A History of Australian House Prices by Philip Soos; Australia’s property market vastly overvalued, driven by debt-financed speculation and relative non-taxation of land
Tweet Topic Started: 13 Feb 2013, 12:37 PM (5,981 Views)
Why do the "decades apart" comparisons represent "a lightyear of difference" vs an adjacent year comparison, other than as a function of increased passage of time? What event or mechanism precipitates a qualitative-based step-change in housing valuations? - ColorBond vs unpainted tin? - Corian vs Formica? - real Granite vs Corian? - Grohe vs Caroma?
AFAIK, hedonic indexes compensate for increases in bedroom/bathroom count, and possibly for square footage increases, but they have no way of accounting for the high-end (or low-end) finishes and fixtures in that one may have invested in one's kitchen, bathroom, or any other room.
In the early 1950s, my mother's parents had the best house in their street. It had:
no inside toilet. running water only in the kitchen. No TV It did have a telephone, but in that respect it was unusual. Hot water was made with a copper or a kettle - i.e no hot water system. It was in what is now a closely-settled suburb of Brisbane but it was on well more than an acre. It had stables. They had electricity but only the lights and the radiogram ran off it.
When my Grandfather was a boy, the kitchen was not attached to the house and there was no such thing as running water. They fetched water in buckets from the pump. Forget about electricity or telephone. Nobody had them.
There wasn't even sewerage in much of Brisbane until the 1970s.
How can you make a constant-quality assessment between housing across that distance? In some ways the house of the 50s was worth squillions, and other ways it was a shack by modern standards. Of course the structure would not be able to be built today because it would not meet wind speed codes or energy efficiency standards (despite that it would have used less energy than a studio apartment today!) for a start.
In the 1950s, it was not that uncommon, if you were a blue-collar worker and had handy mates, to buy a block of land and have your mates come over across a couple of weekends and build your house yourself. You provided materials, food and beer and the promise that you would do the same for them.
On the other hand, I think a sensible comparison can be made between a two houses, one built in the 1980s and one in the 2000s. But the comparison errors compound over time. They don't cancel out.
Nobody is saying hedonic indexes are perfect. They are just better than stratified medians which are better again than unstratified medians. But in the end even the best hedonic index would become worthless once few of the categories in the original sample were represented in the latest sample.
Is a hedonic index perfect? No. Is it useful? Most definitely.
Is a constant-quality index that purports to run over a century useful? Until you show me the method and convince me, as far as I am concerned definitely not. It is more likely to be misleading than to impart any useful information.
But doesn't that also suggest a systemic problem with even such wondrous new-age statistical gimmicks as "hedonic" stratification?
How and where, precisely, does Rismark discount for (i.e. write off) the ongoing investment in "quality" needed to maintain the ongoing "qualititive" appreciation of the housing stock.
If before-and-after comparisons with decades-ago data are "rubbish", that suggests there is an ongoing decay of as-built property values over time, requiring not only "maintenance", but actual "improvement", just to maintain equivalency between long-established dwellings and new ones...
So where is that investment accounted for, in these indices?
I honestly don't know Nipa, but why would Rismark go back to the 19th century? I suspect that they only needed to return to the eighties or whenever they had reliable databases for manipulation in a modern credit era with modern building techniques, and with a modern working family arrangement, at a time when all of those old workers cottages have been either demolished or gentrified.
Creating a reliable algorythm for every house built 100 years or more ago would be just too hard. How would you allow for zoning changes that improve the value even if useage remained unchanged. But going back a couple of decades would be less daunting, and now that we have reliable databases it should be easier.
How they compensate for the homeowner who spends $200K upgrading their home I have no idea. Whilst it's true that the house sale price would likely rise significantly, it's not really a simple house price gain.
It would also mean that international comparisons are suspect if other countries are not using exactly the same method. It's possible that we have been comparing apples with oranges for the last couple of decades.
Any expressed market opinion is my own and is not to be taken as financial advice
I don't mind trolls, but I'd prefer it if the bear trolls could put up some decent stuff like Foundation used to do on GHPC and we could have a decent debate.
Decent stuff like this?
Quote:
Foundation, on Oct 10 2006, 10:21 AM, said:
I assure you, rural / regional areas are sliding fast (except perhaps for WA generally and mining towns). Melbourne has had a dead-cat bounce, yet remains below nominal 2003 prices and around 15% below in real terms. It's index is now retreating rapidly again and I expect it will soon be back below 2005 'slump' levels.
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
Philip Soos today here (and 2 weeks ago in MB with the identical article) attempts to mock the idea that the house price to income ratio is little changed for the last ten years:
Quote:
Ryder quotes Stevens about the apparent stability of the house price to income ratio for around a decade. I personally took an interest in the statistics used to construct this ratio, but my data request was refused by the RBA on the grounds of commercial confidentiality. Eventually, I managed to extract the household income part of the equation (denominator) through a Freedom of Information Act, as this had been constructed using ABS data (the numerator was constructed using data from APM).
It was easy to see why Stevens believed the ratio had not changed for 10 years: the RBA measure of household income was severely inflated, to the point that the median household was ‘earning’ $97,000 in early 2010 (the last year that data was provided). This unrealistically high level of household income deflated the ratio.
ABS survey data estimates household income to be no higher than $74,000, a significant difference. Economists Leith van Onselen and Cameron Murray carefully backtracked through the National Accounts data to reveal the extra artifacts that the RBA had inserted into the household income figure to inflate it.
Here's the chart of the price income ratio published 2 days ago (contained in the OP) indicating that the price income ratio (for which Soos adopts the RBA method) is unchanged for the last 10 years. Surely the same Philip Soos could not have written an article mocking his own chart?
In the early 1950s, my mother's parents had the best house in their street. It had:
no inside toilet. running water only in the kitchen. No TV It did have a telephone, but in that respect it was unusual. Hot water was made with a copper or a kettle - i.e no hot water system. It was in what is now a closely-settled suburb of Brisbane but it was on well more than an acre. It had stables. They had electricity but only the lights and the radiogram ran off it.
How did your mother's parents' house stack up by the early 1960s? How did your own parents' house rate by the early 1970s?
Sure there have been dramatic lifestyle changes over time, but I'd be surprised if they all came in a lottery-win rush after decades of stagnation, for your family or most others.
More likely, as in my own extended family's case, there have been incremental changes over time:
- gradual changes from outside toilets, to inside ones, to heated water, to 2 1/2 bathrooms in a single house, to solar-heated water (I currently rent a house that has grey-water reclamation and solar-heated-water dating from the early 1970s...) - gradual changes from a barely marked driveway, to a gravel one, to one with two paved strips for the tires, to fully paved - gradual changes from nothing for vehicle storage, to a carport, to a garage, to a "man-shed" - gradual changes from propane appliances, to a few electric ones, to solar hot water, to (partial or complete) solar power - gradual changes from essentially hand laundry, to "automatic" washers with external hand-cranked wringer, to fully automated ones, to ones that practically lay out your clothes for you - gradual changes from radios, to stereos with phonograph, to black-and-white TVs, to colour TVs, to basic game consoles, to PCs, to multi-media installations - gradual changes from actual iceboxes, to propane fridges, to electric refrigerator freezers, to standalone fridges and standalone freezers (because for a while in the late 70's, it seemed important to have half a cow in one's freezer at any given time...), to integrated units that make icecubes and cold water.
I'm pretty confident that your grandparents, parents, and you have gone through most of those changes--not all at the same time across the generations, and not all in lockstep with your more- or less-successful uncles, cousins, neighbours, school-mates, or what have you.
But at no point did we all suddenly graduate from rural poverty and deprivation to the Jetsons era, rendering all previous comparisons in real estate and lifestyle values null and void.
So, comparisons across decades--and more particularly, from one decade to another--are valid, because even the most dramatic qualitative increments in household infrastructure or lifestyle elements have not happened all at once across the population, over any set period of years.
So once again: How and where, precisely, do Rismark et al discount for (i.e. write off) the ongoing investment in "quality" needed to maintain the ongoing "qualititive" appreciation of the housing stock?
So once again: How and where, precisely, do Rismark et al discount for (i.e. write off) the ongoing investment in "quality" needed to maintain the ongoing "qualititive" appreciation of the housing stock?
A) This is irrelevant to my assertion that the concept of a "constant quality" index across 11 decades is, on the face of it, specious and silly. I'm still waiting for an explanation as to exactly what is meant by "constant quality" and how such an index is derived. (but I am not holding my breath) Until I get some explanation I will continue to think it is without merit. To say it happens gradually over time is as silly as saying that, since if you increase the frequency of light from a bulb slightly each year it will change from red to blue, you can create a "constant colour" index across the years and say blue is comparable to red. Or, put another way, what kind of structure common in 1900 corresponds in quality to a 3B2B2G hi-rise unit today? How do you justify that? What useful conclusion can you draw once you have made an arbitrary mapping which as far as I can tell is the best that that you can do? How is that mapping better than a simple median to median (or stratified median to stratified median) mapping? If it is actually just a tracking of medians (or stratified medians) then why be misleading and try to pass it off in some way as "constant quality" when it quite evidently is not about constant quality but about constant rank in the pecking order? (which is indeed very meaningful but is not "constant quality.")
B) They don't, and I never said they did. A hedonic index, however, doesn't try to be "constant quality" over time. What it is trying to do is estimate the total value of real estate in the indexed area by dividing them into bins of approximately equal quality *at a given time* and then assigning a value according to which bin they are in. So if a 3B2B house in Cleveland that went for $x last year goes for $y this year, all the other 3B2B houses in Cleveland get their values adjusted accordingly and this flows into the total index. (But 3B1B houses do not get adjusted until some new data comes on on a 3B1B house) This has some useful properties, for example in the case of units where single-bathroom units are suffering in value vs. 2B units because of current fashions in a way that is not able to be tracked by medians or stratified medians or even by location, building age and floor area. People will just pay an extra $70-$80k for a $25k bathroom and that's just the way it is. There is no pressing need to adjust for improved benchtops (although it would perhaps be nice if you could). It is therefore assumed within experimental error that there is a constant improvement/degradation in benchtop quality across all houses.
As houses are demolished, they are deleted from the register. As houses are constructed they get added to the register, and when a house gets changed in one of the tracked variables and as that becomes known (either by google earth or by a sales/rental listing) it gets recategorised into a different bin. As new categories come into existence (e.g. I saw a 2B3B unit listed today. There was no such thing even 15 years ago) new bins are added. As categories die out (e.g. no outside dunnies left in Brisbane or no stables left in this or that suburb) bins get discarded. When you read the index method, you'll notice that all the tracked variables can be discovered from property listings. That's why they don't try to track granite benchtops. It would be nice if you could, but you can't so they don't.
Housing indexes that try to be "constant quality" are useless when you extend them over more than a few decades. There is no "constant quality" when it comes to housing. It's like trying to have a "constant quality" index for cars over the same period.
"Median house" over the same period has meaning, as long as you accept that the "median house" in 1900 was a completely different beast from the "median house" in 2013. It still has meaning because you assume a family with median buying power would live in the median house.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
With the bears and bulls locked in a battle over whether the Australian property market is in a bubble, caused by record low interest rates, intense speculator participation, and skyrocketing prices, it's worth bumping the work of master Philip Soos, the university student who created a chart pack tracking 150 years of Australian housing data.
Oz land prices are wildly overvalued by every conceivable measure. Soos’ charts clearly demonstrate this fact (visit his site for more).
This is the very worst time in Australia’s short history to be long and geared RE.
Cajoling the naive to borrow big and buy at this climacteric is unconscionable, if not criminal.
The looming financial catastrophe threatens more than the innocent.
We have four giant banks stuffed to the gills with consumer mortgages that will be revealed as unpayable when the market turns.
We have two LMI’s that will have to be nationalized or bankrupt their parents and void the risks they assumed.
These economic realities are as plain as a pimple.
I am accused of being an alarmist crashnik, but if I can save some FHBs from these fires of hell, I will have made a greater contribution to the common good that a lifetime of arranging finance and clipping homebuyers’ tickets.
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