Demographia 2011

Well apparently it's 2 x the 'average' wage but due to massive skewing at both ends of the curve I can't see how it's 'representative.' I know there are investors here with household incomes considerably less than that but I'm guessing that the representative income on SS would be considerably more than 125k. Of course, by 'income' I'm still leaving out investment income - which would skew it higher still. In my world most households bring in at least 125k; but in the real world most Australian families earn a lot less. Why do you ask, TF?

Because that is the income implied from the calculations that Mr Joye and others use to justify a far lower income:price number for Oz housing.
 
To summarise very briefly, I believe I demonstrate quite clearly in the blog that Demographia are using incorrect price and income figures for Australia, which they are not doing for the other countries, and I have shown that looking at gross wage income alone is not a particularly good way to determine affordability when houses are generally purchased using a combination of discretionary income (including wage income and non-wage income), and other forms of wealth (liquid assets, equity etc).

Cheers,

Shadow.

but under that logic property would have been very cheap historically. ie If the income side is understated, then previously property would have been very cheap relative to wages.

Alternatively it may be argued that the net after tax income has been increasing faster than gross income because of tax cuts over the last 10 years (for the middle classes).

But what happens if these start to stagnate or even worse reverse (remember australia is riding a high at the moment).

At the end of the day, the more finely tuned the justification for holding the investment, the more risky is the pricing of the underlying asset.

When i invest in shares, i use rough guidelines. Its better to be 'roughly' correct than 'precisely' wrong.

In addition i demand a margin of safety. This means that if my 'rough' valuation comes in at say $10, then i try to buy at say $7. This provides additional insurance against the inaccuracy of my 'rough' calculation.

I can say some people say yeah yeah, all intrinsic value talks about is comparison with shares, but this is property we are talking about.

Well i invest in residential property as well. But the last time i did this was in 2007 (and the prior time was 2000).

But my logic for investing in property was the same. In 2007 i could create that 'margin of safety'. Back then i achieved this through being able to fix the interest rate for long durations (10years+) against the yld on the properties. Hence the market price was no longer relevent.
 
But what happens if these start to stagnate or even worse reverse (remember australia is riding a high at the moment)

Yes, lots of things could happen in the future to improve or worsen affordability (I cover this briefly in the blog).

I'm just looking at the situation today. Who knows what might happen tomorrow...
 
Been wondering where you were, and it looks like you've been busy. Welcome back!
Interesting blog & especially the ABS use of 'median house' to literally mean 'house'(!). With population growth in the cities & increasing density this figure will look more & more 'unaffordable' over time. Were you able to confirm that the median value in other countries included all types of RP?

Hi Ms Jade, and thanks.

Yes, I'm still around, just not posting so much these days...

We discussed the price data for other countries in some detail on the thread in the other place and it looks like units/townhouses are included in the data for the other countries (we checked UK and USA anyway). And since HK looks like this...

hong-kong2.jpg


...you would have to hope the median price data Demographia use for HK includes units!

I guess our ABS data is a bit misleading. I'm sure Demographia didn't set out to deceive... they probably just didn't realise that our ABS house price data only includes freestanding houses. Now that it has been brought to their attention, hopefully they will address the issue for their next release of the report.
 
I guess our ABS data is a bit misleading. I'm sure Demographia didn't set out to deceive... they probably just didn't realise that our ABS house price data only includes freestanding houses. Now that it has been brought to their attention, hopefully they will address the issue for their next release of the report.

we can always pray, see.....
 
Because that is the income implied from the calculations that Mr Joye and others use to justify a far lower income:price number for Oz housing.

Mmmm. In which case he is talking about the 'representative' population of the country that is currently able to buy houses in capital cities - I'm guessing well under 50% of the population.
 
We discussed the price data for other countries in some detail on the thread in the other place and it looks like units/townhouses are included in the data for the other countries (we checked UK and USA anyway).
I've read that up to 20 million people in the US live in trailer homes. I assume these would be included as well?
 
I have to go on the side of property being a tad overpriced at the moment. I and wife have 3 IP's, 1 commercial property and the place we live in so it's not that we don't want property to go up more. After spending the last 3 years paying off debt, we looked at upgrading our PPOR this month. Despite our combined income being a lot more than the median, we are seriously baulking at doing this. We've found that it's difficult to find anything less than 1.5m-2m in Sydney at the moment that is actually decent.

That said, there is no immediate indication that unemployemnt will go up in a substantial way in the next 2 years, which I think is probably a necessary condition for a substantial correction. At the top end bonuses from banking community seem to have some effect also. On the other hand it's hard to see unemployment going down a lot from where it is now either, although bonuses could go up.

I think we'll just live in our current place and wait for a correction, whenever that is.
 
Here's Terry Rider's opinion on Demographia:

http://www.theaustralian.com.au/new...hing-of-the-sort/story-fn6njxlr-1225998829599

I don't agree with it all and I'm am far from being a bull at present. However it ain't Armageddon either. :cool:

The robustness of the methodology is questioned by Terry Rider and as usual we all need to read these things sceptically and with our own common sense and filters BS detectors, etc .....lies damn lies and statistics etc.

My usual rant about conservative LVR's (for most folks perhaps excluding those younger and on very high salaries) should poise many of us well for better pickings from the sideways/softening areas that tick the amenity/infrastructure and tenant demand boxes. Be sure to have your offsets and vals up to date ready to pounce. ;)

Rents should tighten and increase thereby improving yields on purchase price and put portfolios on cruise control to ride the next wave/cycle depending on where one has purchased.
 
Great blog entry on Demographia's flawed methodology there, Shadow. Kudos. Terry Ryder raises the important issue of motive for such bias (thanks for the link, Player). I'd be keen to hear your thoughts on who's interests Demographia's analysis serves.
 
Great blog entry on Demographia's flawed methodology there, Shadow. Kudos. Terry Ryder raises the important issue of motive for such bias (thanks for the link, Player). I'd be keen to hear your thoughts on who's interests Demographia's analysis serves.

Terry Rider (from the article) reckons..............." The report on which these claims are based is a document believed by some to be designed to harass government into giving property developers a free hand."

I assume by property developers he implies the land carvers (Stockland, Delfin, and cohort) and not those building town houses or small time players.

I'm not too sure what the interests are behind selective statistical methodology. Perhaps the govt(s) and in our paddock, the RBA want to scare people into pegging back housing investment or spending beyond the budget for owner occupiers buying for the first, second or seventh time. This doesn't serve the lenders as with fewer customers, their profits also become limited.

Is there a greater conspiracy? I dunno. :confused: I don't go that deep. Maybe the large insto's and hedge funds see a nice managed fund type vehicle being potential as scared little mice (people) jump into the river by selling their houses in reaction to the fear. :eek: Then they will have a steady supply of customers to rent back these very same houses. :eek:

I cannot control the media or the datasphere. I read some of it (sometimes too much), however I make up my own mind based on SOME information and those who are doing what I do. Having also lived thru a few cycles since mid 80's, I have my own strategy and play my game in accordance. ;)
 
Terry Rider (from the article) reckons..............." The report on which these claims are based is a document believed by some to be designed to harass government into giving property developers a free hand."

Demographia's price v income multiple is supposed to bare out various countries supply side polices.

One has to ask the question putting aside whether it is affordable or not is it not strange that in a country with near to unlimited land that we have controls around development that cause our fringe land to trade at stupid prices?

the costs of development in this country are a joke. The only shame is the same groups who want affordable housing like the greens see development as the enemy and parade along with NIMBY's to prevent development occuring.

We have a growing population, we either accept that we have to develop it efficiently. At present it is not that development is not happening, because it is, the problem is the stupid cost burden imposed by the government on each new block developed.

I think this is what demographia is trying to demonstrate comparing the various multiples in different countries. I can understand why in Hong Kong it is high. In Australia we have a very different situation with respect to actual land availability in all fo our cities fringes. You only have to look at resi zoned land and its massive value somewhere like Sydney fringes, compared to land down the road without a snowflakes of being developed to see the government making the whole process more inefficient than it should be. Worse still compare teh value of commercial land (low) on the fringe in the same city to residential (high)?

As Demographia point out in the USA it was smart urban planning and streamlined development on the fringes in the 50s that created affordable housing in that country. Somewhere like Australia it is inept government departments making it near impossible for a developer to make anything that is affordable that creates a market which trades at very high multiples of income limited more by affordability than costs which transfers across the whole market. If people could afford to pay more for homes I suspect the government would be slugging developers even more...
 
Good points Tom.

You are involved in this side of things from some of your posts I've read.

What are costs (headworks, council contributions, etc) like in WA to bring a new (fringe) block to market?

One of the reasons, Melbourne was favoured by the large land development houses over the last four or five years was the far lower costs to bring blocks to market here compared with the very high costs in Sydney and even Brisbane.
 
Good points Tom.

You are involved in this side of things from some of your posts I've read.

What are costs (headworks, council contributions, etc) like in WA to bring a new (fringe) block to market?

One of the reasons, Melbourne was favoured by the large land development houses over the last four or five years was the far lower costs to bring blocks to market here compared with the very high costs in Sydney and even Brisbane.

I am a civil engineer for a civil construction company. Usually we are involved in government infrastructure jobs particularly bridges but occasionally we work for developers. I am certainyl no expert especially in the Perth market where to date I have never yet worked for a developer.

I guess my interest in this has peaked since deciding to buy a home after moving around the country from Sydney to Melbourne to Brisbane and now Perth. We are looking at settling here.

I tend to ask myself with most purchases how much would it cost to make this. We ask this for example in construction contracts every tiem we go out to tender on a component of the work. If it is cheaper to self perform this is what you do.

I would love to go into detail now but am about to go out to a bbq.

Just to get the ball rolling though look at the following;

A block never likely to go residential, well it is not in the Sydney 30 year plan anyway;

http://www.realestate.com.au/property-residential+land-nsw-sackville-2793513

Have not checked it for floods but it is undulating land so at least a portion of it would be appropriate even if you said 1/3 or 40 acres it is only 42,500 per acre.


Now look at this one ready to go;

http://www.realestate.com.au/property-house-nsw-kellyville-107003150

720,000.00 per acre

Understand the former does not have the same utility as the latter, i.e. it needs to have roads built, schools etc etc. You cannot tell me though with the premium between the two big blocks could not be made on the former and sold for a massive quid. I know I would rather live on a half acre block in Sackville if a new road was built to hornsby than on a 420sq.m block in kelyville.

On top of this there is then the 350k per hectare state gov levy and council levies plus a GST on the improved value which includes the other rotten taxes!

Anyway it is not a case of fringe land being expensive it si a case of fringe land which the government has deemed suitable being expensive. We are told we have a shortage of homes? We then are told we tax cigerrettes so people smoke less? We then tax the development of greenfields housing a heap? I wonder if this might be the problem?

Anyway I guess I should stick to what I know and build a bridge so I can get over it because nothing looks like changing.
 
it's about $65k to bring a block to market at present including design, engineering, construction, phone, power, water, sewer, retaining, fencing, stat fees, council contributions, open space cash-in-lieu, marketing fees and a small contingency.
 
If government duties on land was the main factor why has house price growth been roughly the same in regional, Melbourne, Sydney, Adelaide, Brisbane property in the last 20 years, all with different levels of land release and levies ?

"Availability of land - it’s a building industry cliche that it is government regulation that has driven up house prices because of red tape in getting new houses built. This is fluff. The major home builders manage the supply of new houses coming out of their landholdings to optimise demand and price – none of them (to my knowledge) is short of supply.

It’s deep and patient capital that funds the migration of land through the re-zoning process – and again, the environment has been friendly in this regard for a very long time."

http://www.datadiary.com.au/2010/04/27/how-much-above-trend-are-australian-house-prices/
 
Back
Top