"It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: 'And this, too, shall pass away.'" - Abraham Lincoln, 1859
- they didn't mention rising house prices in Australia as being the only exception
"property prices CAN increase by MORE than wage growth, if wage growth is MORE than inflation"
I'm not going to weigh into the debate about who said what and what was technically meant... I just thought, in addition to b_b's post, if you want to get a better idea, I thought you could just use this:
my bases is that: assuming that all other costs they take into account are bound to inflation. simply subtract wage growth from inflation, the result I picked to be 2%.
I put in 60k single income, no kids, no other debts or liabilities ect. it said I could borrow 330k. when I increased the income by 2%, to 61200, the borrowing power increased by 8k, to 338k.
an increase of 2.4%
which is MORE than 2%.
but obviously the amount does not depend just on the difference between wage increase and inflation, it also depends on how much of your income is consumed by everything else, bluntly, how small your income is.
"property prices CAN increase by MORE than wage growth, if wage growth is MORE than inflation"
I'm not going to weigh into the debate about who said what and what was technically meant... I just thought, in addition to b_b's post, if you want to get a better idea, I thought you could just use this:
my bases is that: assuming that all other costs they take into account are bound to inflation. simply subtract wage growth from inflation, the result I picked to be 2%.
I put in 60k single income, no kids, no other debts or liabilities ect. it said I could borrow 330k. when I increased the income by 2%, to 61200, the borrowing power increased by 8k, to 338k.
an increase of 2.4%
which is MORE than 2%.
but obviously the amount does not depend just on the difference between wage increase and inflation, it also depends on how much of your income is consumed by everything else, bluntly, how small your income is.
back to this again ?
Yes... we know. You are the third person to state this... thanks.
The claim is not that property prices can indeed increase by more than wage growth... as long as a set of conditions happen.
The claim was that this could happen forever... it was a stupid claim.
While you don't want to weigh into the debate about who said what, there is little point in your throwing that observation of the conditions that allow it to happen in at the end of it since it is not disputed....
What is disputed is the stupid claim that this can happen forever... that would require the specific set of circumstances to happen forever... do you really believe that will happen ?
What is disputed is the stupid claim that this can happen forever... that would require the specific set of circumstances to happen forever... do you really believe that will happen ?
The only reason it can't possibly continue 'forever' is because nothing can continue forever. At some stage the Earth will no longer exist, and neither will the houses or incomes in question. However it can certainly continue indefinitely. It is technically and mathematically possible for it to continue as long as real disposable incomes are rising, and/or the population is rising - which for the purposes of this hypothetical discussion, means it can continue for as long as the country/planet is willing and capable of supporting an increasing population.
Yes... we know. You are the third person to state this... thanks.
The claim is not that property prices can indeed increase by more than wage growth... as long as a set of conditions happen.
The claim was that this could happen forever... it was a stupid claim.
While you don't want to weigh into the debate about who said what, there is little point in your throwing that observation of the conditions that allow it to happen in at the end of it since it is not disputed....
What is disputed is the stupid claim that this can happen forever... that would require the specific set of circumstances to happen forever... do you really believe that will happen ?
......." The claim was that this could happen forever... it was a stupid claim"..............
Table 2 : Over the last 110 years, average CPI=3.92%pa and average HPI=8.76%pa (4.84% above average CPI pa). I do Not think during the last 110 years, the average wage growth=HPI=8.76% pa, it is more likely only 1%-3% above average CPI pa which is less than HPI pa.
... and yes, I know that, you will say that, 110 years of sustainability is not equal to forever...
Table 2 : Over the last 110 years, average CPI=3.92%pa and average HPI=8.76%pa (4.84% above average CPI pa). I do Not think during the last 110 years, the average wage growth=HPI=8.76% pa, it is more likely only 1%-3% above average CPI pa which is less than HPI pa.
... and yes, I know that, you will say that, 110 years of sustainability is not equal to forever...
Nice table.
The table is specifically Sydney... are we only talking Sydney ?
The table is taking aggregate years and averaging the CPI & HPI growths.. are we now talking about aggregates ?
For this claim to be valid, IMHO every year in the period (forever) will need to have the house price rise higher than the CPI (actually, it would need to rise higher than the real cost of living, but that is another story).
Having this table of aggregate numbers is not a great help support this claim unless we are not talking specifically about Sydney and ignoring any years where house prices do not increase higher than wages... is that now the modified claim ?
The only reason it can't possibly continue 'forever' is because nothing can continue forever. At some stage the Earth will no longer exist, and neither will the houses or incomes in question. However it can certainly continue indefinitely. It is technically and mathematically possible for it to continue as long as real disposable incomes are rising, and/or the population is rising - which for the purposes of this hypothetical discussion, means it can continue for as long as the country/planet is willing and capable of supporting an increasing population.
you forgot one possibility..
People stop believing that hosue prices rise higher than the CPI forever :rolleyes:
This is mathematically & technically & practically possible. It is very simple, it uses the real wage growth on the non-mortgage expenses to support the house price growth > wage growth. Mathematically : house price next year = house price this year x (1+wage growth) + real wage growth x non-mortgage expenses/svr. The only condition is that all non-mortgage expenses increase (on average) in accordance with inflation and the real wage growth >0.
OK it is mathematically possible and I am guilty of being a little OTT on that post. Possible in that if we take much shorter terms, such as 100 or 200 years (which I admit is possibly forever while retaining a society close to what we have), then yes it is possible.
However, if we take forever (or a really really long time) then the difference between those terms and wage growth does become infinitely small and house price increase = wage increases. That was what I was getting at as my post was more intended to be read in light of significant differences between wage growth and house price increase. ie. whole percentage differences.
With regards to wage vs house price growth data: With only a few minutes to spend I wondered what the difference would be. Anyway I googled and Melbourne 1965 to 2010. Wage increased by 7.2%pa. Houses by 9.6%pa.
If this difference continues then in another 45 years houses would multiply by 2.6 times (compared to current median wages). Indeed even this is perfectly possible. However, considering that in order for people to be able to pay that difference since 1965 has required 2 people to go to work and use 40% of their wage to pay off a 25year loan I am left to wonder what social changes would be required to sustain another 45 years of similar growth. And indeed if society would allow, or could disallow, the changes required. The scenario from Shadow is certainly possible (and how I pictured that possibility), however what would the % of median income be in order to provide a 4% rental return? The result is 83% of the gross weekly median earning. Now again, this is possible. However it does mean that houses will hold more than 1 family, or that one full-time person will pay the rent (assuming only 17% effective tax at the median level) while the other income pays for other items.
I am not saying this isn't possible, I know that many people already live like this. It's just what happens another 45 years after that, and another 45 years after that? Or perhaps that there will be 3 full-time workers in each family in 90 years? Who knows, but that is what will have to happen to pay just the rent.
Now if we take the above scenario another few hundred years you can see that there simply isn't enough people to fit into the house in order to pay the rent (even if we make the houses, or dwellings, smaller and smaller). But yes, if we make the difference between price increase and wages smaller, then it will last longer.....but still not forever.
I will add that taking the previous 45 years (or even 110years) is a long long way from forever. And combining past values to predict future values compounds that error. But I have done both here to illustrate the points correctly asserted by others.
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