Piece of mine below on the Drum allowing freedom haters to ventilate their lungs. Dierdre McCloskey style I decided to stay on and contest many of the adverse comments.
The NSW budget allocated $561 million to promote increases in new housing. Part of this was for grants to new buyers of $15,000 plus remission of stamp duty on new houses priced up to $650,000.
The $650,000 limit is around the median-priced Sydney home. Sydney has had the most draconian regulatory regime imposed on it since the days of Premier Carr, and its house prices are a fifth higher than in Melbourne, and 50 per cent above Brisbane’s.
But all Australian cities have massively overpriced housing compared to their counterparts overseas. In relation to median family-income levels, Demographia puts the average Aussie home 60-80 per cent above that in the US and Canada.
In fact, in relation to incomes, average Sydney prices are over three times average prices in comparable major US cities like Atlanta and Dallas, and even two-thirds higher than Los Angeles in regulation-wracked California.
This sorry picture is not caused by the cost of building houses themselves. The weekend newspaper pages around Australia have many ads for three-bedroom, two-bathroom, two-garage houses on your own land priced from $140,000.
The cause of high prices lies squarely with regulatory approval processes. Starting with the designation of land as potentially available for housing development, there are mountains of approvals to gum up the process of building the house. In Melbourne, the Growth Area Authority identified 540 separate regulatory ticks required from when the land was designated as approved for housing and a house’s completion; Sydney would have more.
This restrictive approach starves supply, driving up the price of a block of land (serviced so it includes water and sewerage facilities, roads, electricity and so on). Further costs result from the inevitable days and holding charges and plan modifications required by the regulatory agencies.
Without restraints on subdividing land for housing, a serviced block would cost around $80,000. Regulations over land boost this by $250,000 and more, converting a house-land package from $220,000 to $400,000 and more. And yet, notwithstanding national parks and mountains, there is no shortage of developable land on the outskirts of Sydney or any other city in Australia. Sydney’s County of Cumberland has enough developable land to expand by 50 per cent without any expansion in the Blue Mountains.
In Sydney, the underlying demand for new houses is upwards of 60,000 per annum, but government regulations mean developers have struggled to get half this amount approved. Victoria’s performance has only been a notch better.
In both Sydney and Melbourne, state governments are now taking steps to ease the regulatory planning impediments. Such measures would entail considerable savings to new home owner. In the case of Sydney, they would be worth tenfold the value of the subsidy packages.
For NSW, budget measures seek to provide up to 76,000 additional new housing lots. But even if these survive the regulatory thickets and are completed over a five-year period, they will add only 15,000 new houses a year to existing annual supplies of, at best, 30,000. With the underlying demand in NSW at over 60,000 new blocks a year so that even the target is met, it will leave ongoing annual shortfalls of 15,000 blocks.
NSW Treasurer Mike Baird has allocated $50 million to help expedite the planning process time. There are undoubtedly measures that can be taken to better computerise applications so that developers can see where the process application is within the planning and approval network. And more administrators might expedite processing times. But the real problem is not the state and local bureaucracy but the bevy of environmental, cultural, anti-sprawl and cost enhancing requirements that successive governments have enacted.
These regulatory measures have been in response to pressures from noisy groups. And those pressures are not abating – in Victoria Planning Minister Mathew Guy announced a 30-year plan for 37,000 new greenfield approvals – that’s 1000 blocks for year in a market where underlying annual demand is over 40,000. He faced the usual pressures against the proposal from a mixture of environmentalists and planners, people who want to impose their own preferred living situation, and its associated cost premiums, on those not on the home ownership ladder.
Such pressures have been crucial in creating the accumulated regulatory barriers to allowing inexpensive houses to be built.
Additional funding for administrators and a piecemeal expanding of the urban growth area boundary is of only limited help in increasing the available supply of land on which housing is permitted. Even if the growth area boundaries were to be eliminated, this would be only the first step in expanding market supply. It needs to be accompanied by Governments eating into the array of regulatory impediments preventing developers from providing the houses that consumers want at an affordable price.
Finally, as pointed out by Greg Jericho, house prices boosted artificially by regulatory measures create illusionary wealth. As housing comprises the greater part of most Australians’ wealth, unwinding the regulatory scarcity can bring about financial pressures on banks and on households. The housing bubble in the US was really confined to the west coast, Florida and some east coast markets, and prices fell much less markedly in states like Texas which have never had regulatory-induced land shortages driving up prices.
The US housing bubble burst as a result of a collapse in demand. Australian state governments aim to generate an increase in supply to allow more gradual downward pressure on prices. If they are successful, existing home owners will suffer an apparent loss of wealth.
Nevertheless, house prices have been artificially boosted in Australia and need to be allowed to fall so that they reflect their true underlying value. Without this, younger people who are presently priced out of the market will face continued discrimination and as a community we will be wastefully spending too much on housing.
Alan Moran is the director of the deregulation unit at the Institute of Public Affairs. View his full profile here.
Out homes are bigger on average though, aren’t they? I know there’s a lot more too it than that, and that government policy probably makes up half the cost, but still…
Fleeced
21 Jun 12 at 12:51 pm
Reminds me of
Well done. Your rebuttals add even more value in highlighting some of their muddle-headed “arguments”.
Gab
21 Jun 12 at 12:59 pm
Agrred, but there’s already been huge price falls. There’s about 300 different real estate markets in Australia and it’s no use looking at them as one behemoth.
Ask someone from the Gold Coast how there home is tracking. Homes in Perth’s western suburbs cost less than they did 6 years ago.
Infidel Tiger
21 Jun 12 at 1:01 pm
Good point, Alan. This needs to be driven home (sorry) at every opportunity.
Gab
21 Jun 12 at 1:03 pm
Here’s an awesome map of a housing crisis:
http://www.zillow.com/visuals/negative-equity/
Infidel Tiger
21 Jun 12 at 1:03 pm
Agree with Alan that house prices need to fall but no government ever wins votes by allowing the main component of those voters’ wealth to decline in value …
Matt
21 Jun 12 at 1:04 pm
Bigger than homes in America and Canada?
twostix
21 Jun 12 at 1:04 pm
Around where we’re looking to buy two years ago there was nothing under $400,000, there’s now decent houses going for $340,000+ and still dropping.
It’s a tourist / retirement area and people are purging their investment properties like crazy, the map on realestate.com.au is a sea of red…
twostix
21 Jun 12 at 1:08 pm
In Sydney the regulatory barriers extend to developers ie the people who build houses.
They are treated like paedophiles, prohibited from making political donations and virtually disenfranchised. They find if very difficult to negotiate the regulatory jungle.
In my local council elections in 2008, every single candidate was anti-developer.
DavidLeyonhjelm
21 Jun 12 at 1:18 pm
Alan, you mainly quote data for Sydney/NSW, is there comparable data for other capital cities/states on the costs of govt regulations?
Capitalist Piggy
21 Jun 12 at 1:24 pm
This is an important article with an important message.
daddy dave
21 Jun 12 at 1:25 pm
Hi Alan,
I’ve written extensively here before about why house prices in certain areas will not fall, despite people demanding that they do.
One of the major distorters of demand that could be examined is the impact of immigration rates of 300,000 plus per annum.
Prices won’t fall until demand does. Slashing immigration (a must given the infrastructure inadequacies now so painfully evident in Sydney and Melbourne for example) is one very quick and easy way to ensure this.
However, there will be an electoral backlash, as pointed out by Matt above.
I do however agree with your points about the absurdly regulated and restricted supply of new blocks.
And another thing, people do not like living in shoddily built absurdly expensive shoeboxes – which has been the vast majority of the newly released proximate housing stock in Sydney over the last two or so decades.
The architect of this obscene, socialist bollocks that has ensured greatly reduced living standards?
Why, none other than boob ‘festering corpse’ carr, the then premier of NSW.
Rabz
21 Jun 12 at 1:33 pm
Going off other areas where the drops have occurred, most overpriced regions in Australia (read – most regions) will see a further drop in the order of 30-40% current value before this drop tails out.
Government asset pumping like this only lasts so long and is basically buying time.
Only logical way forward for the next 5 years is to own outright and not sell or to rent and let someone else carry the can.
Driftforge
21 Jun 12 at 1:36 pm
Demand isn’t determined solely by change in population. There is also capacity to pay |and / leading to| change in household demographics that come into play.
Really, the only people eager to take on more debt at the moment are the young ones driven by the ‘dream’ to get into their first home.
Driftforge
21 Jun 12 at 1:40 pm
True, but you won’t see significant falls in price without some sort of population reduction or stabilisation. People have to live somewhere and buying property to rent is also quite lucrative due to the tax breaks.
There’ll be no fall in demand among renters while prices remain as high as they are.
So you could target negative gearing as well – that would lead to a flight from the market.
Rabz
21 Jun 12 at 1:48 pm
Sorry – a flight of investors from property ownership, which would drive down prices.
Rabz
21 Jun 12 at 1:49 pm
Or you see what happened elsewhere in this situation, which is that more people started living in the same houses.
Driftforge
21 Jun 12 at 2:11 pm
“One of the major distorters of demand that could be examined is the impact of immigration rates of 300,000 plus per annum.”
Where are you getting your figures? The latest numbers I saw were just over half that.
“you won’t see significant falls in price without some sort of population reduction or stabilisation.”
All we need is a fall in the ratio of price to income, not a fall in price per se.
Jarrah
21 Jun 12 at 2:11 pm
I recall reading that to be the case, yes.
Fleeced
21 Jun 12 at 2:15 pm
In inner-city Sydney, the gross rental yield on a one-bedroom apartment is 4-5%.
The real cost of capital over the previous few years has been 3-4%, so even allowing for maintenance you don’t need tax incentives for this to be a positive carry.
If you look at two-bedroom places and beyond it’s less rosy – I haven’t looked closely but the yield seems to be around 2-3%.
John
21 Jun 12 at 2:29 pm
For the next 15 – 25 years the biggest driver of price declines will be Baby Boomer investors who have only 10 or 15 years left in the workforce but a 30 year loan (or an interest only infinite term loan) on their Investment Properties.
Negative Gearing is great when your earning a high income but a disaster when your not.
Max
21 Jun 12 at 2:30 pm
No productivity increases since 2007.
Where the hell are you going to get legitimate real wage increases, you zonkhead jazzabelle.
Jc
21 Jun 12 at 2:38 pm
Without capital gain it doesn’t matter what your income is.
The reason house prices haven’t fallen further and faster is that unemployment has remained low. Nothing like people losing their jobs and some forced selling to really test the housing market.
H B Bear
21 Jun 12 at 2:39 pm
Quote:
“In Sydney, the underlying demand for new houses is upwards of 60,000 per annum..”
Victoria: “in a market where underlying annual demand is over 40,000″
That’s 100,000 “new” houses in two states? Where do these demand figures come from? What constitutes “demand” – is it “Gee, I’d like to own my own (new) house one day”, or “I’m desperately trying to buy a (new) house but I can’t find one within a 3 hour commute”.
What about the demand for existing houses? What about extrapolating the alleged underlying demand in two states to nation-wide proportions – are we looking at underlying demand for (new) houses at 200-300 thousand nation-wide?
A (new) house for all those 300,000 immigrants?
Methinks the demand stated may not be accurate. I am not objecting to the core premise of extortionate and convoluted local authority property requirements, but proper analysis of this very important industry is essential.
Kaboom
21 Jun 12 at 2:42 pm
True also – this is going to be a blood bath
Max
21 Jun 12 at 2:43 pm
Don’t forget to adjust house prices for inflation. Accepting that there are in effect hundreds of markets, in the places where prices have been stagnant a decade of inflation has taken 30% (give or take) off the number. A large but practically painless adjustment.
Rafe
21 Jun 12 at 2:48 pm
From the ABS – Net Overseas Migration:
That is, NOM was 299,900 persons in 2008-09.
You are wrong, yet again.
Rabz
21 Jun 12 at 2:49 pm
Also there is my theory, which is that there is a NEXUS yes! a nexus between the socialist propaganda generated by media tools of Labor governments and forced down the throats of Age readers and ABC watchers to the effect that “urban sprawl” is bad and awful and will kill the environment and all the people with plazzies and SUVs in the McMansions are tasteless arseholes, whereas inner city high density living is so hip and cool and the cafe lifestyle et fucking cetera.
The key issue being that inner city high rise development entails working at multi-story heights and so fall within a MUCH higher level of OHS regulation, involve much higher single amounts of investment, so much higher numbers of workers on site, and therefore all that work is highly unionised. A present to the unions. Do you see?
Whereas McMansions are far more likely to be built by sole operators and not necessarily friends of the union movement.
So allowing or encouraging proliferation of regulations has had the added appeal of also delivering a big backdoor gift to unions: Chronic, creeping “major projects”.
Also then less incentive to compete on price when the only other game in town is the high rise with all the added union costs built into their prices.
That’s my theory.
Ooh Honey Honey
21 Jun 12 at 2:51 pm
The obscene slow release of new land is the main cause for high housing costs. Bob Carr caused the problem that is occurring today. He cut a swathe through new land that could be rezoned and then gave local government control (not the Department of Planning) over subsequent rezoning for housing.
He knew, once he gave this power to that motley crew of Local Government with its usual suspects of Town Planners, Engineering Departments, Environmental and Biodiversity disciples and anyone else who wanted a say, would slow it down almost to a halt.
Now he is running around the world like a chook with its head cut off! God save us.
Hubert East
21 Jun 12 at 2:56 pm
I live in the SW of Adelaide, approx 12KM from the CBD. Labor policy over the last 10 years to to have considerable suburban infill. OK can live with that but what has happened in th Marion, Ascot Park, Parkholme, etc areas is that all the older Housusing Trust Duplex have been bulldozed but there has been virtually no bebuild taking place. So there are many a street with considerable former blocks without houses.
I’d suggest holding supply to drive up the prices!
Mike
Mike of Marion
21 Jun 12 at 3:03 pm
Rabz,
Your data is old, and Jarrah is correct, NOM is less than 300,000 pa, in fact its less than 200,000 pa atm. From the ABS:
“The preliminary net overseas migration recorded for the year ended 31 December 2011 (184,000 persons) was 9.0%, or 15,200 persons, higher than the net overseas migration recorded for the year ended 31 December 2010 (168,800 persons).”
Capitalist Piggy
21 Jun 12 at 3:07 pm
Agree with the article but don’t underestimate the actual build cost which would in all probability be 50%+ greater than that of the United States. Australian labour costs in the building industry are ridiculously high against comparable countries. And Australian productivity in the building industry is also well below that of the US. The $140k figure you mention is not indicative of the majority of the market. Moreover, the advertised price typically escalates dramatically due to the shape and size of the block, demolition and preliminaries are added in, and a few basic extras like doors or carpet! Bottom line the per sqm rate of home construction in Australia is 50%+ higher than that of the US and an Australian builder would take 30-40% longer to complete the same job. Real estate advertised in cities like Dallas or Houston (comparable to Melbourne or Sydney) sell from prices that are well the cost to build a comparable home in Australia. And that holds prior to the GFC.
Justin
21 Jun 12 at 3:10 pm
Another factor in this long decline will be the very small number of 15 – 25 year olds comming into the FHB market in the next few years.
check the census data here
http://www.theage.com.au/national/population
The massive gapping in the age cohorts is really going to stuff new household formation.
Max
21 Jun 12 at 3:10 pm
Alan – Do you have a breakdown of where the $250,000 goes?
Chris
21 Jun 12 at 3:13 pm
I agree with Alan that house prices should fall. Housing has long been a distorted investment in Australia – and it should in fact be like all other goods and services we consume: fall in price. Productivity improvements should mean construction prices fall, but they don’t because of the highly unionised and regulated construction sector (especially commercial property such as apartment blocks) while the price of land has been inflated for the reason Alan articulates. The price of housing services (rent or rent equivalent) should be falling like cars, clothing, food etc. where we spend a smaller percentage of our take home income.
Samuel J
21 Jun 12 at 3:17 pm
CP,
Here are the relevant NOM figures for the last few years:
NOM 2008-09: 299,900
NOM 2009-10: 215,600
NOM YE 31/12/2010: 168,800
NOM YE 31/12/2011: 184,000
I’d bet the NOM figure for YE 2012 is back around or over 200,000.
I was exaggerating slightly initially, but 300,000 people pa (not that long ago, either) is utterly absurd given the infrastructure constraints in our major cities, where the vast majority of these immigrants end up.
I’d also posit there’s an anomaly (or error) in the ABS figures for 2009 and 2010, given the yo yo effect evident above (other than the change in the annual period cited).
200,000 immigrants pa is still way too many.
Rabz
21 Jun 12 at 3:35 pm
How far should the prices fall in the short term? I agree that regulation and zoning have been the major factor in the current prices in Sydney and Melbourne. However if all the regs and zoning was repealed tomorrow and cheap land flooded onto the market there would be a corresponding massive drop in the price of existing houses.
Many mortgage holders would then find themselves in the US situation where they would owe more than the house is worth, way more in many cases. We don’t have hand it back and walk away mortgages like the US and so many owners would find themselves in an ‘Underwater’ situation.
This would cause major medium to long term problems for these mortgage holders. They would either be locked into staying where they are for many many years as selling would expose them to massive losses or they could choose bankruptcy. Either way it wouldn’t be a good outcome for the owners, the banks or the lenders. Or the economy as a whole.
So Alan how would you deal with that situation?
Stephen Williams
21 Jun 12 at 3:39 pm
The Dept of Immigration disagrees with you on the 300,000 forecast for 2012, the official forecast is 195,300.
There definitely was a fall in 2009 and 2010, and it is not an ABS mistake. You may recall there was a change to the skilled migration program back then which impacted on overseas student numbers. Studying in Australia was a back-door method of gaining residency. The Govt changed its policies to close that loophole.
Capitalist Piggy
21 Jun 12 at 4:05 pm
Great to see such constructive comments.
Capitalist piggary: the UDIA does an annual cost of regulations study which examines taxes etc across all major Australian housing markets.
RABZ: slashing immigration would reduce demand but regardless of teh intrinsic merits of this you should be awaer that the Texan cities have far higher grwoth than ours and Houston wsa the recipient of mass migration from New Orleans and, because it is flexible in land supply saw barely a hiccup in prices.
Kaboom: I don’t know what the effective demand woudl be – the figures I quote are ballpark based on previous build rates. Opening land is the only way to reveal the truedemand/supply nexus.
Stephen Williams: Unwinding a situation where prices are out of whack with demand and supply due to government intervention is never easy. There will be some tears but the alternative is a Greek Solution of “we don’t want austerity and nor do we want reality”
Alan Moran
21 Jun 12 at 4:09 pm
What of the statement that there are a sizeable number of older people in large empty homes?
What can be done to encourage such people to take advantage of current prices and cash out to pay for retirement?
It would seem an option that would deliver results without the negatives that will come with changes to negative gearing rules.
Token
21 Jun 12 at 4:17 pm
To add to the regulatory barriers that Alan has mentioned, there is the nimby factor in some areas, where established residents don’t want to see their town “spoiled” by more residential development, which may block out the bucolic view of cows grazing in the paddock over the back fence.
This is currently happening in Mt Barker, where there is a strong anti-development push from some residents, and of course, our Green numpties running the local council.
Now they have started to soften us up for UN control over the area, with a feasibility study into UNESCO World Heritage listing having been done.
Unlike anywhere else in the world, apparently!
Eddystone
21 Jun 12 at 4:20 pm
Supply needs to be allowed to match demand.. it is that simple。
Cory Olsen
21 Jun 12 at 4:22 pm
Should or could? As Driftforge says (and I agree) it could end up being a 30 to 40% drop before this thing ends…. the Boomers own about half the real estate in AU & once they see prices really starting to tank there could be a major stampede for the door on investment properties.
Extremely painful for folk who were conned into buying at peak prices but for such a major investment one needs to do their homework & not listen to the hucksters. OK I didn’t but my dogbox was fairly cheap.
What gets me is the $500k houses on a little plot out in the desert at the mining towns, what a crock.
Chris M
21 Jun 12 at 4:24 pm
“What of the statement that there are a sizeable number of older people in large empty homes?”
Surely the market will sort that out? As their health deteriorates they will inevitably down-size to a small house/unit/retirement village. Alternatively, having a large home allows greater flexibility when entertaining the grandkids, sleep-overs, accommodation for prodigal sons/daughters, etc.
I always start with the assumption that people do what they do for good reasons.
Capitalist Piggy
21 Jun 12 at 4:24 pm
The idea that old people want to move out of their large family homes is largely bullshit I reckon. It’s the youngsters of today who can’t handle gardens and maintenance.
Infidel Tiger
21 Jun 12 at 4:26 pm
Minus what is the death rate per year is CP?
Chris M
21 Jun 12 at 4:28 pm
CP, From my comment at 3:35pm:
Rabz
21 Jun 12 at 5:03 pm
Alan – “Unwinding a situation where prices are out of whack with demand and supply due to government intervention is never easy. There will be some tears but the alternative is a Greek Solution of “we don’t want austerity and nor do we want reality””
I understand and agree, it will happen some time and the sooner the process starts the better. BUT politicians and the home owning public and investors will be very leery about it. It will cause immense medium term economic harm.
How would you initiate and continue the process so as to reduce the impact on those who made their buying decisions on the best available knowledge? At a state level the inflating away of the debt isn’t possible (although the current Federal Government will try that). So do you let a massive number of existing mortgagees drop into a rapid negative wealth position?
The cost of stamp duty already reduces the number of people moving house. You would have a situation where mobility would be reduced much further. Plus all the other problems associated with deflation of massive assets. How would you do it?
Stephen Williams
21 Jun 12 at 5:22 pm
Ive been expecting a fall for about 7 or so years now, if the China bubble bursts would Australian banks be holding too much property?
The carnage if we approached American levels of forclosure would be massive. Plus a lot of small businesses are backed by peoples houses..
Bloodbath wouldnt beging to describe it.
BUT, if a gradual 2% or so a year fall could be managed for a decade then we might muddle through.
thefrollickingmole
21 Jun 12 at 6:09 pm
mole, I’m with you. I think the process must start asap. Under normal circumstances, say a company goes broke, liquidate and sell what’s left. However with the overpricing of our housing stock a 50% drop in value in a short time frame say 12 months would devastate the economy.
As you say it’s just not houses it’s businesses as well. The margin calls would be extreme. In the US the ‘No Recourse’ mortgages allow many of those underwater to walk away with no further losses. The system here would see large numbers of people in bankruptcy.
Like you I think a slow devaluation of 3 – 4% a year would do the job. It would give time for those who would end up in negative territory time. As well as giving a strong message to buyers.
But how to do it? Perhaps the better minds at this site may have an idea. I wonder how many of those who have large mortgages would be in favour of a rapid, large devaluation.
Stephen Williams
21 Jun 12 at 6:35 pm
And this occurrence is exactly what all these efforts are trying to avoid… and in doing so, pretty much guaranteeing it occurring at a slightly later date.
Driftforge
21 Jun 12 at 7:56 pm
Need to look at motives of Demographia. Why compare Sydney to Dallas, why not new York ? Reason is Dallas is largely planning control free versus many other cities around the world and boy is it a disaster. Anyhow, the smart money is going long US housing based on rising rental yields. So perhaps question being posed is wrong way round – ie US housing = cheap = rising US house prices. In addition to house size, are samples like-with-like, pop growth, U/E rates, bankruptcy laws – keep an eye on yields. Fact is Aussie rents going up, cash rate going down ? Which way will house prices go all things being equal ?
Jack
21 Jun 12 at 8:59 pm
Driftforge “And this occurrence is exactly what all these efforts are trying to avoid… and in doing so, pretty much guaranteeing it occurring at a slightly later date.”
They are denying what is inevitable. I think we should accept it. I just would like to know how you would do it and what do you think would be the consequences.
Stephen Williams
21 Jun 12 at 9:49 pm
My half formed thought at the moment is to allow transition to a form of title based upon the LVT. Basically the government puts out a general offer to pay people to choose to transition ownership from freehold to what I am tentatively calling ‘flowhold’.
Basically, rather than paying a lump sum for the perpetual monopoly right to utilise land, you pay a monthly / quarterly rate, initially proportional to (land value x home loan rate) but set such that land value does not form a component of purchase price. In return, you get no further government charges, save for service usage. No rates, no land tax, etc.
I think it is a far better way of transitioning to an LVT basis for the funding of government than any of the current ones from the usual suspects.
It is optional. It recapitalises the private sector and gets a lot of investment out of the speculative property market. It corrects the market response to temper changes, rather than exacerbate them.
The awkward bit is it requires the government to spend a truckload of money over years to do so. The good thing about it is that they are basically requiring an asset they should never have ‘sold’ in the first place.
Driftforge
21 Jun 12 at 10:15 pm
One piece is missing in all this. The infrastructure which in a large city is a disseconomy of scale. Someone has to pay for all this in the end and it is unlikely to be those in new houses in the outer suburbs unless they are forced to contribute while the cities are centralised. If the less regulations means dirt roads, septic tanks and a 3 hour trip to the city in peak hour in the outer suburbs costs could be brought down significantly. Forget about trains where a line does not exist they are a complete loss making venture. Buses are ok just double or triple the ticket prices so they are not loss making. Green and Red tape could be reduced but don’t expect things to get much cheaper.
kelly liddle
22 Jun 12 at 12:37 am
Driftforge, I’ll have to think about that, sounds complex, but I’m not that clever.
The reason I keep asking how it would be done is that in the US the inevitable happened and they are dealing with the aftermath in a very messy drawn out way. Once housing prices do fall a lot it would be better to just suck it up and let the market deal with the damage afterwards.
The market hasn’t dropped here (well not much but a couple of %). The current prices are a result of government policies, so how would you change the policies to allow a steady slow deflation in prices instead of a massive short term crash with long term damage.
Alan is right saying it must happen but he is like Professor C Northcote Parkinson who after noting the growth in the British Public Service said “It is not the business of the botanist to eradicate weeds. Enough for him if he can tell us just how fast they grow.”
Well Alan appears to be the botanist but who is going to be the gardener? Who would do the job and how would he go about it?
Stephen Williams
22 Jun 12 at 7:46 am
Rabz,
Oops, my mistake.
Capitalist Piggy
22 Jun 12 at 8:34 am
No worries, CP.
Rabz
22 Jun 12 at 8:53 am
The market is going to drop, inevitably. The recent cuts in interest rates have pretty much put the final guarantee to that.
We don’t have the luxury of built up savings like Japan had, allowing their drop to be long and slow. So that path is not ours.
I think that realistically the government has to leave as much pain as possible, but not so much as can’t be handled. At the moment things are just tight. It will get worse.
The ‘solution’ needs to be individual and equitable.
Let’s take an example. I’ll use Tassie prices as that’s what I’m used to.
Fast forward another year, with 10% further off the price of houses.
A simple, first home is now $200,000, down from the peak of near $250k a couple years back. Buying is still stagnant. Further job losses are affecting the area, and world events have deteriorated further. Finance markets are very tight, due to lower rates.
The new state government announces a policy that in order to provide an option for people to safeguard against property market collapse, the will consider requests to transfer title from freehold to flowhold.
The owner above takes up the offer. The property is valued with a split of 100/100 between land and improvements. He is paid $80,000 for the land component, which he uses to clear the remainder of his home loan. He commences paying $570 per month, which is equivalent to the current 25 year refinancing rate for a $80,000 home loan.
So in effect, the payments have simply been transferred from the bank to the government. There is no change in cash flow, just destination.
So why do this?
Fast forward another year. Europe has suffered several government defaults, and major economies are reeling. Locally conditions are still contracting, with numerous businesses failing. Property values have fallen another 10%.
The saving grace is that payments for his land have dropped. He is now only paying $510 a month. His next door neighbor, in a similar circumstance but still on freehold title is not only still facing $580 payments, but has seen his land value drop a further $20,000.
Driftforge
22 Jun 12 at 10:25 am
The state government on the other hand is seeing a steady increase in asset levels, if not their current return. Still in the longer term, there is a distinct confidence that these new holdings will provide a much more stable income than existing state sources, as well as reduced dependence on the federal government for funding.
Driftforge
22 Jun 12 at 10:32 am
Driftforge
Baby boomer property hourders deserve the bloodbath they are gooing to get. No govt bailouts please.
They have destroyed western civilization.
max
22 Jun 12 at 1:15 pm
Don’t forget that newer suburbs and estates are effectively 4 times the density of older suburbs, like it or not (and I don’t) the government would actually be negligent if it didn’t multiply the charges. The roads will wear down more quickly the schools will require more investment and even emergancy services will be stretched further. The downside of the horizontal flats weve created will be seen in 20 years time when public transport collapses there is no escape for teenagers. Talk about postcode bias.
Simon
22 Jun 12 at 6:18 pm
max – they’ll get touched up. But we might as well use the opportunity to fix the system so it doesn’t happen again. The only time it will make sense for most to reform their title is when it is losing money.
And to be honest, the people who get hurt the most will be the younger ones who have overstretched to get into a first home. This gives them an out.
Driftforge
22 Jun 12 at 8:28 pm
“property hoarders deserve the bloodbath …” – Driftforge
The problem is more extensive.
State government finances, at least in states like NSW, have become highly dependent on the asset value of their property and on the income generated by increasing state and private property valuations.
Increasing urban density across metropolitan areas has exponentially increased some important costs (service headworks, transport, emissions).
Household size and housing occupancy rate have decreased while house size has increased.
Housing prices in urban areas have become disconnected from the real cost of construction.
Housing affordability has steadily deteriorated in cities like Sydney over more than 2 decades, exacerbated by credit available for housing and government subsidies for some first home buyers. This is indirectly contributing to lower population replacement rate and increased dependence on immigration.
Indications are that there is no genuine overall housing shortage based on supply.
And so on …
Once property prices start to fall across the board, what’s to stop a free fall?
Leo G
22 Jun 12 at 9:03 pm
Yes, the country wouldn’t survive another generation like the boomers, what a disaster this government is for example.
This generation is the real source of the problem but somehow I don’t think that was what you were suggesting to fix….
Chris M
22 Jun 12 at 9:50 pm
In areas with multiple disadvantages, (due to a whole host of reasons) nothing.
Blue chip proximate property will in the meantime, continue to remain steady or increase in value.
Remember people, there is a golden rule about commuting – the more you do, the lower your quality of life and the lower the value of your property…
Rabz
22 Jun 12 at 10:20 pm
It’s never the people, always the system. The system establishes the action that are rewarded.
What this does isn’t to stop the free fall. It is to transform it from a loss of assets to a reduction in costs.
Driftforge
22 Jun 12 at 11:22 pm