Australia: the world leader in excessive house prices

There is one area where Australia leads the world.  Demographia’s 10th Annual Survey of house prices - this one covering 360 cities in nine countries – shows Australia imperiously blitzing all opposition other than Hong Kong in house prices.  To ensure against distortions from different standards of living and costs, the survey compares median house prices in terms of average family incomes. 

Although considerably higher than land-constrained Hong Kong, Australia (and New Zealand is similar) has average house prices relative to incomes that ate 60 per cent higher than those of the US, 12 per cent above the UK and 20 per cent above Japan.  Australian house prices are even higher than those of Singapore. 

The prices are driven by the stock of new houses being built in comparison to the demand for houses – a significant factor of which is population growth.  Although new houses add only 2-4 per cent of total stock each year, it is these small numbers that drive the overall average price levels.  And the number of new houses built is critically dependent on approval regimes. 

This can be seen by breaking down new house costs into their three components: the house itself, the land preparation and the land itself.  Thus for Sydney, a standard “22 square” new house itself costs some $130,000 and the preparation of land, roads, sewerage etc. costs a further $70,000. 

While the third component, the land itself is worth only $2,000 as farmland (far and away the most prevalent usage of the land) because of government rationing (euphemistically called “planning”) the block costs perhaps $300,000.  So a new house which should cost under $250,000 costs twice this much and this lifts the whole of the market – the median price of a house in Sydney is now $723,000 and in Melbourne it approaches $600,000. 

The comparisons are even more stark once individual cities are taken into account.  Australia’s restrictive planning laws are pretty much a constant across the continent but Melbourne and Sydney are two of the least 10 affordable cities worldwide. 

Remember, these comparisons take into account different building costs and income levels.   Relative to income levels, even thriving metropolises like Atlanta, Dallas, Memphis and Houston have house prices that are half those of Australia’s major cities

We have the tory toffs like Boris Johnson opposed to changing the nature of the “stockbroker belt” beyond the conurbations, versus Save-Our Suburbs  urban preservationists, versus the anti-sprawl pro compaction crowd.

For his part Johnson writing in the London Daily Telegraph today in opposition to the Deputy Prime Minister Nick Clegg’s suggestions of building outside of established London.  He says,

Into the immemorial loam of England the diggers will bite – chomping their shiny steel tines through Saxon burial grounds, ripping up coppices planted by the Normans. Views that have delighted the eye since the Middle Ages will be lost for ever. Rolling hills will be submerged beneath the crawling roofs of Cleggton Keynes. And then there will be the access roads scything through the valleys, the vast new service stations, the multiplexes, the shopping centres.

The prattish, syrupy orotundity goes on for a good few further paragraphs.  And London, though also unaffordable, is less so that Melbourne and Sydney.  While the latter cities are in states where less than one per cent of land is urbanised compared to perhaps eight per cent in England. 

For our part we have pressure groups that prevent “sprawl” whose fellow-travelers now dominate the planning department that control land use backed up by thickets of interlocking regulations amassed over decades.  Some relief is possible by redevelopment of the brownfield sites along the lines that Boris Johnson claims to support.  But though he suggests there are thirty such areas in London, he does not specify their size and even if, his goal of them providing 47,000 new homes a year were to be realised this would be inadequate.  Moreover, Johnson will find, as redevelopment proposals in Australia find, that there is persistent and vigorous opposition to such plans, even for areas (think Camberwell in Melbourne) where the population density today is only a third of its level two generations ago.

Inner city redevelopment is a help but the only solution to the exorbitant house prices faced by Australian non-house owning younger people is to free up land supply.  Few politicians will bite this bullet, not only because of the bicycle riding ant-urban sprawlers but also because of existing home owners who have paid for the costs imposed by supply restraint and do not want to see the values of their investments brought down to their underlying worth.

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178 Responses to Australia: the world leader in excessive house prices

  1. Petros

    The baby boomers are very happy with the situation.

  2. Rabz

    Australia: the world leader in excessive house prices

    In a country the size of a continent with a population of 23.3 million.

    Thanks, politicians, you loathsome dunderheads!

  3. boy on a bike

    bicycle riding ant-urban sprawlers

    I think you are missing an ‘i’.

    /pedantry

  4. Not enough mention of negative gearing in this piece.

  5. Mayan

    Let’s not forget the nexus between politics and property, from MPs and Cabinet members with multiple properties through to the high level of donations from property developers. Organised crime, one might well say.

  6. Matt

    High house prices are a fairly blatant conspiracy between politicians, developers, the reserve bank and commercial banks, with existing home owners acting as silent partners. That twaddle from Johnson confirms as much.

    What to do about it?

  7. ChrisPer

    As I look at retirement and extinction, the past rise in value of my house is going to provide equity for my kids home loans. I approve of trying to curb the rise on housing costs on their behalf, but when I have to sell to eat, the equityis worth far more than my super.

  8. Rabz

    Not enough mention of negative gearing unicorns in this piece.

    Fixed.

  9. Token

    I approve of trying to curb the rise on housing costs on their behalf, but when I have to sell to eat, the equityis worth far more than my super.

    The people who actively support a policies which create and inflate the unfunded liabilities for public employees want urgent action to cause your equity to be lost.

    Figure that out?

  10. C.L.

    Boris Johnson is an imbecile and a lowlife. Always has been.

  11. ken n

    Remember it was John Howard who said that he had never heard anyone complain that his house was appreciating. Or words to that effect.

  12. ken n

    I can’t see a constituency in this country for driving down real estate prices.
    Even those struggling to enter the market look forward to being on the escalator.

  13. Percy

    Not enough mention of negative gearing in this piece

    Canning neg-gearing might drive down housing prices, which might sound good for a young couple looking for their first place but it will have gross negative consequences for a load of Australians, and a sharp, negative effect on the economy as a whole.

    The best course of action will be to move towards slowing the increase in housing prices to less than the increase in average wages, thereby increasing affordability at the same time as have little negative effects on the market and its players. Releasing land in a smarter, more controlled manner is a viable way to do this.

  14. Token

    The best course of action will be to move towards slowing the increase in housing prices to less than the increase in average wages, thereby increasing affordability at the same time as have little negative effects on the market and its players. Releasing land in a smarter, more controlled manner is a viable way to do this.

    In addition, how about improving the residential tenancy laws which lead to the insurance premiums and a premium for future repair costs being implicitedly built within the residential rental price?

  15. Percy

    In addition, how about improving the residential tenancy laws which lead to the insurance premiums and a premium for future repair costs being implicitedly built within the residential rental price?

    Not sure I’m reading you correctly Token, you want the landlord to have less control over the rental price?

  16. Bruce of Newcastle

    To ensure against distortions from different standards of living and costs, the survey compares median house prices in terms of average family incomes.

    Not the correct measure. Should be against average family incomes after necessity expenses.

    That is why house prices are high. Global lack of inflation has kept necessities down meaning as local total income rises the discretionary components rises much faster as a percentage. House prices reflect discretionary spend potential not total income.

    Housing economists always make this mistake.

  17. Canning neg-gearing might drive down housing prices, which might sound good for a young couple looking for their first place but it will have gross negative consequences for a load of Australians, and a sharp, negative effect on the economy as a whole.

    Not if you keep it for existing houses but stop it for new houses.

  18. brc

    It’s always wrong to look at Melbourne/Sydney – they are big cities, people can make all types of excuses as to why prices are high.

    For a full demonstration into the absurdity of prices, look at regional centres like toowoomba and bendigo. Surrounded by empty land. Still ridiculous prices.

  19. Jannie

    Perhaps another reason for high housing prices (or real estate anyway), is that it is an attractive asset class when the options are limited, and you need a spread of investments. There is not a lot of point leaving your money in the bank at below inflation interest. It is still possible to buy real estate at better than 4% rental return, plus the liklihood of capital gains. Its better than holding money, at least at the moment.

  20. Percy

    Not if you keep it for existing houses but stop it for new houses.

    There’s an aching in the back of my head as I type this, but I’m not entirely against easing back on neg-gearing over time. The key words there though are over time.

    Simply canning it is a bad idea.

  21. boy on a bike

    Surrounded by empty land. Still ridiculous prices.

    Correct – but even in those places, land supply is strictly controlled by councils. I’ve seen the same effect in country towns in NSW of 4000 people.

  22. Driftforge

    I can’t see a constituency in this country for driving down real estate prices

    This is the inherent outcome of freehold land. The on sale of perpetual one sided contracts, converts what is inherently an ongoing, variable, monopoly cost into an capital asset. Only the owners side is ever represented, since the other side of the contract — those of us who allow the monopoly use of the land resource — is everyone and therefore almost no one cares.

    The result is a leveraged, speculative, market that responds in invert fashion to any unexpected event, exacerbating any beneficial or negative effect rather than restraining it.

    It also results in people “looking forward to being on the escalator” — no less a separator of the haves and have nots that it was in feudal times, merely with a democratic-scale demographic being the haves.

  23. dd

    For our part we have pressure groups that prevent “sprawl” whose fellow-travelers now dominate the planning department that control land use backed up by thickets of interlocking regulations amassed over decades.

    If only there were governments with the energy and smarts to clean up the regulatory system and reform the bureaucracies….
    NSW and VIC are are lost opportunities.

  24. Token

    Not sure I’m reading you correctly Token, you want the landlord to have less control over the rental price?

    Reduce regulation so residential contracts are closer to commercial tenancy contracts, where tenants wear a greater share of the risks / costs of their conduct.

    Thereby enabling the cost of residential rents to decrease.

    You can choose whether that helps the poor or assists young to save to get into the residential property market as owners.

  25. Ant

    Last time we were in Singapore my wife and I did a tour of the bay and I remember the guide pointing to a block of apartments and saying that one of them recently sold for over $1 million (Singapore dollars)!

    We of course did the Austin Powers schtick.

  26. You’re sounding rather #Occupy today, Driftforge.

  27. brc

    Boab – that is my point. You can mask govt idiocy with regards to land supply in capital cities, but you can’t hide it in regional centres surrounded by land. That is where the problem is obvious.

  28. Petros

    Let’s face it, the local councils trickle feed the release of land to the market, as do the big developers e.g. Lend Lease, Mirvac, Stockland etc. They ain’t going to crash the prices. Neither will the banks with their trove of possessed houses. Maybe Campbell Newman and others will move things to regional centres and that might help, but it will still come up against the local councils and their shenanigans. Maybe blocking the access of foreigners to our housing market will help, too, but it is nice to get some of our money back from China.

  29. Percy

    Reduce regulation so residential contracts are closer to commercial tenancy contracts, where tenants wear a greater share of the risks / costs of their conduct.

    I’d be happy with that.

  30. Gab

    m0nty
    #1159609, posted on January 20, 2014 at 1:40 pm

    You’re sounding rather #Occupy today, Driftforge.

    Speaking of occupy and house, shouldn’t you be helping your wife to unpack instead of spending time here annoying people?

  31. Ant

    If the left cared about house prices they would crush the criminal outfit otherwise known as the construction unions.

    Construction costs for residential work built by larger unionised construction firms, which tends to be apartments, is currently around $3,000-3,500 per sqm for the residential component (in Melbourne).

    Relating that to a 30 square home, it’s about $900,000 built cost. Compare that to what a project home can be built for with non-union labour (well under half). I know it’s not just labour; apartment buildings tend to be a commercial type of structure and hence more expensive – but not by that much.

    Unions wildly distort market value which is why we see tradies being paid $100,000+ pa doing work that requires very little skill and the brain power of a dim light bulb.

    Hourly charge rates are now routinely $100/hour. This is insane. Half the time the guy’s scratching his arse and talking on his cell phone.

    So if Labor are really concerned about it maybe they can cut all ties to the Big Labour thugs that bankroll them.

  32. Habib

    When this bubble pops it’s going to be nasty. I’ve got cash waiting to clean up.

  33. brc

    The unicorn of negative gearing is silly.

    You can negative gear by buying a local convenience store as well. That doesn’t lead to excessive prices of milk bars. It’s a supply side story and has been for a long time.

  34. Ant

    So axe negative gearing and shut the hell up.

    Just don’t then tax my rental income or capital gains.

  35. Token

    You can negative gear by buying a local convenience store as well. That doesn’t lead to excessive prices of milk bars. It’s a supply side story and has been for a long time.

    For some reason the business of investing in residential real estate should have rules which no other class of asset has.

    Do you think there will be consequences (they can’t call it unexpected after the Hawke governments experiment in the 1980s).

  36. Empire Strikes Back

    Speaking of occupy and house, shouldn’t you be helping your wife to unpack instead of spending time here annoying people?

    Gab – monty is an esteemed economist and a stickler for division of labour. Consequently, one assumes he has paid a professional “unpacker” for the task and allocated the time saved for his most “productive” speciality: trolling.

  37. Notafan

    When this bubble pops it’s going to be nasty. I’ve got cash waiting to clean up.

    Is it though? With high levels of migration and Chinese buying up lots of the new apartments coming on the market, I don’t see house prices easing for years. Maybe if interest rates go up ?
    As for us (on the cusp) boomers sell one to buy another what does it matter what is is worth? I can only realise cash if I go rural, not sure I want to do that.

  38. You can negative gear by buying a local convenience store as well. That doesn’t lead to excessive prices of milk bars.

    I hear Bunnings uses this strategy quite well, actually.

  39. Aristogeiton

    m0nty
    #1159669, posted on January 20, 2014 at 2:10 pm
    You can negative gear by buying a local convenience store as well. That doesn’t lead to excessive prices of milk bars.

    I hear Bunnings uses this strategy quite well, actually.

    I hear bullshit.

    In line with the previous year, return on capital within the Bunnings business was an outstanding 25.9%, while the trading EBIT margin expanded from 11.6% to 11.7% over the financial year. This led to Bunnings producing earnings before interest and tax (EBIT) of $904 million on sales of $7.661 billion which was a 7.5% increase in EBIT from $841 million on sales which increased 7% from $7.162 billion in FY2012.

  40. Maybe it’s an urban myth, Aristo, but I hear occasionally that Bunnings makes a lot of money on land sales after they are done with a location.

  41. Monkey's Uncle

    House prices are artificially inflated in Australia due to a combination of factors. One is restrictions on land for new housing developments. The other two are loose monetary policy and the fact that a primary residence is exempt from capital gains tax as well as most government means tests, which creates a lot of incentive for people to put more money into increasing the value of their home rather than investing elsewhere.

    There are too many vested interests that benefit from keeping house prices high, such as existing home owners/purchasers, banks, state governments. Consequently, governments and central banks will do all they can to keep prices high for as long as possible, but it cannot last forever.

  42. Aristogeiton

    m0nty
    #1159683, posted on January 20, 2014 at 2:18 pm
    Maybe it’s an urban myth, Aristo, but I hear occasionally that Bunnings makes a lot of money on land sales after they are done with a location.

    Should they give it away instead?

  43. Wayne

    I’m so worried about my kids – now 20 and 22 years old – getting a roof over tehir own heads.
    Yes “it’s always been hard”, so many cry. But it’s never been this hard. How can a youngster imagine owning a roof over their heads, when the average is getting up towards three quarters of a million (we’re in the west of Sydney). I would struggle to buy my own dammed house now. I would be happy to see values fall dramatically.
    Australia is one of the few (possibly only?) country not to have a housing price “crash”. Certainly HK, Singapore, UK and the US (the latter had a doozy, didn’t it?)… At worse, we’ve had minor retreats for a year or so. Everywhere else, large drops. Not even our recessions saw much of a drop… why us, is it simly t becasue our governments have so plainly abrogated opening our vast tracts of land and , above all, buidling the infrastructure required?

  44. brc

    If bunnings does well on land sales, it’s because they are making a profit on the work of negotiating the thicket of regulations on land use. Which has nothing to do with negative gearing, the sole strategy of which is to lose money over time in the hope of a capital appreciation. I doubt any CEO ever suggests losing money on operations in the hope of a capital gain.

  45. Token

    I’m so worried about my kids – now 20 and 22 years old – getting a roof over tehir own heads.
    Yes “it’s always been hard”, so many cry. But it’s never been this hard. How can a youngster imagine owning a roof over their heads, when the average is getting up towards three quarters of a million (we’re in the west of Sydney). I would struggle to buy my own dammed house now. I would be happy to see values fall dramatically.

    If they learn to invest and understand the time value of money they will be able to achieve it.

    Most likely they will have to rent for long periods of time while investing to build up capital. Yes they’ll have to share, but that will allow them to offset their costs.

  46. brc

    Wayne, tell them to rent something modest that minimises work travel time. Work out what the mortgage payment would be and invest the difference between that and their rent. Tell them to look for non-housing investment opportunities. Either prices will stay high and eventually they will get there. Or prices will crash and they will be ready. Either way, the road to to property glory starts and ends with cash, the more the better. If they want to dip in early, you can still get low-priced commercial property ($200k or less). Bigger deposits required, though. Arguably a better long term plan though, because your not working with or against emotional home buyers and tenants

  47. rebel with cause

    Most likely they will have to rent for long periods of time while investing to build up capital. Yes they’ll have to share, but that will allow them to offset their costs.

    Yes we have done this and our now in the position that we could buy if we wanted to. But rent is relatively cheap compared to owning, particularly if you add the cost of repairs, maintenance and rates on top of mortgage repayments. Plus we have money in the bank which makes our lives less stressful – if an unexpected expense comes up it is no big deal.

    Don’t get me wrong, we are still keeping an eye on the market and will buy if a good value place comes along, but I don’t think homeownership is necessarily all it is cracked up to be.

    I should add that my anecdotal research suggests that the revealed preference of many young people is that they are not that interested in buying a house. Sure, they will complain that houses are too expensive, but won’t think anything of dropping $10k on an end-of-year overseas jaunt. Ok, yes houses are expensive but that is money you could have put towards a deposit. How many baby boomers insisted on treating themselves to a holiday around Europe before they saved for a house?

  48. Token

    But rent is relatively cheap compared to owning, particularly if you add the cost of repairs, maintenance and rates on top of mortgage repayments

    As I note above, do you realise you are paying for the insurance for repairs and/or the repairs in your rental cost?

    Interesting you call the rent cheap. Doesn’t that run contrary to what we are told from the talking heads on the subject?

  49. While the third component, the land itself is worth only $2,000 as farmland (far and away the most prevalent usage of the land) because of government rationing (euphemistically called “planning”) the block costs perhaps $300,000. So a new house which should cost under $250,000 costs twice this much and this lifts the whole of the market – the median price of a house in Sydney is now $723,000 and in Melbourne it approaches $600,000.

    You neglected to mention the ticket punchers, the parasites, the unnecessary and unholy triumvirate – developers, local authorities (usually in league with local government) and real estate agents.

  50. Ant

    Developers are parasites?

    You mean people who show enterprise and take risks, take out finance and create jobs for the construction sector and all the knock on effects that result from it?

    They sound pretty productive to me. But they might make a profit, right? That’s your real problem.

  51. Squirrel

    On negative gearing – overnight abolition would surely cause all sorts of problems (not least of which political), and grandfathering existing arrangements would cause other problems – so if it is to be done, a very gradual phasing out, perhaps over 10 years, could be an option. A similar approach – apparently over 20 years – is being taken to the shift from transaction taxes to land taxes in the ACT, and if other jurisdictions heed the growing calls to follow suit, perhaps the Feds would be emboldened to phase out negative gearing and present it as a broader Federal/State/Territory reform of the taxation treatment of property. This, together with some sensible supply-side measures might actually do something about our ranking on the housing cost table.

    More broadly, thanks to Alan for that wonderful quote from Boris – Jim Hacker inspired by Chesterton’s Rolling English Road (?) – and for what I took to be an echo of Robert Bolt’s pithy, and timelessly relevant “thickets of the law”.

  52. nonmus

    Brisbane must be the only city in the world where you can pay upwards of a million dollars for a tumbledown weatherboard workers cottage with a leaky tin roof. Something is rotten, and it’s not just the floorboards.

  53. Infidel Tiger

    Australia is one of the few (possibly only?) country not to have a housing price “crash”. Certainly HK, Singapore, UK and the US (the latter had a doozy, didn’t it?)… At worse, we’ve had minor retreats for a year or so. Everywhere else, large drops. Not even our recessions saw much of a drop… why us, is it simly t becasue our governments have so plainly abrogated opening our vast tracts of land and , above all, buidling the infrastructure required?

    You can’t have a housing crash with people losing their jobs and selling their homes.

    As expensive as Australian homes are, it is laughable that youngsters expect to be able to buy family homes straight off the bat without any sacrifice at all.

  54. John

    Interesting you call the rent cheap. Doesn’t that run contrary to what we are told from the talking heads on the subject?

    For us it made more sense to sell our house built two years ago and return to renting.
    We are paying $1000 a month less than for the mortgage for the somewhat bigger house with better finishes (it’s a former display home) in the same area. And the best bit for us is that the backyard is done, which we couldn’t afford in our own house.

  55. Notafan

    As expensive as Australian homes are, it is laughable that youngsters expect to be able to buy family homes straight off the bat without any sacrifice at all.

    I see that happening as well, no moving into to a house with no carpet and wind whistling through the gaps in the floor , doing your own ‘landscaping’ with a couple of metres of soil and some clipping from Mum’s garden and junk furniture spares from various rellies and secondhand shops.

  56. twostix

    I see that happening as well, no moving into to a house with no carpet and wind whistling through the gaps in the floor , doing your own ‘landscaping’ with a couple of metres of soil and some clipping from Mum’s garden and junk furniture spares from various rellies and secondhand shops.

    You could afford that brand new home, in a city, on a nice block on a single average wage.

    So no, our generation wins the “who has it tougher” stakes by that logic because that is completely out of our reach – requiring two average adults incomes. What’s not mentioned is the fact that in the late ’90′s the Worst Generation Ever hoovered up 50% of the base level residential housing stock in the nation then rented it to their children at eye watering rates while menacing any politician who talks about reducing housing prices.

  57. duncanm

    Brisbane must be the only city in the world where you can pay upwards of a million dollars for a tumbledown weatherboard workers cottage with a leaky tin roof. Something is rotten, and it’s not just the floorboards.

    No.. I think you can do that in Sydney and Melbourne, too.

  58. rebel with cause

    As I note above, do you realise you are paying for the insurance for repairs and/or the repairs in your rental cost?

    Token – that might be true but so what? Unless you are arguing that my landlord is charging a mark-up on insurance then I’m no worse off for renting. I would only be better off paying the insurance out of my own pocket if I could procure the insurance more cheaply. Perhaps this is the case, but the opposite could also be true.

    As for whether rent is ‘cheap’, housing is both an investment and consumption good (if you live in it) so ‘value for money’ is a subjective thing. I don’t think the consumption value of housing is often considered. A lot of people choose to buy houses in areas that they would never dream of renting in. Does the return on housing investment make up for the extra commuting from the outer suburbs?

  59. Craig Mc

    The market rations itself, by not choosing locations other than the established capital cities. When you limit your choices to just seven mature locations – even in a country this size – you will get price pressures. Governments could do more decentralisation to regional cities, but otherwise people are making rational votes with their money. Bad luck if others don’t like it.

    Notafan, you’ve got a point. My parents bought a house in 1950 for the equivalent of about $5,000. Average male wage was $600/y, or 8.3years. Remember, the male was usually the sole bread-winner back then. It was an established weatherboard in a working class middle neighbourhood, with 500m2 of land, and the closest to a mod-con was a kitchen with a floor (dirt floors were not unheard of).

    It sold in 2012 for $900k – essentially for land value. Today the average wage is $73,000, or 12 years. Halve that for working couples. That’s not an unreasonable increase in buying power terms given that the once working class middle suburb is now regarded as an upper-class inner suburb.

  60. Inner city redevelopment is a help but the only solution to the exorbitant house prices faced by Australian non-house owning younger people is to free up land supply. Few politicians will bite this bullet, not only because of the bicycle riding ant-urban sprawlers but also because of existing home owners who have paid for the costs imposed by supply restraint and do not want to see the values of their investments brought down to their underlying worth.

    I have been saying this for years. Even a bit of freeing up in Perth won’t make that huge a difference to house prices across the board, and it would make it possible for more people to get their feet on the bottom rung of the property ladder, at least.

  61. Notafan

    So no, our generation wins the “who has it tougher

    I agree but there is the added, self imposed, burden of having to have everything; the overseas trip (s)the everything new and perfect.
    The one wage was before my time too.

  62. duncanm

    I must say I don’t really understand the ‘median price’ number in Sydney from that report.

    (yes, I know what ‘median’ means).

    I can’t tally it with my personal experience.

    I live in a house of 5 (3 kids). We live in a fairly nice leafy suburb in a 4br house, built in the 70′s (project home, split level). Not too close to the city, but 20min walk from a railway station, and then a 40min train ride to the CBD.

    Our house wouldn’t be valued at the median $722k.

    I think the population of housing stock is skewed in Sydney due to the large expanses near water and beaches: Eastern Suburbs, Inner West, Upper North Shore, Northern Beaches, etc.

    I agree with others above: some young people these days seem to have a sense of entitlement that says they should be able to buy in their chosen trendy suburb without some sacrifice(*). Our first house was a crumbling 2/3br semi with a tin roof in Parramatta built in the 1800′s. We moved out of that when we hit 3 children.

    (*) – well.. that’s the impression I get from reading the SMH; but not talking to young workmates, who seem to be more pragmatic about the whole situation and say “why buy when I can rent where I like? I’ll wait for the housing price carnage”

  63. Token

    Token – that might be true but so what? Unless you are arguing that my landlord is charging a mark-up on insurance then I’m no worse off for renting. I would only be better off paying the insurance out of my own pocket if I could procure the insurance more cheaply. Perhaps this is the case, but the opposite could also be true.

    What I am saying is that you were required to return the property in the condition you found it like a commercial lease, good renters would find their rent would be less than it is today if they were not subsidizing the bad eggs who cause damage.

    About sourcing the insurance product, most people get an insurance package which is not much different to home & contents. It seems over priced compared to such products and I suspect it is for the same reason as I note above, the all tenants good and bad paying for the people who trash the places they rent.

  64. Token

    A lot of people choose to buy houses in areas that they would never dream of renting in. Does the return on housing investment make up for the extra commuting from the outer suburbs?

    Too few people consider the investment decisions like you do.

    Why would a 20 something buy a $700k package with the lot instead of growing into it incrementally (as IT notes) if they looked at their home as a real investment?

  65. duncanm

    Philippa – thanks for making my point regarding the Fauxfacts entitled generation :)

  66. Pedro

    “Brisbane must be the only city in the world where you can pay upwards of a million dollars for a tumbledown weatherboard workers cottage with a leaky tin roof. Something is rotten, and it’s not just the floorboards.”

    You’re paying for the land not the house, which is probably devaluing the land because of demo and character controls. My house was bought for less than land value for that reason.

  67. Pedro

    “A lot of people choose to buy houses in areas that they would never dream of renting in. Does the return on housing investment make up for the extra commuting from the outer suburbs?”

    Don’t forget that not all returns are financial.

  68. Pedro

    “What I am saying is that you were required to return the property in the condition you found it like a commercial lease, good renters would find their rent would be less than it is today if they were not subsidizing the bad eggs who cause damage.”

    Maybe, maybe not, it’s just one of the factors that impacts on the supply of and demand for rental housing. Asymetric info would be a problem for your good renter, at least on the initial grant.

  69. Craig Mc

    On the other hand, it’s quite fun reading things like this in a mean way.

    A pity comments are closed. A hearty “Fuck off to Paris then” was in the wind.

  70. If bunnings does well on land sales, it’s because they are making a profit on the work of negotiating the thicket of regulations on land use. Which has nothing to do with negative gearing, the sole strategy of which is to lose money over time in the hope of a capital appreciation. I doubt any CEO ever suggests losing money on operations in the hope of a capital gain.

    The theory, as I have heard it, is that Bunnings treats some of its stores as a kind of loss leader: minimising tax in the short term because they don’t contribute to profit, but building up land assets for later capital gains. Half retail operation, half development play. I don’t know if this is true or not, could very well be an urban myth.

  71. Jim Rose

    Alan, Ed Glaeser was written great stuff on differences in housing prices trends in the USA.

    He was good at showing how Boston has high prices and little construction while Nevada and Arizona has much construction, rapid population growth and home prices rarely rising above construction costs because of unlimited land supply for housing.

  72. Notafan

    Ah Paris, pity so many inner city apartments are being turned into short lease furnished for tourist places. The guy I usually rent them from has 6 in central Paris and he lives in Fitzroy.
    Of course there is some serious high density in Paris; not sure our Yarraville to Fitzroy types would enjoy that. Especially those 5 story walk ups.

  73. rebel with cause

    I don’t know if this is true or not, could very well be an urban myth.

    Gee, it doesn’t half sound like one does it?

  74. Notafan

    Where have Bunnings been closing stores?

  75. Pedro

    “Where have Bunnings been closing stores?”

    Mainly where they inherited them from businesses they bought.

  76. Notafan

    Actually I do know of one where they had 2 stores about a km apart after buying out a rival chain , which clearly was rather excessive.

  77. ProEng

    I suggest that there is not a comparison of the same standard or quality. Most of the average housing in US & Canada would not be approved by councils in Australia. Just look at the filmsy structures that regularly get blown away by tornadoes in US or the destruction by caused by water and wind in Hurricane Katrina in St Louis. The standard is usually lower than that in Darwin at the time of cyclone Tracy.
    Also, you can not compare a rendered block three bedroom house with a double garage & two bathrooms on a 600m2 block costing around $350K with an attached council built house with a 50m2 back garden, 3 tiny bedrooms upstairs, single bathroom and no garage in UK costing 250-300k pounds. I watch the UK program “Escape to the Country” and see that you get more for your money here.
    In Japan (I have been there many times) to afford a tiny house you have to live in the country so far out that the working (better off than average) lower staff can only get to their house a few times a week (3-4 hours travel each way by train and buses) while doubling up in off shifts in shoe boxes with hardly room to set up and get dressed.
    Sure labour is expensive here but much of the cost of housing for the greater than 80% of the population that live in capital cities is the cost of land.

  78. Alan moran

    Jim and others
    The fact that prices differ so markedly in US regions as demonstrated by Glaeser as well as demographic demonstrates the key variable is land availability not interest rates, demand or other factors

  79. brc

    I suggest that there is not a comparison of the same standard or quality. Most of the average housing in US & Canada would not be approved by councils in Australia. Just look at the filmsy structures that regularly get blown away by tornadoes in US or the destruction by caused by water and wind in Hurricane Katrina in St Louis. The standard is usually lower than that in Darwin at the time of cyclone Tracy.

    Rubbish. Tornado winds are a different animal to cyclones. You’re also forgetting the millions of properties built to be earthquake proof. Yes, there are trailer parks that draw the news cameras. Australia has substandard properties as well.

    The average US/Canadian house is at least as well built as an Aust equivalent, if not better. I have actually been there.

  80. JakartaJaap

    Notafam, those 5 story walk ups plus the bogs when you get there and the neighbours. Not my idea of heaven.

  81. Leo G

    To ensure against distortions from different standards of living and costs, the survey compares median house prices in terms of average family incomes

    Wouldn’t comparing median house prices in terms of median family income be more appropriate?

  82. Andrew

    Our first house was a crumbling 2/3br semi with a tin roof in Parramatta built in the 1800′s. We moved out of that when we hit 3 children.

    When my parents were FHBs, their first home was what is now a 1-car fibro garage (the house on that block had not yet been built). And they shared it between 3 families, with dividing walls and a common laundry. Come to think of it, since there were only 2 doors, fucked if I know how the middle family got in and out of it.

  83. Demosthenes

    He was good at showing how Boston has high prices and little construction while Nevada and Arizona has much construction, rapid population growth and home prices rarely rising above construction costs because of unlimited land supply for housing.

    Not so much recently.

  84. .

    The theory, as I have heard it, is that Bunnings treats some of its stores as a kind of loss leader: minimising tax in the short term because they don’t contribute to profit, but building up land assets for later capital gains. Half retail operation, half development play. I don’t know if this is true or not, could very well be an urban myth.

    No sane company does this. The firm is probably more risk averse and also seeking a higher rate of return.

    They would see the development aspect as a hedge or a way to recoup heavily discounted cash flows or as a way to minimise any balloon like payment at the end of a bond/debt issue or the like.

    They’re not going to throw opportunities away but they want to take the downside out.

  85. Andrew

    Nominate your Woman of the Year and win an iPhone 5 for your trouble.

    Apart from the horror of accidentally READING Alecia whatsit, I also had to be exposed to the above sexism and misandry. Thanks a lot Philippa!

  86. Chris M

    I’m so worried about my kids – now 20 and 22 years old – getting a roof over tehir own heads

    The options are
    1) rent, get the best deal you can
    2) wait for price crash or
    3) move to another country

    No way would I encourage young people to buy in this market, that’s putting yourself in hock for life to feed the grub. The system is broken and need to be crashed before it can be repaired. With the worst generation – which own 50% of AU property – retiring now or soon negative gearing is of less use so they will rely on capital gains. When house prices flatline and begin to drop as the economy slows further they are going to all start a run for the gate pretty fast I suspect. It will be fantastic to behold, although sad for those younger that bought into the market recently.

  87. jumpnmcar

    At my local Bunnings the developer owns the land and shed and lease it to Bunnings.
    The developers also own every other block and building in the precinct which demand higher rents based on the traffic Bunnings alone generates.
    And also the Centerlink :(

  88. Alan Moran

    Leo
    “Wouldn’t comparing median house prices in terms of median family income be more appropriate?”
    That is what they do.

  89. Pete of Perth

    What about little ol Perth. We must be punching above our weight?

    My experience:
    1st house – 6yrs: built the cheapest 3 by 1 project home, outer suburb Marangaroo, 1990 mortgage 55K (2.5 times gross salary). Single income, missus stay-at-home mum; tutored in the evenings. Interest rates went to 17.5% Sold 101K, still owed 20k. 2nd hand car, bugger all furniture.

    2nd house 14years: 20 yrs old, 4 by 2 further out Woodvale, kids starting primary school, two incomes. Bought 150K, sold 500K, no mortgage prior to selling, 2 x 2nd hand cars, slightly more furniture.

    Current house: 10yrs old, 4 by 2, near city Menora, kids at/finished Uni, two incomes. Bought 850K, mortgage soon to be $0. New car.

    26 years in the making. No flash stuff until current house. Helped by being in the market prior to the mining boom.

  90. .

    Numbers and monty’s comments are simply moronic and should be ignored, perhaps deleted as a favour to hide their shame.

    Housing is expensive becuase of taxes.

    After you have paid income tax, in NW Sydney, expect to pay over 40% of a new dwelling price in taxes (and other charges):

    http://hia.com.au/media/~/media/Files/MediaMicrosite/Submissions/Tax%20Forum%20Submission%20Background.ashx

  91. Leo G

    “I’m so worried about my kids – now 20 and 22 years old – getting a roof over (their) own heads”

    The property price bubble will eventually deflate (or burst). They always have.
    Presently, state governments are too heavily dependent on revenue from property and are prepared to sacrifice the long term interest of Australian families with policies aimed at maintaining the revenue- futile , self-defeating policies that could well lead to a disruptive, precipitant price collapse.

  92. Dan

    This is the inherent outcome of freehold land. The on sale of perpetual one sided contracts, converts what is inherently an ongoing, variable, monopoly cost into an capital asset. Only the owners side is ever represented, since the other side of the contract — those of us who allow the monopoly use of the land resource — is everyone and therefore almost no one cares.

    Can anyone explain 99-yr leases to me though? If I buy my son a house at birth and he lives until 110, does the Crown or the Duke of Edinburgh (in the UK) just march in and chuck him out?

  93. Tel

    No way would I encourage young people to buy in this market, that’s putting yourself in hock for life to feed the grub.

    Inflation.

    After QE-infinity in the USA, Abenomics in Japan and bailouts all over the EU, there has to be inflation. After inflation comes rising interest rates, after that the mortgage rates go up and then prices will be dragged down to Earth again. The trick (as ever) is to play double-guess the central banker, ride the bubble to somewhere near the top and jump when the going is good. Government might at some stage decide to arbitrarily change the rules so you need to keep your ear to the ground and play the political grabbing game, trying to time that swing as well.

    If we didn’t have this to keep us occupied, we’d have to find something productive to do.

  94. Infidel Tiger

    Sounds like everyone is sitting around waiting for property prices to fall so they can madly buy real estate.

  95. stackja

    My father bought the land in 1921 for $200. I am not in any hurry to sell.

  96. Pete of Perth
    All in regional areas…
    First home early 90′s special arrangement wife’s flat at her place of employment $40/wk no other expenses.

    Backpacked around Europe 6months.

    Back in Oz after the recession we had to have. Took over the last 3 months lease on a 1 year old flat for $80 a week. Previous teenage tenants had trashed the place. Before the lease finished the landlord begged us to stay and dropped the rent to $65/week. We stayed another year.

    Bought in small town on outskirts of larger town, $126k just before market bottomed. I reckon I paid $10k too much but not many houses on offer. 50 yr old fibro 2 bedroom on 600m2. Paid it off in 2.5yrs.

    2 kids later wife insisted on renovation during the GST frenzy, couldn’t be talked out of it. Would come home from work with builders in the back yard doing quotes. Blew another $120k on a renovation.

    Paid that off in 6 years. Now enjoy ~$400 per week ‘tax free rent’.

    Before buying the house the first time I wanted to buy a cheap flat, could have paid $35,000 cash for a dive which we could have put up with for a few years and saved enough to pay cash for the same house we eventually bought but the wife said ‘no way’.

    Now I want to chuck it all in and buy a cruising yacht, she still says ‘no way’, I can’t win…

  97. Chris M

    After QE-infinity in the USA, Abenomics in Japan and bailouts all over the EU, there has to be inflation.

    Or deflation….? I’m not convinced deflation is such a bad thing though.

  98. Yohan

    Bob Day (an evil developer with vested interests) pointed out that a big factor in Australia’s overpriced housing is zone restrictions on development. An acre of land can be worth 1 million on one side of a fence and $5,000 on the other side.

  99. Yohan

    Monty what kind of economic ignoramus thinks it would be a good idea to leave negative gearing on established property but remove it for new construction builds?

    The biggest problem this country has is Baby Boomers bidding up the price of housing and selling it to one another in a big circle jerk, complete with generous tax breaks from the government. The best solution is to remove negative gearing from everything BUT new builds. This way all that retirement and super money can start going into increasing the housing stock of this country and alleviate supply constraints.

  100. ar

    One thing worse than rising house prices is falling house prices…

  101. johanna

    While governments and nimbies have a lot to answer for re high housing prices, the inevitable comparisons with single income families of yesteryear yada yada are simply not comparing like with like.

    Firstly, those single income families were markedly poorer than today’s equivalents, in that they spent much more of their income on basic necessities such as food, clothing and transport. Most people only had one car per household, if they had one at all. Not everyone had a telephone. The cost of housing was and is driven very much by what people can afford to pay – that’s how the market works.

    The houses that most people live in today are palaces compared with the average worker’s humble home of previous generations. As others have said, our houses are much larger than those in the UK, Europe or Japan, and indeed much larger than those our parents and grandparents grew up in. They have more and better amenities, and are full of appliances only the well-off could afford previously, if they even existed then.

    The growth in population has made previously modest or even undesirable suburbs near large cities much more expensive. I can still remember when inner Sydney was largely slums, and no-one with a quid wanted to live there.

    Despite all the bleating, there are plenty of properties for sale in large cities for less than $500K, and the more expensive ones tend to be bought by people upgrading as their circumstances improve. There was never a time when your average twenty-something could buy their “dream home” on a median income. They bought modest houses or flats after years of saving for a deposit.

    The capital city profile tells the story. There is plenty of cheap housing available in Tasmania, including close to Hobart – because the economy is stuffed and people can’t afford to pay more. In comparatively prosperous cities, the prices are higher, because people can earn a decent living and pay more.

    That said, governments have jumped on the bandwagon with stamp duty and other taxes, as well as gouging developers and restricting supply. Since the primary residence is about the only tax haven they don’t dare to touch (once you own it), it is completely rational to over-invest in it and hang on for dear life to your nest-egg.

  102. ar

    IT

    Sounds like everyone is sitting around waiting for property prices to fall so they can madly buy real estate.

    Yeah, when unemployment hits double figures is a good time to buy… just make sure you pick the bottom of the market… and have a job…

  103. Dan

    Stackja, I looked at “buying” a place in London and it was a 99-yr lease. If i sell it in 33 years to Jack, and he sells it in 33 years to Jill and she sells it later on to John, does John only keep it for a few years? Does the price thus drop as time goes by? And in 99 years does someone just hand it back to the Duke without compensation?

    I asked various property owners (lessees??) this in London and I still don’t understand. It’s like I have a stupid zone in my brain concerning leasehold property..

  104. The best solution is to remove negative gearing from everything BUT new builds. This way all that retirement and super money can start going into increasing the housing stock of this country and alleviate supply constraints.

    Wouldn’t that cause a huge disruption across the industry as the prices of existing houses plummet overnight, effectively popping the bubble all at once instead of letting it down gently? I get what you’re saying Yohan, it’s the baby boomers who got the benefit of the lurk and they should ultimately lose out, but in a sudden crash everyone suffers.

    Apart from anything else, if the object is to remove negative gearing because it’s not good for the economy, I don’t see why it should be perpetrated for new homes.

  105. JC

    Fatboy

    You started off well criticizing opposition to neg gearing. It was downhill after the first sentence. You never disappoint on the downside of stupids do you? Never!

    You big idiot.

  106. ar

    in 99 years does someone just hand it back to the Duke without compensation?

    I’d say the Duke gets compensation when the lease is renegotiated… at 2114 prices…

  107. JC, would you consider yourself a baby boomer?

  108. Bons

    As expensive as Australian homes are, it is laughable that youngsters expect to be able to buy family homes straight off the bat without any sacrifice at all.
    Worst generation ever warning!
    My first house cost $45,000. I earned $3,900 and my wife $3,300. Loan was 20 years and it hurt. We lived frugally and eventually salary increases made the payments manageable.
    My kids who earn proportionally far more, flit around the world, drive fancy cars and spend stupid amounts on their kids.
    They look to me to give them their deposit – nope.

  109. Developers are parasites?

    There is certainly opportunity for parasitism in development. It is a very easy way pathway for money to be extracted from government and gifted to private interests. Doesn’t mean that every developer is parasitic.

  110. Bruce of Newcastle

    Its not a bubble people. If you are going to wait for it to pop you’ll be waiting for a long time.

    Of course the world could go right down the crapper, but then everything goes pop, not just local house prices.

    The reason it is not a bubble is two fold. (1) The amount people are prepared to pay is not related to gross income. It is related to disposable income, which in percentage goes up much more rapidly than income due to the deflationary effect of China and general post GFC deleveraging on prices. (2) the supply side is completely constipated by over-regulation, paranoid governments and greenies.

    Neither is going to change quickly, meanwhile Oz overall population is rising at about 1.6%/y and that is very steady.

    Most rental markets have tiny vacancy rates. Average is 2.6% Oz wide. Landlords are getting something like 5% ROI at current rents (a bit less in Sydney). Still ‘way above term deposit rate even if you ignore capital appreciation. There just isn’t enough housing, and that is not going to change quickly.

    You bet against this incredible momentum you will lose your shirt.

    Of course as I said if it all goes to shit then we’ll all lose our shirts anyway. Maybe then the goldies will win, but since governments like harvesting the juiciest targets first I doubt even they would come out well in a megadepression.

  111. Craig Mc

    Do the clowns wanting to get rid of negative gearing realise there’s a capital gains tax? They sort of go together.

  112. Bruce of Newcastle

    Oh and interest rates aren’t going up for a generation. If they do most Western governments cut their own throats. They are stuck between rock and hard place.

    So they will print money to keep the rates down. Inflation may return, but that won’t reduce house prices, it will increase them. In nominal terms.

  113. Infidel Tiger

    Do the clowns wanting to get rid of negative gearing realise there’s a capital gains tax? They sort of go together.

    Lefties want free houses in cool inner city suburbs and think negative gearing is what is holding them back. They never consider it’s their art degree, pissant public service job and complete lack of financial acumen.

  114. JC

    JC, would you consider yourself a baby boomer?

    And that’s pertinent because?

  115. Ripper

    We have actually had huge inflation in Australia , but it has not been seen in the CPI since Keating removed housing costs at the suggestion of the IMF in 1983 as it has mostly gone into property prices. That has allowed the govt of the day to have free money to spend. Remember the turus definition of inflation is the amount of money , not the cost of selected goods.

    Up until the mid 1980′s a family could service a home mortgage on one income (debt slave), now 2 x debt slaves are mandatory, and even with both working things are tighter than they were 30 years ago.

    Build in a new development and you have to meet local government minimum house size requirements , hence most new developments are all house and no yard.

  116. And that’s pertinent because?

    Because baby boomers are the problem.

  117. JC

    Because baby boomers are the problem.

    I’d say fat people are, Fatboy. How about that?

  118. So yes, you are a baby boomer.

    Which means you should be retired already.

  119. JC

    And Monster, you told us – boasted in fact,- at the time of the election, that you were voting for the human garbage. This basically makes you a fascist, which is mildly amusing that you believe you can discern what is and isn’t libertarianism.

    You’re in no position to judge anyone as a human trash supporter is lower than a dirty swine.

    Fuck off.

  120. JC

    See how you fascist tendencies come out, Fatboy. You really can’t help yourself. You see people as groups, or masses and decide from there which group should be tolerated and which shouldn’t. I’m not poking you in the ribs on this one… as though i could find them even if I wanted to. It’s who you are…. a leftwing fascist.

  121. James B

    Urgh, this frustrates me so much.

    If we have a generation of people who don’t own property they WILL grow up to be leftists. Solve this shit now.

    Is there any hope anywhere? I mean for fuck’s sake surely one state is thinking about ending this bullshit planning system.

  122. Wait JC, so you’re labelling me a fascist because I label people?

    The “I know you are but what am I” gambit. Courageous.

  123. Puff Of Smoke

    I had a house to live in and an investment property until life smacked me around the face and I had to sell both. I’m now unable to get back into the housing market at a middle age. I live in Canberra and believe me, if I could find a house in a “less desirable part of town” to buy for less than $350k I’d be in it already. But I refuse to have my pets put down for a townhouse or apartment so $400k+ it is even for the lowest of the market. Please stop repeating how the young uns today just want a mansion as their first home, some of us are a lot older (and I hope wiser) than that and yet can’t see a way back in.

  124. Docket62

    This is indirectly pointed at the ‘Monty ‘s’ of the thread who are in so much opposition to negative gearing on housing. Few comments are made about the gearing on other asset classes like shares, which are regularly leveraged by… Superannuation funds. So first things first, if we remove gearing (and that includes shares) then your super nest egg that your employer has put away for you (because you haven’t got the capacity to save it) will drop to whit full levels of 2 or 3%. And you’ll retire on a pension and 11.30 after the funds take their fees out.

    gearing does not in and of itself escalate prices. The demand for property in Australia is driven by investment (at present) but the roundabout always comes back to owner occupation, because people like to live somewhere, and they like to call it home. Supply is short at present, because the last 6 years of labour have effectively dried up the building industry, and until the supply side starts to increase, then demand will outstrip it giving rise to… Increases.

    But I digress. if you remove gearing then you remove CGT. If you remove CGT then the apple starts to rot. The number of small business owners who pay CGT at on asset sales (not just property), even with exemptions to part of CGT at when selling business assets is staggering, and far in excess of anything you would even believe… Then there big business. Sales of multi billion dollar assets attract CGT. These are big numbers and they aren’t talked about in the same breath as gearing, but they are intertwined

    I don’t have the numbers but I suspect if you ran them, CGT income outstrips gearing refunds by a large amount. And you can’t have your cake AND eat it.

    Your whole concept is that property is ‘unaffordable’ because of gearing but in most cases it’s only the property you would ‘like’ to live in not the one you can afford.

  125. Joe

    High house prices lead to large mortgages, which leads to more expensive employees, which leads to jobs moving to countries with cheaper employees – lower house prices.

    Why use engineers in Perth when blokes with the same experience in the US are 30% cheaper. The US engineer has half the mortgage of the Aussie and can negatively gear his interest payments on his home. Sure he gets hit with cap gains when he sells but on a yearly basis his costs are much less than the Aussie’s.

  126. JC

    Wait JC, so you’re labelling me a fascist because I label people?

    You label groups in exactly the same way any fascist would do, Fatboy. Nothing personal that you’re a fascist but that is what you are.

  127. Amused

    So unaffordable.

    http://blogs.crikey.com.au/theurbanist/files/2012/06/Home-ownership-by-country.jpg

    Probably a better place to live than most of the countries in the world with higher home ownership rates!

  128. Amused

    Yes, that’s from Crikey (and I feel dirty) but you can’t call a country that has nearly 70% of people buying/owning their property unaffordable. The vast majority are affording it just fine.

  129. and do not want to see the values of their investments brought down to their underlying worth

    Because if they lose their jobs and are forced to sell up, they will be left with more owing than they were obliged to pay. Not everybody gambles on their equity for the purpose of material gain or luxuries.

  130. .

    The point about capital gains tax is spot on. Negative gearing exists simply because some people face high tax rates. If they make any gain, it will be taken out by the realised capital gain. You cannot realise the capital gain unless the rent increases to a point where the negative gearing ceases – or you sell and pay CGT.

    Bruce is also right. It isn’t a bubble – it is much worse. Dwelling construction is taxed and regulated to the point where it is amazing we have any homes built at all.

  131. Docket62

    Morning dot

    Actually I agree with the last point. When it comes to greenfield development, the cost to do so for infrastructure is astronomical and provides the biggest impediment to releasing available land. I’m not sure where the answer lies there, because if you release a bucket load, then the price of land must fall, and you’d end up with adverse pricing for those who have already paid.

  132. Bruce of Newcastle

    It isn’t a bubble – it is much worse. Dwelling construction is taxed and regulated to the point where it is amazing we have any homes built at all.

    Yes. Also recall that many councils have Greens in the balance of power possies. They don’t want anything built by anyone anywhere (except for wind turbines).

    House price rises will probably come off the boil, like during most of the 1990′s, as the flood of money from mine construction workers abates. But that is counteracted by ordinary investors avoiding the sharemarket. Their money has to go somewhere and leaving it in a bank is doubly dangerous since the GFC, with sub inflation ROI after tax and the threat to confiscate anything over $100,000 in ‘bail ins’. And the big funds are on the nose because of poor returns, skyhigh fees and Wolf of Wall Street bad behaviour. So real estate is all that’s left for them.

    Then add in SMSF’s and Chinese investors trying to get money out of their country.

    The last one maybe the point of leverage since overbuilding of apartments may keep house prices from rising too. But Aussies want houses, they don’t want the body corporate mafia on their back. So I don’t see house prices falling, just not rising as much.

  133. feelthebern

    Negative gearing aint ever going away.
    Ever.
    Too many vested interests in maintaining the status quo.

    For the record, I use negative gearing.

  134. Token

    Negative gearing aint ever going away.
    Ever.
    Too many vested interests in maintaining the status quo.

    Negative gearing has been factored into the retirement goals of too many people. Remove the benefit and the government will see an explosion of people going on a pension at an early age.

    That must mean something when you see the largest part of the growth in the population on welfare comes from people on the Old Aged Pension.

  135. .

    Perhaps if there is “truncated supply”, then the price will not fall so much.

  136. johanna

    Bruce, here in the Glorious People’s Republic of the ACT (and no doubt elsewhere) the dopey, greenbrain government is continually mandating new rules for housing construction to Save the Planet, all of which add significantly to the cost. Things like compulsory energy “efficiency” measures (despite the whole EER system being a crock), compulsory rainwater tanks in memory of the long-gone drought and irrespective of our vastly expanded dam, etc etc.

    Combined with extortionate taxes, building a new house costs at least $100k more than it needs to. It is impossible to build a basic starter home like our parents and grandparents did, and improve/expand it down the track when we can afford to.

    These are the same people who weep and wail about the shortage of affordable housing, suggesting various ways that taxpayers should kick in more money to help out. The cognitive dissonance is staggering.

  137. Token

    Perhaps if there is “truncated supply”, then the price will not fall so much.

    How about focusing on what you note endlessly, remove the barriers and costs on increasing the stock of new housing across the city.

    Remove the green-tape where friends of the council use CFMEU tactics hold up developments on archilogical / environmental digs to hussle developers?

    Increase the supply and the shortages created by an increasing population squeezing into an existing stock will be fixed (as Alan notes above).

  138. Uber

    What a simplistic, whining load of tosh that was.

  139. Docket62 and Dot, if you can’t do without negative gearing without also ditching CGT, explain to me how the UK has no negative gearing on houses, but has a CGT.

    Go!!!

  140. JC

    explain to me how the UK has no negative gearing on houses, but has a CGT.

    There is no CGT on owner occupied homes in the UK, Monster, you fat idiot.

    Property you might pay Capital Gains Tax on

    When you sell or dispose of property – such as a building, land or a lease – you have to work out if you have any Capital Gains Tax to pay.

    However, if you sell your main home you’re usually entitled to Private Residence Relief on any gain you make which means there’s no tax to pay. See the section ‘Selling your own home’ below.

    Typical types of property you might pay Capital Gains Tax on include:

    a property that you’ve bought as an investment, for example a buy-to-let property
    a second home, for example a holiday home in the UK or overseas
    business premises, such as a shop or a factory
    land, such as agricultural land

    There are special rules for working out certain gains and losses on land – see the section on ‘Land and leases’ below.

    If your property counts as a business asset there are other reliefs which may be available. See our guide about Capital Gains Tax reliefs on property that’s not your main home.

    You, Homer and Alfie ought to start a blog together.

  141. rebel with cause

    Negative gearing is a red herring. The NIMBY crowd loves to waive it around as the reason for high housing prices as it side-tracks discussion from whether their attitudes towards housing and development have had an effect on prices.

    Even if their worst-case analysis of negative gearing was true, the effect would pale in comparison to the effect of taxes, housing regulations and land use restrictions.

  142. Bruce of Newcastle

    Johanna – There’s another one which is landing hard on house builders – the bureaucratic costs from new fire regulations. This article was in the Weekend Oz:

    Building-cost trap for fires’ new homeless

    PERTH suburbs razed by bushfire last weekend are about to get strict new fire zone building rules that will leave many homeless families without enough insurance to cover rebuilding under national building standards brought in after Black Saturday.

    The shire of Mundaring where 55 homes were destroyed by fires last Sunday, has applied to the Barnett government to become a bushfire-prone area, which would trigger stringent building regulations that make all new homes safer but add significantly to the cost of rebuilding.

    It has already emerged that victims of the Blue Mountains bushfires in NSW face insurance shortfalls of up to $200,000 because of the new regulations that significantly raise the cost of rebuilding their homes. For example, new houses in high-risk bushfire areas must now have heat-resistant glass and ember-resistant roof membranes.

    Many Blue Mountains residents were unaware of the new requirements and had not increased the insurance on their homes.

    This stuff is almost certainly a complete waste of money since the types of fires that burn houses are often the conflagrations which nothing stops.

    So much of this could be avoided if sensible fire management and tree removal was practiced.

    When you have massive increases in new house construction costs, and no retrofit requirement on old houses, even fewer new houses will be built. And you will see yet another ratchet up of existing house prices.

  143. There is no CGT on owner occupied homes in the UK, Monster, you fat idiot.

    The same already applies in Australia, you credulous fool. Negative gearing is usually used on non-owner-occupied homes, you soft-shoed dilettante.

  144. JC

    Monster

    Are you having a periodic insulin shock?

    This is what you said, you imbecile.

    …..explain to me how the UK has no negative gearing on houses, but has a CGT.

    The UK has CGT on owner occupied homes. Essentially their GST appears to be similar to ours although I don’t know the rates.

    Now shut up and go away, you big fat idiot.
    Go!!!

  145. Their CGT is much the same as ours. For the purposes of comparison, my point still stands: Docket62 and Dot must explain why having a CGT but not having negative gearing is possible in the UK.

  146. Rabz

    Interesting piece on the scourge that is third world style high rise ‘development’ in that disgusting, overcrowded cesspit, Sydney and the steps taken by the state government to deliberately engineer a shortage of land for houses (and in the Silly Moaning Herald, of all places).

  147. johanna

    I feel for those poor sods in the Blue Mountains and WA. My folks used to live in the Mountains, and after some scary fires years ago decided to move to safer territory. As you say, when you get a serious conflagration in that terrain, nothing short of a reinforced concrete bunker is going to resist it. But the measures that might help (vegetation clearing, better exits – there is currently only one way in or out for most people) are resisted by the Greens.

    As you point out, it just penalises those who can least afford to do anything about it.

    Housing policy is a mess in this country, and every regulatory measure just makes things more expensive and difficult. Most of the places we lived in when we first came to Australia around 1960 would be condemned as uninhabitable by the local council these days. Well, they were inhabitable, if Spartan, but the thing was, as poor migrants we could afford them and save some money to get something better. Nowadays, poor migrants, i.e. refugees, are mostly housed at public expense, with not much incentive and significant disincentives to move into the private market. Why would you scrimp and save to buy your own place when you have secure tenancy at a small fraction of market rates courtesy of the taxpayer?

  148. rickw

    While the third component, the land itself is worth only $2,000 as farmland (far and away the most prevalent usage of the land) because of government rationing (euphemistically called “planning”) the block costs perhaps $300,000.

    The Australian Dream has been put out of reach by our stupid politicians and generations consigned to a life of debt. A complete disgrace for a country with less people per square kilometre than pretty much anywhere else.

    PS: The price of farmland is more like $1500 per acre on average, or for a 1/4 acre block $375.

  149. .

    monty – I don’t see your point. Negative gearing will allow you to retire but it will never make you wealthy. I wouldn’t recommend it. There is no justification for the UK policy. You should be allowed to offset losses against income. Australia stands in a reasonable position, compared to the UK, or the US, where owner occupied mortgages are deuctible.

    The best alternative is no income tax, or in the least, treating all source of income equally and having a lower rate and higher thresholds.

  150. John Montgomery

    Whilst I agree with you about the supply side being over-regulated, I am surprised at your tirade against Boris! He is a decent man, a good London Mayor and is very popular. What has he done to you?

    Also, the proportion of land that it urbanised in the England is 10.6%, not 8%. It is higher in the South East where there is more development pressure. The latest ideas are for 2 new Garden Cities. There is also a lot of land in North West Kent. The English landscape is much appreciated and is historically important. Or should we concrete over Runnymede?

    As for Australia, apart from Sydney and Melbourne most of the other cities are half empty. By all means build more houses but I doubt prices will fall by as much as would seem needed. A large proportion of new apartments up here in Brisbane are bought as investment properties and not for owner-occupation. That may increase the stock of rental properties, which is good, but it also has the effect of raising prices.

  151. .

    That may increase the stock of rental properties, which is good, but it also has the effect of raising prices.

    Please explain.

  152. John Montgomery

    Bloody hell, it’s me dad! /runs

  153. Infidel Tiger

    Whilst I agree with you about the supply side being over-regulated, I am surprised at your tirade against Boris! He is a decent man, a good London Mayor and is very popular. What has he done to you?

    Johnson is a statist lefty swine. His treatment of his wife was hardly the mark of a decent man.He’s better than David Cameron, but so is syphilis.

  154. Infidel Tiger

    Bloody hell, it’s me dad! /runs

    We can see where you got your economic smarts from.

  155. stackja

    Dan
    #1160133, posted on January 20, 2014 at 8:20 pm
    Stackja, I looked at “buying” a place in London and it was a 99-yr lease. If i sell it in 33 years to Jack, and he sells it in 33 years to Jill and she sells it later on to John, does John only keep it for a few years? Does the price thus drop as time goes by? And in 99 years does someone just hand it back to the Duke without compensation?
    I asked various property owners (lessees??) this in London and I still don’t understand. It’s like I have a stupid zone in my brain concerning leasehold property..

    I do not know about leasehold only what Google suggests.

    NSW leases
    Expired lease removal
    REAL PROPERTY ACT 1900

  156. john montgomery

    Infidel, don’t be childish. Boris is a lefty swine? or a Tory Toff – which is it?

    Dot, t apartments are bought by overseas investors at prices that are high for local owner-occupiers. . The same thing is going on in London as Chinese, Russian and French buyers move into the market. It’s just the way it goes.

  157. .

    So they pay more than market value just to shaft locals?

    Why don’t they just offer the asking?

  158. john montgomery

    Stackya, value of a 99 year lease will tend to fall over time offset by general prices and the desire ability of a property or area. There was a Leasehold Reform Act that was intended to allow residents in mansion blocks to jointly buy their freehold. But a lot of leasehold properties remain. You would need to buy a new lease on expiry from the free older. Quite a few people I know buy the ‘fag end’ of leases when they retire as they don’t expect to live, say, another 30 years.

  159. Docket62

    ahh Monty..
    Docket62 and Dot, if you can’t do without negative gearing without also ditching CGT, explain to me how the UK has no negative gearing on houses, but has a CGT.

    If the case was starting without one or the other, and then introducing one WITHOUT the other, then we’d probably have a CGT but no gearing. Once introduced though, the genie is out of the bottle. Aside from using the UK as a statistical model whereby its a complete basket case financially – and therefore a really stupid example, UK have death duties whereas we don’t, their tax structure is different, their property market is very different (99 year leases on many areas in London similar to the ACT) and so on and so on…

    As many have posted her, there is so much built now on BOTH CGT and Neg gearing that to pull the plug on one but not the other would cripple the country. Flight of funds for one would trigger a landslide of investment elsewhere (Stocks as an example – which as I previously stated are also Negatively geared) and the resultant pull FROM the property indexes would see tenancies escalate. Just because someone gears, doesn’t mean they cant afford the property. Most gearing is simply to offset ridiculous rates of taxation rather than because an individual cant afford it.

    explain to me how the act of an investor purchasing a property for rental rather than owner occupation forces a price to increase? The ability to spend is based on the applicants ability to borrow and the limits are well known. Allowing rental income doesn’t significantly increase the amount that an investor can borrow because the banks only use an average of 75% of that income…. so how does negative gearing affect the property market? The answer is that it has little effect IMHO

  160. Docket62

    And Monty.. to summarise your argument (let me see if I have this correct)

    1. All baby boomers are the cause of the current ‘un affordability’ in the property market
    2. Negative gearing is evil, and should be removed
    3. Capital Gains Tax is just

    You haven’t supported anything you say you believe in with anything that resembles an argument. Just opinions and hyperbole. I am not a baby boomer – I was born 17 years AFTER the end of world war 2 – ergo I can’t be part of this ‘problem’ can I? Most BB do not retire with half a mill in the bank and a two million dollar home they can use to gear. Banks do not lend on what you own, they lend on what you earn. A retired BB couldn’t afford to borrow a cup of coffee today because the tightening of lending rules post GFC removed asset lending.

    So.. explain how they (baby boomers) are causing everyone else this angst you speak of?

  161. Yohan

    When someone promotes the idea of increasing the supply of housing and removing the grants and speculative tax breaks, the general reaction is, oh no, if house prices drop, then it will have a flow on effect to the rest of the economy and it will be generally bad for Australia.

    If you take this argument to its logical conclusion, then you would be all for restricted supply and high prices for bread, cars, computers, mobile phones, any fucking item you can think of.

    Because, restricted supply and artificially high prices are good for bakeries, car manufacturers, IT shops and mobile phone distributors. It creates jobs in those industries. But to paraphrase Bastiat, that is what is seen. What is unseen is all the economic activity, new industries and wealth that never came into existence because people had to pay such high prices for their bread and computers.

    Housing is nothing but a commodity, people use goods and commodities to satisfy their wants, and the cheaper and more numerous the supply the better, it is an economic truism.

  162. Token

    And Monty.. to summarise your argument (let me see if I have this correct)

    M0nty will also lecture you on why you are not a true Libertarian if you give him the chance.

  163. .

    Well said docket.

    monty should sit down, shut up and listen for once.

  164. Token

    If you take this argument to its logical conclusion, then you would be all for restricted supply and high prices for bread, cars, computers, mobile phones, any fucking item you can think of.

    Give the left a chance and they will implement those controls as well.

    You can not leverage against any of the asset classes you note the way you can with Housing. Banks will not even do that with other investment classes. Therefore you are not talking about a good comparison, but do get what you mean.

  165. Tator

    For those who are interested. This link has the current costs to developers that state government charges are up to.

  166. johanna

    I suppose that housing is a commodity like bread in the pure sense, but with a bit of care it lasts and sustains life for more than a few days! It is perhaps somewhere between bread, and diamonds when De Beers controlled the market, on the spectrum.

    Inter-country comparisons are of limited value because of the different regulatory, geographical and cultural frameworks. For example, in parts of Europe very long term, secure tenancy is the norm, so that purchasing is not nearly as important for security as it is here, where you can be forced to move annually at the whim of landlords. My maternal grandparents lived in the same rented property for more than 40 years, and that was not unusual.

    In Australia, high transaction costs (principally stamp duty) deter trading in the housing market. Just to make things worse, my local dictatorship now requires the prospective vendor to prepare building reports and pest inspections (for which the vendor is liable if they are wrong) prior to sale and make them available to would-be buyers. All these costs just get loaded into prices. Even if your purchaser is a licensed builder or pest inspector, you still have to get an “independent” report done. It’s ludicrous.

  167. 2dogs

    Local councils where new land is to be released tend to be ALP dominated, think Melton in Melbourne, Penrith in Sydney, or Logan in Brisbane. The ALP councillors are in it for what they can get, and aren’t interested in keeping costs down.

  168. Token

    For what it is worth, Harry Triguboff believes housing pressures will decline and credits this on Chinese developers who source their funding from mainland China:

    But dramatic changes are ahead. Triguboff says that while the local councils and planning people are still tough, “the dam walls are cracking” as these groups and the NSW government realise the damage that has been done to dwelling affordability.

    The Chinese have been significant buyers of Sydney (and Melbourne) apartments for a long time but their intensity is increasing. Not only are they buying apartments in Sydney and Melbourne from Australian developers like Triguboff’s Meriton, but also from Chinese developers now entering the market.

    Unlike smaller Australian developers, the Chinese do not need to use Australian banks and are using their own banks to fund the developments. Accordingly, funding is now plentiful and the two pillars of supply constraint are crumbling.

  169. Token

    The ALP councillors are in it for what they can get, and aren’t interested in keeping costs down.

    It is amazing how a breeding ground for Bolta’s favourite the Sunrise Moth is found when a council needs an excuse to slow developments to hussle more cash from developers.

  170. kraka

    What about the stamp duty? That adds a massive amount of money to the initial price-especially here in WA-for what? So some shiny ass bureaucrat can sign a form to change ownership.

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