Welcome Guest [Log In] [Register]


Reply
  • Pages:
  • 1
Why is housing affordability not an election issue?; High cost of housing in Australian cities denies first home buyers the opportunity to buy
Topic Started: 26 Aug 2013, 06:26 PM (2,112 Views)
Admin
Member Avatar
Administrator

Quote:
 
Why isn’t housing affordability an election issue?

26 August 2013, 6.24am AEST
Ernest Healy

The high cost of housing in Australia’s cities is denying most aspiring first home buyers the opportunity to purchase a home. The current high dwelling prices reflect the long boom of the 2000s, when across all Australian metropolitan centres dwelling prices doubled or tripled, with the sharpest escalation being for dwellings close to inner city amenities and high paying jobs.

One consequence is the extraordinarily high level of household debt in Australia. It rose sharply from 100% of annual household income in 2000 to 150% in 2009. It remains at this level – exceeded only by the Netherlands amongst developed countries. Most of this debt is mortgage-related.

Similar dwelling price escalation occurred in Britain and the United States, among other developed nations. What is distinctive about the Australian experience is that there was no contraction in dwelling prices at the time of the global financial crisis.

To the contrary, dwelling prices surged in 2010 when the Reserve Bank sharply reduced interest rates and the Australian government lured first home buyers into the market via additional grants. Since 2010, after a brief and minor price contraction, prices have moved up again, especially in inner-city areas.

An election non-issue

Notwithstanding this situation, the housing affordability issue has barely rated a mention during the election campaign. The reasons are not difficult to discern. There are far more voters happy to see dwelling prices increasing than there are disappointed first home buyers or their sympathisers.

They include those owning or purchasing a home and the army of investors who hold property. Nearly 20% of individuals in Australia aged 45-64 receive income from a rental property. Their ranks are surging with growth in the Self-Managed Superannuation Funds (SMSF) industry. The rules governing these funds were changed in 2007 so that investors can now borrow to finance a property investment with the accompanying tax advantages, including negative gearing.

What if anything can be done about the situation? Even well-informed economists such as Ross Garnaut predicted that Australian dwelling prices would implode, as elsewhere. Among the factors preventing this outcome has been the continued growth in household numbers flowing from historically-high levels of population growth.

This factor has been strong in Sydney and Melbourne because these two cities are the main destinations of overseas migrants. It is not likely that either of the major political parties will address this issue, because both see population growth as a crucial driver of aggregate economic growth, particularly now that the mining investment boom has abated.

Also crucial (until recently) has been the growth in household income in Australia, due to the strong employment situation and the income boost attributable to the decline in import prices resulting from Australia’s favourable terms of trade and the high Australian dollar. This boost is now going into reverse.

While household income was increasing and young people were confident that jobs were plentiful and house prices would keep rising, they were prepared to take the risk of very high mortgage indebtedness.

A new market phase

However, we are in a new phase of the housing market. The middle-income blue and lower white collar demographic that bought house and land packages on the fringes of our major cities during the boom years is less willing or able to do so.

The risk of taking on the typical first home buyer mortgage of $300,000 (more in Sydney) in the current weakening labour market is considered too great by many. The labour market is most precarious for people from this background. This is the major reason why developers are having fewer problems selling apartments off the plan than they are house and land packages on the fringe. The apartment purchases are by local and Asian investors; the fringe purchasers are locals.

First home buyer demand would be greater if house and land packages were cheaper. This has been a central theme of developers. If only the planning rules were less cumbersome and more land was released for subdivision, this would solve the price problem in their view. This proposition has some merit in Sydney, where it has long been state government policy to limit fringe expansion.

This, plus the fragmentation of broadacre land holding, has meant that very few blocks are available for less than $250,000. In Melbourne, by contrast, there is no longer a land shortage. Developer display signs and sales offices are everywhere. They simply cannot sell what they have to offer. Nor can they discount too heavily because the costs of developing land on the fringe have increased, partly because of Government levies designed to deal with infrastructure deficiencies.

Debt legacy

One of the most disturbing issues now emerging is the extent to which those attracted into the housing market during the boom, and especially during 2010, have a heavy legacy of mortgage debt.

Posted Image

These households are vulnerable at a time when jobs are insecure. As is evident from the table, the potential problem is acute for younger households because over a third of these households are paying more than 30% of their household income in mortgage payments. We have included several of the major fringe LGAs in Melbourne because it is where recent new home buyers have been locating.

As awareness of this predicament grows, is it any wonder potential new entrants to the housing market are holding back?

Read more: https://theconversation.com/why-isnt-housing-affordability-an-election-issue-17371
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
mel
Member Avatar


It's an interesting phenomenon and impossible to understand. At no other time in history do i personally remember high house prices being considered by the masses as 'good' with falling prices akin to the devil. Regardless of anyone's position and market desire i think we could just about all agree that housing affordability *should* be an election issue. At least give FHB's cheap housing in the outer burbs while maintaining prime locations for those who are willing to pay for it.

APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
Profile "REPLY WITH QUOTE" Go to top
 
The Thinker
Unregistered

Why isn’t housing affordability an election issue?
Why isn’t mass refugee immigration an election issue?
Why isn’t private banking cartels an election issue?
Why isn’t Australian involvment in mideast wars an election issue?
Why isn’t the billions we spend on foreign aid an election issue?
Why isn’t the billions we spend on subsidising US pharmaceuticals an election issue?

Because the people who actually control Australia, for profit and destiny, do not want you to have a say in the really important matters that affect the future. That is why you are fed hours of reality TV. Why days are spent discussing kevin rudd's attitude towards his makeup artist. It is why you are kept so busy working 40 or 50 hours a week just so you can pay the interest on the loans for all the things you have been convinced you need in this life.

I don't disagree with this system of keeping Australians out of the process, I applaud it in fact. Most of you, I am afraid to say, are really not up to the task anyway, and are best kept out of the way consuming and providing profits for the corporations. work, consume, sleep, and die. Shhhhhh.
"REPLY WITH QUOTE" Go to top
 
Mallard
Default APF Avatar
Thread killer

Speaking from my knowledge of Sydney, real house prices are the same now as they were ten years ago. They move about within a band, largely in response to interest rates. The adjustment that the RBA talks about happened and prices are where they are. They are unlikely to rise significantly and they are unlikely to fall significantly. That's a perfect situation for politicians to leave well alone.
Collecting desperation.
Ex-Bp Golly April 2 2015. "I see with a slight overshoot -70% [fall in Sydney house prices] as being well within possibility"
Profile "REPLY WITH QUOTE" Go to top
 
Sober
Default APF Avatar


Neither party can risk using the abolishment of negative gearing as a campaign pledge (even if grandfathered to avoid many immediate losers, it's difficult to explain to and interest voters about the net longterm effects, particularly late in the campaign).

And neither party can directly tackle stamp duty, probably the worst single widely-applicable tax in the federation, because that is a state-level problem, and solving it at COAG would almost certainly require an offsetting increase in GST, which both federal parties have sworn not to touch.
Profile "REPLY WITH QUOTE" Go to top
 
Shadow
Member Avatar
Evil Mouzealot Specufestor

Mallard
26 Aug 2013, 07:35 PM
Speaking from my knowledge of Sydney, real house prices are the same now as they were ten years ago. They move about within a band, largely in response to interest rates. The adjustment that the RBA talks about happened and prices are where they are. They are unlikely to rise significantly and they are unlikely to fall significantly. That's a perfect situation for politicians to leave well alone.
I broadly agree with this. Although Sydney house prices are much higher in nominal terms, they are a bit lower in real terms and a lot lower relative to incomes than they were a decade ago. I also expect Sydney prices to move about within a price/income band, with 2003 price/income ratios being the approximate upper boundary. Of course, nominal prices have a fair bit to rise over the next few years before Sydney prices get back up to the price/income ratios last seen in 2003.

As for why housing affordability is not an election issue... this is because it's just not an issue that worries the majority of voters. If you spend every day hanging around sites like APF and Macrobusiness, and reading the comments in MSM housing articles, you would start to believe everyone in Australia is talking about how unaffordable houses are. You get a warped view about what's concerning the public at large if you spend all day on sites like this. The truth is the people who visit and comment on such sites are a tiny (but vocal) minority. The vast majority of voters don't spend time worrying about house prices. If you ask people whether housing affordability is important they will obviously say yes, it's important since everyone lives in a house, but if you ask them whether they personally find housing unaffordable, they will mostly say no, because most people can afford the home they live in. And if you ask them whether they want house prices to fall, they will also say no.
Edited by Shadow, 26 Aug 2013, 09:09 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
Profile "REPLY WITH QUOTE" Go to top
 
stinkbug
Member Avatar


Mallard
26 Aug 2013, 07:35 PM
Speaking from my knowledge of Sydney, real house prices are the same now as they were ten years ago. They move about within a band, largely in response to interest rates. The adjustment that the RBA talks about happened and prices are where they are. They are unlikely to rise significantly and they are unlikely to fall significantly. That's a perfect situation for politicians to leave well alone.
Well said, I broadly agree as well.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

Profile "REPLY WITH QUOTE" Go to top
 
Guest
Unregistered

Housing affordability problem? What problem – the Chinese can easily afford to buy our properties, so there is no problem! Not only that, anyone who already has property rejoices at higher prices – it is always trumpeted from the newspapers as a good news story.

Why bother with Australians when foreign buyers, especially Chinese are buying hand over fist?
"REPLY WITH QUOTE" Go to top
 
Guest
Unregistered

Sadly, I think it will probably be another decade before it becomes an election issue, that is, if the bubble hasn’t popped by then.

There is still too much money in the form of inheritances and legs-up from cashed-up boomers, and the older generation, so housing affordability won’t become an issue until there is a larger and more vocal number of people priced out of the property market.

As long as prices keep rising, and and long as people are finding the money to buy, or as long as we keep selling off Australia to foreigners, then it will not become an election issue.

Sorry to harp on about the foreign investment, but remember when would-be home-buyers were kicking up a stink a couple of years ago because they were priced out by foreign buyers? There was a response at the time – the useless FIRB was set up, but of course nothing changed. It just kept the masses quiet, thinking that the laws had been tightened up.
"REPLY WITH QUOTE" Go to top
 
Chodley Wontok
Member Avatar

Housing affordability isn't an election issue for a few straightforward reasons.

Let’s start with 2/3 of people either owning their own home outright or paying off a mortgage. The last thing they would be interested in seeing is a fall in nominal prices. You cant convince the baby-booming element (the vast bulk of those who own outright compared with those who have been suckered in to paying off a mega mortgage) the future is being held to ransom, because they are too busy trying to make sure they have poll position on the public funding teat for super, pharmaceutical benefits, sundry pieces of welfare spending, and low taxes. The fact that they also constitute about 2/3 of the investment property owning types involving an outlay of about $4 Billion on negative gearing (compare that with the sums outlaid for manufacturing support) means that trying to wean the Australian public off that could pose some issues for the body politic. Negative gearing of course is the gimp of Australian politics insofar as nobody is allowed to mention it in public, let alone question the logic of outlaying $4 Billion to encourage 1.2 million investment property owners to run their properties at a loss, or why it would apply to existing real estate rather than new construction only. Going there is like asking for a form of political Ebola virus.

The media sees this 2/3 and simply plays up every last scintilla of hour price rise, and of course it is held firmly by the fiscal nads by a Real Estate industry which is one of the major sources of revenue for the cash strapped commercial TV field (hence the plethora of home renovation TV shows) the print media (hence the eminently superior production values of any real estate related insert in any print, not to mention the complete skewing of all print media related coverage, and the omnipresence of the mantra ‘there has never been a better time to buy real estate’ on the radio waves.

That media plugs the punting masses straight into the government. That's the same no matter what side of politics one votes. That government sees domestic real estate construction as the only viable means of maintaining aggregate economic demand in the face of a mining capex downturn of the type we will have over the next couple of years – stimulus elsewhere quickly leaks overseas, whereas if the money is spent on housing construction then at least some people are kept busy until such point as those tradies spend the money on a new TV. Treasury and the RBA aren't dills, they know that punting types wont spend on housing construction if house prices are falling, so they have propped them up with rate cuts.

Those rate cuts have benefited first and foremost those who have access to investment funds – lets say those who own their own home and can mortgage it to invest in something else, which is largely the same one who have the first dibs, in the best circumstances, at their super, but for general purposes we can call them baby-boomers too. The first access of these types to funds for investment purposes should be most obvious to the casual observer at any given auction in the inner suburbs of Sydney or Melbourne who happens to note that there seems to be a remarkable absence of young buyers and a remarkable predominance of those people who would appear to be in the ‘golden years’ and have no inclination to invest in anything other than existing bricks and mortar because they have been given the message loud and clear that real estate never goes down by governments of both persuasions who have bent over backwards to ensure that that is indeed the case. They tend to be of the view that if there is a major economic meltdown then property will be the safest place to be, and that if the economy is to boom then that will be most overtly felt in the real estate sector. They aren't concerned about subsequent generations – they once were a subsequent generation and they didn't feel it was that difficult, and have no regrets about the title being held by generations X and or Y currently.

Of course the other major participant at any given inner city auction will be the migrant community, with migration running at historically high levels, and absolutely no questions asked about where they get the money from (and if someone’s uncle is a corrupt member of a politburo somewhere then the Foreign Investment Review Board appear not to actually man the gate, and not actually ask if visa requirements are being met). The net effect of this is to underline in bold (if not emboss) the idea that real estate can never be allowed to decline in price.

From here we move along to the various state governments who by and large have twigged to the idea that stamp duties on real estate sales are a fine basis for funding their operations, and that it just so happens that if they restrict the supply of residential land then the price for existing residential land actually rise and that the net effect is that they get more money from the stamp duties because the transaction prices are higher. To help ensure that their operations remain on a somewhat plausible budget footing they have ceased funding services to anywhere not in the major urban centres, which helps to support demand to live somewhere within cooeee of the centre of a large city.

Then we have local governments who have worked out that charging developers up front for services makes sure that they get their dough first up and that if that happens to ensure that prices are somewhat higher for anyone looking to buy a new build then that's just the market in operation and it isn't their fault.

Next up come the property developers. They have invested vast sums in hoarding a generations worth of land and having outlaid such sums (for which they have tended to borrow from the obligingly supportive banks) they are not inclined to get back anything on their investment which may not keep shareholders and banks perfectly sated. They tend to be aware that the younger first up buyer is a little reticent to go into debt to say the tune of maybe 300-400K so they have obligingly trimmed land parcels from the 700+ metres a generation ago to maybe 350-400 metres these days in places in the boondocks from the major urban centres. Somewhat surprisingly sales are currently slow.

Of course the backstop to the whole shebang is the banking system. Australia has the worlds only banking system which lends 2/3 to mortgages on real estate (which many economists would tell you tends to fall under the heading ‘unproductive investment’) and 1/3 to whatever it is that could conceivably be more productive for the economy (but tends to be less so for the banks). That banking system currently borrows about 20% of what it lends out for from the wholesale capital markets and what it borrows is invariably collateralized by whatever the bank has its hand on which global markets may take as collateral – lets say mortgages, shall we? This in turn means that if there is anything in this world which might conceivably reduce the value of the said mortgages then presumably the global capital markets may ask Australian banks for more and may conceivably ask them to pay an increased rate of interest (nobody wants to go there, as we tend to have a large number of bank funded property investors who are restricting their repayments to interest only despite the lowest interest rates in 50 years – they may not be speculating one could argue, but given the mantras in play you would ask why they weren’t, as it seems for sure a one way bet).

There is a load more but the basic themes will run off these.

This is why nobody wants to touch housing affordability, and why both sides of Australian politics just want the Australians of tomorrow to shut up and suck it up. They can have the houses when they can pay the market price, and if they don’t then the Australians of today will just find someone else who will, and if the Australians of tomorrow just happen to need to work eternally in fairly uncompetitive workplaces, then that isn’t the fault of the Australians of today or the people they put into power at elections. That is just the way democracy and economic happens to work and the Australians of tomorrow will simply have to get over it.
Profile "REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
Go to Next Page
« Previous Topic · Australian Property Forum · Next Topic »
Reply
  • Pages:
  • 1



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy