I find it interesting that rents have levelled off in most cities in the past year. I think this is partly due to increasing unemployment and the large rent increases that have occurred in the previous couple of years. With investors now appearing to be chasing capital gains and sending prices higher I don't think rental yields have much capacity to improve anytime soon.
Before this last push higher, and still today in Brisbane and Adelaide, rental yields were/are high. One way or another I expect yields to go down from here, not up.
BTW on a same-property basis, rents still seem to be mostly up by slightly more than inflation in Brisbane. What is different from normal is that there have been a couple of periods in the last 12 months when they have gone very flat. There was an upward push last October and this June/July, but the January/February rent rises did not happen this year.
The last time rents went flat in Brisbane (2004-8) it was because FHBs were buying places in droves and quitting their rentals. This time I think it is because there has actually been quite a lot of cheaper infill/urban renewal stuff that was selling after completion at prices so cheap that they *almost* stacked up as IPs. Near-CBD competition has gotten stiffer.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
If you look at the figures such as vacancy rates, population growth and housing construction I don't really see much likelihhod of housing construction increasing significantly. There is no strong evidence of a housing shortage. The current build rate appears to be about right to me. With unemployment increasing, household density will also increase thus lowering the need for higher housing construction. The contribution of housing construction to GDP is also not as significant as you might think and it dwarfs in comparison to the forecast drop in mining capex.
GDP = C + I + G + X - N
Mining capex impacts I.
Housing construction impacts I and C. That is why you do not need dollar for dollar replacement.
Rents are up in Sydney 60% since 2006. And supply has been below trend over this time frame. We need tones more dwellings - at least in Sydney.
Yes - it will be replaced by housing construction. Unlike mining capex, housing construction has an insane multiplier effect. So it does not need to be a dollar for dollar replacement. I think the renter will always pay rising rents. Along with air and food, shelter is a high priority item. As rents rise, Other industries will suffer first (car, travel, retail, etc).
Why isnt it doing that then? Just transferring over to new builds?
Thats been the plan for ages.
To date, all we have got is banks throwing money at investors in established builds
In other words, business as usual.
I am officially a sceptic.
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
Why isnt it doing that then? Just transferring over to new builds?
Thats been the plan for ages.
To date, all we have got is banks throwing money at investors in established builds
In other words, business as usual.
I am officially a sceptic.
We will get new builds when the value equation between new and existing stock warrants it. House prices now exceed replacement cost in Sydney. I expect an increase in new supply in 2014.
Yes - it will be replaced by housing construction. Unlike mining capex, housing construction has an insane multiplier effect. So it does not need to be a dollar for dollar replacement.
but then it brings us full circle to OP .. . housing construction is not going to magically start... the investment for it is not there, yet... it should have been there the last 10- 15 years in the boom , but it was focussed on speculating on the values of developed suburbs instead... ( and as far as i can tell, government spending in Perth focussed on city center ) a lot of people have stretched their credit in these areas, so there isn't as much available to get pushed into the newer regions as needed.
Therefore need more income growth and employment to pick up the slack ... but mining has stalled a little.. so we need other industries to kick in .. but they cant compete on global scale because of the dollar...
Quote:
“You need housing construction – it’s the big one – to come on line. The problem with that is, as we know particularly in Sydney, there are a whole lot of structural issues around the periphery, which make it difficult for that to kick in.”
“What they would rather is have a higher or the same cash rate and a weaker exchange rate.”
signs of rock and hard place for RBA ...
edit: thought i'd add - in perth, with the employment of laborers falling, you would expect a good government contract to come online after a period of great wealth .. but the states' credit rating has dropped and its in the process of selling assets, not creation...
To date, all we have got is banks throwing money at investors in established builds
When an IP changes hands, a new loan pays off an old loan. There has been a lot of IPs change hands lately simply because as people get older they liquidate illiquid investments and go into more liquid investments. There's been 5 years where people did not want to sell so it is catch up time.
Other than transaction costs, no capital is committed in the deal.
When you build a house, on the other hand, capital *is* committed. When you build a house nobody wants to live in, capital is destroyed.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Are you suggesting that Australia, uniquely, has found the recipe for endless prosperity?
You know, its not that long ago that Ireland was "the envy of Europe".
No, I'm saying that right now, and over the recent past (the period we are discussing, and you are whinging about), Australia is the envy of the world, very wealthy, high income, strong employment, peaceful, relatively egalitarian society, with a top two ranking in the UN human development index.
Sure, things might change in the future. They might get worse. Or they might get even better. The future is unknown.
If things get substantially worse in the future then you might have something valid to complain about.
But right now, you are complaining about the current state of affairs in a country that is traveling better than pretty much anywhere else in the world.
Which countries do you believe are doing better overall than Australia right now?
The problem for the RBA is that Australia is not one property market and each market has different characteristics. Broadly applied macroprudential controls could certainly help manage values in Sydney, but may damage other markets which are not seeing these sorts of price increases. If the Sydney market is the focus then you need to fix the structural problems. There are vast tracts of land suitable for property on the periphery but that is some 60 km from the CBD. If that land is to be available affordable, and be attractive for occupiers, then we need massive investment in roads, trains, schools etc – i.e. all the things that make them attractive places to live. Otherwise people will continue to compete for more expensive property closer to the CBD, and drive values ever-higher. A country-wide government with vision should consider substantial initiatives for decentralisation along the lines commenced by the Whitlam government in the 70s with their “Growth Centres” strategy.
There are vast tracts of land suitable for property on the periphery but that is some 60 km from the CBD. If that land is to be available affordable, and be attractive for occupiers, then we need massive investment in roads, trains, schools etc – i.e. all the things that make them attractive places to live.
yep... typically in a boom time you would expect these things to be built (and subsidized) because of the excess wealth lying about.
instead in this boom cycle it all went into existing , developed areas... some rezoning / infill , some beautifying, some refurbishment, and a whole truckload of speculation on values..
so now we have hit slowdown, where significant proportion of the wealth of last boom was invested in wrong areas, leaving less capital to try make up the difference at higher costs. (edit: not saying capital is not available , just that those who have access to it are not going to use it in these areas.. they want to invest in another inner city apartment or whatever and see no gain in new housing )
brave new industries and investments should be springing up all over the place now - increasing interest in outer areas. but the (willing) capital and infrastructure to do so is currently not there.
edit: this is where china is getting it right.. they earned income from running cheap factories for the world ... government used funds to invest HEAVILY in infrastructure in NEW areas (roads and train lines are displayed as giant monuments to prosperity and progress all over the country - nothing subtle about them ) , and then creates industry and places people WANT to move to and live there life... that gets the ball rolling and GDP flourishes out of it ..
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