Home Buyer Strike

[HomeBuyerStrike]

Hi all,

First time poster, I've seen links to this forum before. I've a keen interest in property market economics going back a few years. I'd classify myself as a bear on the Australian market among others right now. My questions is, has there ever been an organised Home Buyer Strike in Australia? What would the effect of this be on the market if it took hold? i.e. a segment of the target market for home sellers decided to rent long term and withdraw from participation in the market.

Kind Regards,

HBS.

EDIT: FYI, I'm talking about something kind of like this... http://globaleconomicanalysis.blogspot.com/2006/03/buyers-strike.html

 

[Aaron Sice]

Hi all,

First time poster, I've seen links to this forum before. I've a keen interest in property market economics going back a few years. I'd classify myself as a bear on the Australian market among others right now. My questions is, has there ever been an organised Home Buyer Strike in Australia? What would the effect of this be on the market if it took hold? i.e. a segment of the target market for home sellers decided to rent long term and withdraw from participation in the market.

Kind Regards,

HBS.

EDIT: FYI, I'm talking about something kind of like this... http://globaleconomicanalysis.blogspot.com/2006/03/buyers-strike.html

are you a union member?

why would people NOT buy houses - that's the question you have to ask yourself.

we're talking the average joe here, someone who doesn't even understand the bull/bear terminology.

i know the bear argument for not buying a house, i know the bull argument for buying a house. but how would you convince the average joe to not buy a house purely based on "ethics"....?

it's akin to a union strike for 3 ply toilet paper. remember, if you don't want to work, there's a little thing called a Section 457 Visa, or non-union labour, that allows me to hire non union members in your place for next time.

so if Aussies don't buy the property because we think it's time we showed em who's boss, who will? no-one? doubt it. have you heard of China before? maybe Singapore? United Kingdom?

i think you basic logic is flawed and you need to study social psycholgy a little more to understand mob mentality and the inherent flaws within to realise that something like this would never work.

then rents would rise on existing stock. fast. to the point where everyone would start to buy again because buying would be cheaper than renting. law of supply/demand at work here. i know if rents doubled, i'd build!

never mind the fact the underlying local social stigma about buying a house in australia that you would have to break in order for it to work.

 

[Propertunity]

My questions is, has there ever been an organised Home Buyer Strike in Australia? What would the effect of this be on the market if it took hold?

If there was (and there hasn't been to my knowledge), then it would probably be about as successful as the Petrol Buyers Strike of many years ago We can all have complained about the price of petrol, but if the tank is empty and we have to go places we fill up.

Same with housing......it is never going to happen, you may as well get used to it.

 

[MichaelW]

HBS,

You live in Brisbane? Just buy something...

I'm blown away how cheap everything is up here. I moved to Brisbane from Sydney a year ago and can't wait to finish my multi-unit development on the Northern Beaches so I can buy up big in Brisbane before it takes off.

I can buy within 4km of the CBD for around $500K. Just unbelievable.

Oh, and FWIW, home buyers have gone on strike in Australia in the past. Its typically fear driven and happened a lot during the GFC. You saw what happened then, not much. The only thing that would drive house prices down in Australia would be a rush of sellers willing to accept lower prices. The absence of buyers does not impact prices, it just causes less transactions to occur. The economy is too strong, and only going to get stronger, for there to be a mass of forced sellers driving prices down.

If you want lower prices then pray for a major recession in Australia like they just had in the US. Personally, I can't see it happening in the near term.

Cheers,
Michael

 

[scottandjoy]

Based on supply and demand my guess is:

Property sales prices would initially drop (due to less buyers)
Rental prices would rise (due to more renters fighting for vacancies)
Yields increase dramatically
Property investors flood the market which pushes property sales prices up and we're back where we started

 

[HomeBuyerStrike]

If there was (and there hasn't been to my knowledge), then it would probably be about as successful as the Petrol Buyers Strike of many years ago We can all have complained about the price of petrol, but if the tank is empty and we have to go places we fill up.

Same with housing......it is never going to happen, you may as well get used to it.

If you look at the alternatives to buying a home they're a lot more manageable than the alternatives to buying petrol. People refusing to buy housing stock should not reduce the availability of housing stock because as another poster above has pointed out so eloquently there is a wealth of investors willing to buy it up and provide rental capacity. I'm talking about an organised strike by a segment of the target market for homes on the market.

I do realise the perversity of posing this question on a property investment forum but I'm interested to hear your thoughts.

 

[HomeBuyerStrike]

The absence of buyers does not impact prices, it just causes less transactions to occur. The economy is too strong, and only going to get stronger, for there to be a mass of forced sellers driving prices down.

What about the effect of less property transactions on the wider economy? Australia derives about 300 billion in income per year from the residential property market. That's split roughly half and half between home purchases and home construction (although the construction half may include some commercial). If we treat the 150 billion derived from housing purchases alone, what would the effect be of a strike by 5% of buyers? i.e. If you took 7.5 Billion out of the Australian economy. There would have to be a multiplier effect from this.

 

[ermen]

ORGANISED strike - No. Too many disparate parties

But people not buying - possibly. That was what happened with corpoate Australia during the GFC

Vendors expectations too high
Buyers expectation too low

The bid-offer spread never really came in hence low M&A activity like someone else pointed out

 

[HomeBuyerStrike]

Based on supply and demand my guess is:

Property sales prices would initially drop (due to less buyers)
Rental prices would rise (due to more renters fighting for vacancies)
Yields increase dramatically
Property investors flood the market which pushes property sales prices up and we're back where we started

This assumes a shortage of homes in Australia. I'm not sure if that's where this discussion should be going but that there is no concrete proof of a shortage.

Regardless of this, with yields currently about half of interest payments, rents would need to double to exceed interest payments. If investors chase the yields then the prices go up and interest payments to enter the market go up.

It's an interesting concept but surely as the strike goes on the investors entering the market are facing a greater risk of the strike ending and yields collapsing.

ORGANISED strike - No. Too many disparate parties

I agree, an organised strike by 5% of prospective buyers is probably a pipe dream. An accidental or ad-hoc strike, possible. But indulge me for a moment that this is possible and think about the potential effects on the market and the Australian economy.

 

[HomeBuyerStrike]

are you a union member?

why would people NOT buy houses - that's the question you have to ask yourself.

we're talking the average joe here, someone who doesn't even understand the bull/bear terminology.

I'm not a union member. I'm probably more Liberal than Labour to be honest.

To get home buyers to strike they would need to believe that the market is driven by speculation and not by demand for housing. They would need to believe that they have nothing to gain by competing with speculators and to refuse to participate in the market.

 

[Jonril]

Comrade you are right we should Strike! but why stop at not buying, we should rise up against our Landlords' oppressive rents.

Lets us take back what is rightfully due to us!

The bourgeois capitalist feed off our labours and give nothing back, but a heavy rent on our homes!

There was once, not so long ago, socialist bastions for those who valued the brotherhood of mankind over the greed that turns neighbour against neighbour in an endless battle to enslave one another in an effort to capture for one, that which should be shared by the many!

Alas these fine socialist nations were besieged by bourgeois plots and espionage and ultimately the citizens were lured by short-sighted false promises of freedom and riches to once again battle against each other in a "free market"

But fear not! Once again we the revolutionaries can raise the red flag and strike! and be the vanguard for the weak willed who will surely follow once shown the true path to equality!

 

[pdawg]

This is now my wallpaper

 

[Aaron Sice]

If you look at the alternatives to buying a home they're a lot more manageable than the alternatives to buying petrol. People refusing to buy housing stock should not reduce the availability of housing stock because as another poster above has pointed out so eloquently there is a wealth of investors willing to buy it up and provide rental capacity. I'm talking about an organised strike by a segment of the target market for homes on the market.

I do realise the perversity of posing this question on a property investment forum but I'm interested to hear your thoughts.

but then said 'people' will be subject to rents that would be higher than a comparitive mortgage. why would you rent with no growth prospects if you could own and be exposed to growth for less?

or not....mortgages may go thru the roof as stock dwindles and demand continues.

in an equilibrium market, i think it *may* have an effect. in a severe shortage market like we have now (1 new person, net, every 74 seconds is born or immigrates here, on top of those that die or emigrate) it would have the reverse effect, ie booming rents immediately and booming prices following.

you have to be a student of teh "more rooms means less demand" school to believe anything like this would work in the current market.

FWIW, i'm no bear or bull. i play the market as it unfolds. definitely NOT bearish property currently.

 

[Aaron Sice]

I'm not a union member. I'm probably more Liberal than Labour to be honest.

To get home buyers to strike they would need to believe that the market is driven by speculation and not by demand for housing. They would need to believe that they have nothing to gain by competing with speculators and to refuse to participate in the market.

what was the stat that said about 14% or something of home owners were investors?

that's 86% of homeowners who are OO's - and won't believe that it's speculation, regardless if it's a today tonight special or not.

it is an interesting hypothetical though.

 

[MichaelW]

This assumes a shortage of homes in Australia. I'm not sure if that's where this discussion should be going but that there is no concrete proof of a shortage.

Not sure I can agree here. Its about as concrete as it gets. Vacancy rates, housing starts, population growth. Its all pretty concrete.

Regardless of this, with yields currently about half of interest payments, rents would need to double to exceed interest payments.

Seriously? Yields currently half of interest payments? Nah, nowhere I know of anyway. Most yields are around 5% or a touch under and interest rates are about 6.7% today. That's hardly half. In fact, at an 80% lend most properties are about neutral on interest cover calcs today. i.e. If you've got 20% deposit then it costs about the same to rent as to buy the place. But rates are headed up so this will change soon enough unless you're locked.

Cheers,
Michael

 

[HomeBuyerStrike]

but then said 'people' will be subject to rents that would be higher than a comparitive mortgage. why would you rent with no growth prospects if you could own and be exposed to growth for less?

This assumes firstly that yields will double to equal current interest costs and then exceed current costs. After that it would rely on the stubbornness of the strikers to hold firm and stay out of the market. Is there scope for yields to double without incomes rising? What effect would taking income from housing sales, for instance 7.5Bn, out of the Australian economy?

in an equilibrium market, i think it *may* have an effect. in a severe shortage market like we have now (1 new person, net, every 74 seconds is born or emigrates here, on top of those that die) it would have the reverse effect, ie booming rents immediately and booming prices following.

All this relies somewhat by the way on some great epiphany on the part of the sleeping masses. I'm probably inviting more communist analogies theres. I'm not saying it's something that would happen but I'm asking what the effect would be. Indulge me please.

you have to be a student of teh "more rooms means less demand" school to believe anything like this would work in the current market.

This again assumes the shortage of housing stock in Australia. I don't believe this is anything that can be taken for granted. But also you have to consider that some people who refuse to participate in the market make increased utilisation of existing stock. i.e. house sharing with friends, family or unrelated parties on a commercial basis.

 

[HomeBuyerStrike]

what was the stat that said about 14% or something of home owners were investors?

that's 86% of homeowners who are OO's - and won't believe that it's speculation, regardless if it's a today tonight special or not.

it is an interesting hypothetical though.

Yes, but what proportion of the market for home sellers is other home owners? The first home buyer market are either house sharing, renting on their own or living with family.

 

[HomeBuyerStrike]

Not sure I can agree here. Its about as concrete as it gets. Vacancy rates, housing starts, population growth. Its all pretty concrete.

I disagree for many reasons but I don't know if this is a topic for discussion on this thread, that debate is widely covered elsewhere.

Seriously? Yields currently half of interest payments? Nah, nowhere I know of anyway. Most yields are around 5% or a touch under and interest rates are about 6.7% today. That's hardly half. In fact, at an 80% lend most properties are about neutral on interest cover calcs today. i.e. If you've got 20% deposit then it costs about the same to rent as to buy the place. But rates are headed up so this will change soon enough unless you're locked.

I'm assuming a 3.5% average yield at today's prices and circa 7% for interest rates. If you start factoring in equity in the form of a deposit then you have to also factor in the opportunity cost of employing that capital in an alternative investement e.g. demand deposit. A demand deposit will give you somewhere between 5% and 2.95% net yield depending on your income. Also, it costs 15% extra to lock fixed rates versus current variables if I'm not mistaken.

 

[MichaelW]

I disagree for many reasons but I don't know if this is a topic for discussion on this thread, that debate is widely covered elsewhere.

Fair enough. I thought that argument had died a while back but its obviously still kicking around but not for here.

I'm assuming a 3.5% average yield at today's prices and circa 7% for interest rates.

I think that assumption is erroneous. My low yielding high end property worth $925,000 optimistically is still yielding 4.5% rented at $800pw. The cheaper stuff typically yields higher. I think houses average 4.5% and units 4.9% on some report I read recently. 3.5% is way too low an assumption.

And, my current variable interest rate is 6.71% after my 70bp professional package discount with WBC. I was working on about that level being common today. 7% isn't too far off the mark though, just a tad high today.

Also, it costs 15% extra to lock fixed rates versus current variables if I'm not mistaken.

I just fixed a tad over $1M of my loans at 6.99% for three years with WBC. That's a 4% premium over my variable rate, not 15%. And if the RBA raises rates as expected in the next month or two, then my fixed rate will be cheaper than the discounted variable rates.

Just some facts mate. I like the premise of your hypothetical, but the assumptions within it should be as factual as possible.

Oh, and I get where your coming from with opportunity cost of a deposit. But I saved mine through investing and beat inflation over that period, so surely that's a negative opportunity cost? I put $275K down on my first IP to secure the land for cash, then spent $350K building the house. It valued at $650K at completion in 2003 and is the IP I mentioned above which is today valued at $925K renting at $800pw. Of course, I'm cash flow positive as I only have a $150K loan left on that one now. Not bad in a handful of years, but my next deal is shaping up even better...

Cheers,
Michael

 

[HomeBuyerStrike]

Fair enough. I thought that argument had died a while back but its obviously still kicking around but not for here.

I don't think that one will ever die. In fact it's probably raged on around the world for a lot longer than you or I have been around.

I think that assumption is erroneous. My low yielding high end property worth $925,000 optimistically is still yielding 4.5% rented at $800pw. The cheaper stuff typically yields higher. I think houses average 4.5% and units 4.9% on some report I read recently. 3.5% is way too low an assumption.

Are you comparing current rents with current capital values though? i.e. recently bought properties that were recently let.

I just fixed a tad over $1M of my loans at 6.99% for three years with WBC. That's a 4% premium over my variable rate, not 15%. And if the RBA raises rates as expected in the next month or two, then my fixed rate will be cheaper than the discounted variable rates.

Are you saying that your options were a variable of circa 6.72 and the fixed of 6.99%? That's a steal in that case. Silly on the banks behalf.

Oh, and I get where your coming from with opportunity cost of a deposit. But I saved mine through investing and beat inflation over that period, so surely that's a negative opportunity cost? I put $275K down on my first IP to secure the land for cash, then spent $350K building the house. It valued at $650K at completion in 2003 and is the IP I mentioned above which is today valued at $925K renting at $800pw. Of course, I'm cash flow positive as I only have a $150K loan left on that one now. Not bad in a handful of years, but my next deal is shaping up even better...

But investment implies risk. Demand deposit is almost risk free. Is your opportunity cost incorporating the differing risk profiles of the opportunities? I think it's false to ignore the impact of equity when calculating yield.