We need speculators to push up prices so they exceed replacement cost. When this happens, developers will be ecouraged to supply more stock.
I think this has happened already in Vic (apartment supply has been strong since 2010), and is starting to happen in Perth. Sydney still has some way to go.
Why does it cost 100-150% more to build a concrete box in the sky now than it did 16 years ago? Even given an inflation rate of 3%, the real cost should have only increased 60%.
While the last economic downturn was great news for house prices (they rose 20% in 18 months), I don't expect to see another economic downturn of that magnitude in the next two years, so I think we'll have more moderate house price growth compared to the property mini-boom we experienced during the last economic downturn.
Interest rates are now lower than they were set after the GFC.
Barring Perth and Darwin, there is no evidence that history is about to repeat itself.
No First Home Owners/Vendors Boost this time either.
Everyone agrees that the future of the Australian economy depends on how successfully it transitions away from mining.
The RBA is (publicly) putting its money on a resurgence in residential construction. If that does not occur, and 35 straight months of contraction in that sector does not bode well, then we can expect to see unemployment rise quite significantly.
There is, ultimately, a reason that interest rates are at 50 year lows after all.
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
But the facts are; - Aust Dwelling completions are running low relative to historic numbers - They are especially low in NSW - population growth is still good - The above suggests either we had a massive over supply in the past and are now working off the excess, or we were in balance in the past and are undersupplied now - I think the latter is more realistic because since 2006 rents in most areas are up 60%
At a macro level, it is hard to suggest there is no shortage (although at a individual market level there can be).
It amazes me, in these "the facts are" arguments, positing a "deficit" in new house construction, that so little attention is paid to how the classic economic demand curve works:
If the price for some key "newbuild" resource rises, then potential consumers will make do with less of it. They will be especially free to do so if there is a large--nay, huge--stock of already-built resource which can be, temporarily or permanently, used more intensively than it was before.
Negative gearing is a form of leveraged speculation in which a speculator borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan
A negative gearing strategy can only make a profit if the asset rises so much in price that the capital gain is more than the sum of the ongoing losses over the life of the speculation. http://en.wikipedia.org/wiki/Negative_gearing
Simon Black The Daily Telegraph May 08, 2013 12:00AM
WORKERS are looking forward to a construction boom after one of the "leanest" periods in memory.
While a recent flood of public projects by the state government is beginning to turn things around, construction project manager David Clarke, 50, says there are many "quality guys" still out of work. "I don't know if I've experienced the market being in a low end like this for this long," Mr Clarke said.
"I know with certain trades ... we've had a lot of guys doorknocking and looking for work. And quality guys; we've had good foremen and supervisors looking for work, which is fairly unusual."
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