2006 census says there is NO SHORTAGE

[HiredGoon]

Lizzie, you are arguing for an appeal to authority. It doesn't matter if Jesus himself came down and said there was a shortage, I'd still ask him for figures and facts to back up his claim.

2/3's have a PAPER LOSS. Not necessarily an actual cash loss. I'm one of those. Running at a paper loss but a cash positive position is the point of maximum tax efficiency for many investors. Do you understand the difference?

I am regarding a loss being "all of my costs were greater than all of my income on this property" as reported to the ATO.

e) Reduce spending on junk before reducing spending on a house.

This will affect our consumer economy. We already spend $105 for $100 we earn, we *need* this borrowing to keep our economy growing. Without it we'd be in recession. We borrow our way out of recession each year.

f) Downsizing houses. Kids sharing bedrooms (as was common only a few decades ago - I was one!). Taking in boarders.

This will have downward pressure on prices.

100% low-doc IO loans? I highly doubt there are many of those in Australia,

We have 100% loans. This is to demonstrate borrowing power - if you had 20k deposit, and 80% loans, you could only borrow 100k. If it's 90% you can borrow 200k, 95% = 400k. We're already at 105%

Also, didn't the average Australian increase their net wealth from $250k to $300k recently? What does that enable people to do?

This is overwhelmingly a paper gain in house prices and can only be realised if other Australians take out debt to buy the house off them.

 

[DavidMc]

I am regarding a loss being "all of my costs were greater than all of my income on this property" as reported to the ATO.

Precisely. An 'on-paper' paper loss only, but not a cash flow loss. Sounds like you don't understand what I'm getting at. A paper loss isn't a dumb business, a paper loss and cash profit is a smart business.

We have 100% loans. This is to demonstrate borrowing power - if you had 20k deposit, and 80% loans, you could only borrow 100k. If it's 90% you can borrow 200k, 95% = 400k. We're already at 105%

No, we do not have 100% Low-Doc IO loans as you said. In true HG style, I'll say this - 'You are wrong.'.. oh no, wait... 'You are a liar'. Still waiting for that product page. We are not at 105% on average. Far from it. We are much less. A huge number of homes are unencumbered in Australia.

This is overwhelmingly a paper gain in house prices and can only be realised if other Australians take out debt to buy the house off them.

Good point. There are quite few overseas investors in Australian real estate as well, but I know what you are saying. Lots of Singaporean dollars here, not that this changes things in a huge way.

 

[HiredGoon]

A paper loss isn't a dumb business, a paper loss and cash profit is a smart business.

The whole point is that the vast majority of residential property investors are in there for capital gains. Do you disagree with that? If someone put a cap on house prices tomorrow, and said they'd never rise would those people stay in the game?

No, we do not have 100% Low-Doc IO loans as you said.

I was using the 100% low doc interest only loan not as a description of an actual product, but as a throwaway line describing our current lending environment. You can get a low-doc loan, a 100% loan and an interest only loan, but yes, not all together.

A huge number of homes are unencumbered in Australia.

FYI The number of homes owned outright decreased since 2001.

 

[DavidMc]

The whole point is that the vast majority of residential property investors are in there for capital gains. Do you disagree with that? If someone put a cap on house prices tomorrow, and said they'd never rise would those people stay in the game?

I don't know if I'd say that. I think the majority of investors are there for positive cashflow. Check out the number of members on the 'cashflow positive brigade' over on propertyinvesting.com. Also check the number of sales of Steve McKnights books versus someone like Micheal Yardneys. 99% of my friends who ask me for advice on investing don't start because they can't wrap their head around the concept of negative cashflow. I'd say most SS investors are primarily after capital gains, but we don't represent the average investor.

 

[lizzie]

Lizzie, you are arguing for an appeal to authority. It doesn't matter if Jesus himself came down and said there was a shortage, I'd still ask him for figures and facts to back up his claim.

i have no idea what you just said but i think i know what you are getting at. okay - i just called my pm to ask the vacancy rate in newcastle and she advised me it was around 1%. would you like me to call another pm and confirm this? this 1% is usually the really (bleep) houses, boarding house rooms, units that no one wants to live in - so the demand for reasonable rental accomodation is huge. demand and supply means i can ask more for my property. according to you, this is a good thing because it means the yield is more in line with the property price.

 

[lizzie]

I am regarding a loss being "all of my costs were greater than all of my income on this property" as reported to the ATO.

do you understand paper losses? depreciation? it means that, say, you made a profit on your rental property of $5,000 - but because you could legally depreciated you fixtures and fittings (oven, carpet, hws, paint etc) you depreciation came to $6,000. means you made a paper loss of $1,000 even tho you physically put $5,000 in your pocket.

see - the ato stats are not necessarily correct in saying that 2/3 of investors made a "loss". we are just working the system to our advantage. why give the politicians a pay rise or pay for strip club visits if we don't have to.

if you can provide the figures of who "physically" made a loss then i would be more impressed.

 

[lizzie]

We're already at 105%

oh , we can easily have 105% loans, but only if you have additional security to put up for the loan - such as equity in another property. but i think you will find that you won't get a 105% loan as a stand alone for a property.

the banks still have a lot of flexibility in regards to keeping loans affordable - just look at what is available in western europe and some of the more expensive asian countries. australia has a looooong way to go before we come even close to their situations.

 

[VYBerlinaV8]

the banks still have a lot of flexibility in regards to keeping loans affordable - just look at what is available in western europe and some of the more expensive asian countries. australia has a looooong way to go before we come even close to their situations.

When you combine this with the fact that Aussies are nowhere near as hocked up in debt as the average Yank (their sub-prime market is 4 times the percentage of ours!), the fact that luxury spending is at an all time high (as reported by news.com.au last week), that the baby boomers have plenty of $$ to look after their gen Y offspring, AND THAT THE CENSUS SAYS THERE'S NO FREAKING SHORTAGE YET ANYWAY (WHICH IS WHAT THIS THREAD IS ALL ABOUT), any short term change in overall market value is likely be, well, short term.

HG, you make good arguments, and thankyou for continuing to engage with us, but I must admit I am still profoundly unconvinced that a global house price crash is just around the corner. What has happened in other major western economies is a very good clue as to where we are headed. Check out trulia.com - there are neighbourhoods in Los Angeles where the median house price is over 11 times the average income! You think 5 times income is high? Ha!

 

[WinstonWolfe]

Can anyone (incl. HG) summarize in less than 3 minutes what HG's major tenets are?

Seems to be a lot of good argument in it, but I don't have the mental stamina or time to wade through his numerous posts.

And HG, I am interested to know what you do for money. You seem to have a lot of free time during the day to post....and you seem to know your way around the ABS site. I'm bettin you are a 2nd year B.Comm student, who votes Labor...or just another Greens Party fanatic with asperger's disease.

Still waiting for your revised analysis of the effect of the average household size reducing from 2.6 to 2.2

 

[HiredGoon]

When you combine this with the fact that Aussies are nowhere near as hocked up in debt as the average Yank

"Australia’s household debt to GDP ratio has been growing more than three times as rapidly as the USA’s since 1990. The ratio has grown at an average of just over 2% per annum in the USA; it has grown at over 6.8% per annum here."

the fact that luxury spending is at an all time high (as reported by news.com.au last week), that the baby boomers have plenty of $$ to look after their gen Y offspring

Because of housing wealth and debt!!! Because of people spending more than they earn!

Still waiting for your revised analysis of the effect of the average household size reducing from 2.6 to 2.2

This will require an increase of 15% more houses than people.

Current building rates are 35% faster than increases in people.

FYI I work writing financial software. I write while compiling my software. I also post from home. I have been posting too much recently.

 

[WinstonWolfe]

HG, thanks for the figures.

Have tried to work my own.


2006
Households
8,426,559

Household Size
2.6

2006-07 av Housing Starts
150,000 (from HIA)



2026
Proj. Popn
25000000 (from ABS pop proj)

Proj Household Size
2.2

Proj Households Required
11,363,000


Housing Starts Required
11,363,636-8,426,559
= 2937077
2937077

New Housing Starts Required pa
146000


But this ignores the need to replace aging dwellings...so lets say a conservative 0.3% need to be replaced every year due to reaching use by date....

THerefore, adding to new housing starts, we must replace 8426559*0.003 = 25,000 dilapidated dwellings pa

So total new houses required pa = 146000+25000= 171,000

That's a shortfall of 21,000 pa


The demand for smaller households by presumably retirees and dinks will not be met at today's new housing start rate.....

and considering Australia's construction industry is already running near maximum capacity, who is going to build the extra 21,000 dwellings each year?????

Further, more builders are not building new stock but are consumed in doing renovations on existing houses due to heritage listings and character preservation orders....

where are they going to be built?

who is going to take the development risk to build them?

and where is the money going to come from to build them? seems like even more GDP is going to be locked up in paying down debt for evermore unproductive housing....

and all this could be avoided if aussies learnt how to form families and live harmoniously under one roof........maybe the answer lies in Gen XYZ never allowing their parents to become empty nesters....

 

[WinstonWolfe]

"Australia’s household debt to GDP ratio has been growing more than three times as rapidly as the USA’s since 1990. The ratio has grown at an average of just over 2% per annum in the USA; it has grown at over 6.8% per annum here."

HG, this article makes some good points in relation to debt to GDP. And shows that credit growth consistently supercedes GDP growth.

I think Michael Whyte pointed out above, as this article does, that debt serviceability to income ratios are more instructive. One could argue, with the deregulation of the banking industry, that historical debt service cost is not a predictor of current debt service costs.

 

[Bandita]

Seeing that the Topic of this thread is the 2006 census finding a 10% vacancy on homes....and the argument that this means housing is overpriced and therefore will fall in value - I hope this post I'm quoting hasn't been overlooked - its shows the Census stats up to 2001 and most importantly shows that the same 10% vacancy rates have been shown in the past 3 census up to 2001...........of course we all know what property has done over all those years of 10% vacancy rates......

Cheers,
Jen

Hi All,

Just thought I would post this.

I'll leave it to the mathematicians to work out the exact percentages of Occupied versus Unoccupied.............

Seems that all 3 census' in the spreadsheet say that there is no shortage if using the occupied versus unoccupied..........

I think that was the *kapow* the you were looking for BB.........or should it have been *splat*

ciao

Nor

 

[willair]

The whole point is that the vast majority of residential property investors are in there for capital gains. Do you disagree with that? If someone put a cap on house prices tomorrow, and said they'd never rise would those people stay in the game?

This is still a Free Country,and everybodys vote counts no matter
who you vote for,but do you think any Government would be that stupid to try
something like..Not even Kevin oo5 and his gang of #### would try that
they would stuff the rental market up,all investors would find another
playground to invest/ASX/,as you well know all areas of property
suffer from N/G Brisbane has several times over the past 25 years
and will again just part of any normal cycle that you don't understand
but HG just keep thinking the way you do,in 20 years time you may see the light..willair..BTW i know who you are,you have a long list of names ..

 

[HiredGoon]

Jen D - yes, it shows that we've kept 10% empty rate for many decades. During a time of a "housing shortage" you'd expect the number of empty places to go down in the capital cities and the country over all. They increase. Why was that?

I am not arguing that we saw price rises. I am arguing that there is no shortage, which means that price rises were NOT DRIVEN BY FUNDAMENTALS and were due to speculation and access to easy credit.

Winston:

The argument is circular. The only way that we can get to 2.2 people per house is if we have enough houses. If we *don't* have enough houses, then the average number of people per house *can't* get to that level.

Another thing is you are using population which is exponential but extrapolating construction LINEARLY.

Wouldn't you would expect that the amount of building activity would grow with the number of people in the country? Surely some of the extra 5 million people would work for the building industry? Especially considering you can get in more easily to this country if you have a trade.

Going back to the 1996 census (earliest on on the page) we've increased our housing stock by 17.44% in 10 years.

2016 = 9,896,150
2026 = 11,622,039

Which is above the projected 11,363,000 needed.

There is no need to calculate replacement levels because this is net increase (built - destroyed)


And Willair - I wasn't suggesting that is a good policy, or a likely one. I was using it as a hypothetical example of capital gains disappearing from the market. Many (most?) landlords are RELYING on capital gains to exceed inflation.

In fact, it doesn't make sense now to buy vs rent unless there is capital gains far above wage inflation for many many years. All I believe is that this is an unsustainable trend as you eventually reach a maximum amount of debt you can service.

 

[GinB]

HG, what is your story????

You are beginning to sound like a real geek, spitting out figures, graphs, land measurements & precise dates & times. Firstly, do you even understand what your talking about?? Or are you simply cutting & pasting your information from various articles. You have done an awful lot of research on the negative side of property investing but have you done even one ounce of research on the positive side???? You might be surprised that the positives may outweigh the negatives. But why bother telling you this you have your blinkers on & you wont consider other possibilities. Way too many people have done what you seem to be so against or believe isnt the right time to do, and they have made millions & millions whilst you probably havent got 2 cents to scratch the surface.

Anyway if you want to continue to go out & rent because you think you're better off, well you do that because its people like you that helps us investors to grow & prosper financially.

Gee i dont mind a debate but seriously how can you debate with someone who doesnt have any real experience in the real world. Oh well with all that i have said i will not respond to any more of HG's mumbo jumbo theories instead i will sit back & read & have a good laugh .

Good nite to all fellow investors. BTW I love reading your stories, its great to see so many people achieving their financial dreams..

Gina.

 

[WinstonWolfe]

Winston:

The argument is circular. The only way that we can get to 2.2 people per house is if we have enough houses. If we *don't* have enough houses, then the average number of people per house *can't* get to that level.


The argument isn't whether the dwellings get built or not. Rather it is about 'demand' for housing, whether there will be a shortage or not, and the impact on prices.

If the houses don't get built, then the supply/demand mismatch will push prices higher for the stock that is available.... You have argued that prices cannot keep going up. I argue that they will if supply doesn't keep up with demand.


Another thing is you are using population which is exponential but extrapolating construction LINEARLY.

Wouldn't you would expect that the amount of building activity would grow with the number of people in the country? Surely some of the extra 5 million people would work for the building industry? Especially considering you can get in more easily to this country if you have a trade.


It isn't a given that skilled workers will migrate to Australia proportionately. Do we attract enough engineers or doctors or nurses from OS? No....

There is a skills shortage across the world. Australia is not in a good position to attract skilled labour because of our anti competitive tax regime, and increasingly because of our poor wages compared to the cost of living (think housing).


Going back to the 1996 census (earliest on on the page) we've increased our housing stock by 17.44% in 10 years.

Things were different for the bulk of this period. We didn't have near full employment. Today, there is less room to increase housing construction. And there is less debt serviceability margin available to fund it.

New dwellings nowadays have to absorb the cost of front loaded infrastructure costs imposed by local councils, higher in costs (stamp duty), and higher prices driven up by the market.

And as you have argued yourself, Australia doesn't appear to have the GDP to fund the expected demand for enough dwellings to get the average household size down to 2.2.


2016 = 9,896,150
2026 = 11,622,039

Which is above the projected 11,363,000 needed.

For the reasons above, this construction target is unlikely to be achieved, and therefore further pressure will be put on prices.


There is no need to calculate replacement levels because this is net increase (built - destroyed)


I used new housing starts from HIA. check the provided link. it doesn't include houses destroyed, therefore is not net housing increase, as the ABS tries to estimate.

....................

My view is that an average housing rate of 2.2 is a luxury that Australia cannot afford, and we will are going to suffer a great deal of distress in trying to achieve it.....in the form of higher property prices and rents....