portion of past rents paid as the deposit. That helped a lot of non-wealthy people buy homes that they wouldn't otherwise have been able to buy.
The cult of home ownership is daft.
There are two few affordable social rental properties as there is without selling them off to tenants.
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
2011 - Here is a video inviting people to join the Home Buyers Strike – it was actually a great time to buy in our two largest cities.
"This is madness. When land prices get this high, the game is over. Land prices must fall. This is the end of the Great Australian Land Bubble. You are about to witness the largest decline of wealth in your lifetime. First Home Buyers who stand aside now will be able to buyer later at much lower prices." -- David Collyer, 2011.
What a donkey. Collyer really needs to apologise for giving out such bad advice.
Sydney prices have doubled since he made this ridiculous claim.
Anyone dumb enough to believe this claptrap (Crazy Ted etc) has lost an absolute fortune.
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