the chorus of commentators and analysts calling bubble must be deafening for the bulls
Actually, Alan Kohler makes the point today that if everyone thinks it's a bubble, then it probably isn't. Bubbles happen when we are complacent, Kohler tells us.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
Do you think the current price of land ( the major cost associated with new builds) cannot deflate as quickly as it inflated?
Is there a shortage of it?
Up until 2011-2012 Englobo land was not inflated at all. I have not seen recent data, but for outer Sydney you could buy it for $50-$100 per sqm. For a 400sqm block of land that equals $20-$40k (around 5% of the end price).
So it is hard to see how low this price can fall before alternate users of the land outbid the resi guys. (Alternate use drives englobo land values).
I think you may be getting confused between englobo and developed land. They are two very different things. And yes, there was a shortage of developed land because the cost of brining developed land to market was less than market price.
Not so much now because the price signals are encouraging its development.
The cost of develop land will only deflate if local, state and federal governments can agree on a national plan for population growth, infrastructure costs and other amenities - and who actually pays for it.
Up until 2011-2012 Englobo land was not inflated at all. I have not seen recent data, but for outer Sydney you could buy it for $50-$100 per sqm. For a 400sqm block of land that equals $20-$40k (around 5% of the end price).
So it is hard to see how low this price can fall before alternate users of the land outbid the resi guys. (Alternate use drives englobo land values).
I think you may be getting confused between englobo and developed land. They are two very different things. And yes, there was a shortage of developed land because the cost of brining developed land to market was less than market price.
Not so much now because the price signals are encouraging its development.
The cost of develop land will only deflate if local, state and federal governments can agree on a national plan for population growth, infrastructure costs and other amenities - and who actually pays for it.
good luck with that.
Nah, not a bar of that mate.
The opportunity cost of residential land is using it to grow vegetables or some such.
Land values inflated rapidly because the credit tap was turned on and Australians became a nation of property speculators.
The supply side couldn't keep up (we know this because prices rises are always the result of supply failing to keep pace with demand)
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
Now we have a supply response - at the same time was have constrained supply.
David and Leith have held conflicting positions on supply for as long as I've read MB. David argues the supply response is strong while Leith argues it's very weak. They need to get together for coffee sometime.
Actually, what we need is more centres of commerce. In a knowledge-based economy that's where the jobs are. In the old days you'd work at the manufacturing plant in the suburbs. Nowadays you work at the head office in the city. But you can only build smallish apartments in the CBD and they're undesirable for raising families — especially when there aren't any schools nearby.
I think Leith and David are both missing the bigger picture here.
Actually, Alan Kohler makes the point today that if everyone thinks it's a bubble, then it probably isn't. Bubbles happen when we are complacent, Kohler tells us.
Phew, that's all right then.
let me know when its only Pascoe being complacent.
WHAT WOULD EDDIE DO? MAAAATE! Share a cot with Milton?
The opportunity cost of residential land is using it to grow vegetables or some such.
The price of raw land has always been price at the margin by the "highest and best use". That may be agriculture. It may be Industrial / Distribution. It may even be a Water Park.
Quote:
Land values inflated rapidly because the credit tap was turned on and Australians became a nation of property speculators.
When was the credit tap turned on? 1984 or 2013? Why was there very little supply response in 2011? Why has it surged now? Why have we had very obvious supply cycles for the past 30 years?
This is the problem with Leith's argument. Why has supply pick up in 2012-13 if it was not because of rising price?
Quote:
The supply side couldn't keep up (we know this because prices rises are always the result of supply failing to keep pace with demand)
You seem to be going to great lengths just to agree with me. Yes, supply was weak in 2011 for the reason I keep describing. Prices were < cost.
On that basis, I can accept supply could not keep up in 2011 - there was no incentive to keep up. But with a growing population, something had to give. The result, a burst in prices - followed by a supply response. That is why we are now building 200k dwelling pa now, compared to c130k per annum in 2011.
All very simple stuff so long as you are not trying to keep a dodgy narrative alive.
The price of raw land has always been price at the margin by the "highest and best use". That may be agriculture. It may be Industrial / Distribution. It may even be a Water Park.
Your point?
Quote:
When was the credit tap turned on? 1984 or 2013? Why was there very little supply response in 2011? Why has it surged now? Why have we had very obvious supply cycles for the past 30 years?
This is the problem with Leith's argument. Why has supply pick up in 2012-13 if it was not because of rising price?
When the financial markets were deregulated and Australia took part in the great neoliberal experiment of turning our banking system into mortgage lenders above all else.
I dunno ask Leith. I suspect he will concede, like I do, that increases in the value of established properties does stimulate new supply. Amongst other things: sentiment, the price of money, economic fundamentals, Government policy....
Quote:
On that basis, I can accept supply could not keep up in 2011 - there was no incentive to keep up. But with a growing population, something had to give. The result, a burst in prices - followed by a supply response. That is why we are now building 200k dwelling pa now, compared to c130k per annum in 2011.
All very simple stuff so long as you are not trying to keep a dodgy narrative alive.
Yes, presiding over a situation where our banking system is highly exposed to one asset class and a household sector which is highly leveraged into that same asset class is very dodgy indeed.
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 think he's addressing property investors rather than OO.
1. The strongest argument for selling property would be rising interest rates which would kill the market — but that simply will not happen. Stevens knows what the consequences would be.
2. A reduction of foreign buyers could have a noticeable impact. I suspect we're only likely to see a slight reduction in foreign buying — even if Kelly O'Dwyer ramps up policing and penalties — because locals with PR can buy property for their relatives (who don't have PR) assuming the funds can be transferred into local bank accounts here.
3. A sharp rise in unemployment would have an impact but that would, in all likelihood, come as a consequence of rising interest rates — see point 1.
Interest rates and unemployment are the foundations of the property market.
Everything else is cream on top.
Given the very high cost of selling and then buying back into the market, it's an absolutely heroic call that will go onto the list of other spectacularly terrible prophecies of Davids.
God help us if he drives a car with his eyes shut as well.
Any expressed market opinion is my own and is not to be taken as financial advice
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