Housing affordability & long term gains

[chilliaa]

Does property really double every 7 years?
If that is the case then wages must double every 7 years as well?
Over the long term you cant have one without the other.

(And dont say its because of two income earners, two income earners may provide for the doubling to continue for a while, as the affordability level temporarily decreases to accommodate two income earners, but whats the next step after this has been factored into to ever rising prices, the grandparents come out of retirement and they start working again??, or what about the kids, take them out of school and get them working as well??).

You may find periods of time (which can be a reasonable length, say 20 years+) where property has doubled every 7 years, but this does not mean it will continue into perpetuity in the future.

I would strongly advise against members of this forum, building such assumptions into their buy decision framework.

 

[AUSPROP...]

Does property really double every 7 years?
If that is the case then wages must double every 7 years as well?
Over the long term you cant have one without the other.

without taking anything away from the rest of your argument, I think a specific property would double given that the city it is in continues to grow outwards. A typical median property will track outwards from the centre of that city as each day passes by. The fact that the median doubles is a true testimony to the power of real estate as an investment class - imagine the performance of a specific near city property! The fact that an average wage cannot afford Double Bay is irrelevant

 

[yorke]

Does property really double every 7 years?
If that is the case then wages must double every 7 years as well?
Over the long term you cant have one without the other.

Your observation would be valid if the population numbers and number of houses remained the same.

(And dont say its because of two income earners, two income earners may provide for the doubling to continue for a while, as the affordability level temporarily decreases to accommodate two income earners, but whats the next step after this has been factored into to ever rising prices, the grandparents come out of retirement and they start working again??, or what about the kids, take them out of school and get them working as well??).
That's funny but why put the kids to work if you could sell them and use the money towards a larger deposit ? You'd also save money along the way on education , food and health costs so you could pay back your mortgage faster.

You may find periods of time (which can be a reasonable length, say 20 years+) where property has doubled every 7 years, but this does not mean it will continue into perpetuity in the future.

Only for as long as population numbers increase.
The price to build a house has increased over the years and probably doubled every 7 years. To build a basic house in Perth 25 years ago you would need 20K, today you are looking at $150K. Part of the reason for the increase is inflation affecting material prices, higher wages and larger homes. Thanks to cheaper building methods you get lots of extra goodies like insulation and solar HWS included in price. Assuming we continue to build houses the same way with the same type of materials prices have to keep up with inflation. Thanks to the GW brigade the electricity and gas prices are going to go trough the roof so material prices will follow.
These days developers pay for the cost of infrastructure so its all passed on to the buyer. Removing the costs for that and allowing for wage rises you'll probably find that a block on Sydney's outskirts costs you today about the same as it did 10-20-30 years ago. The only difference being the increasing population which moved the outskirts further out from the CBD. Anything between the outskirts and CBD is priced according to desirability and how much someone is prepared to pay for the convenience of being closer to the CBD, the beach or having a nice view.
Or as AUSPROP said

The fact that an average wage cannot afford Double Bay is irrelevant

With population increasing the competition for the desirable blocks also increases so price will increase above inflation. As the population and the city limits expands today's outskirts will eventually become more desirable and prices will start to rise above inflation as well.
Based on population growth continuing at the same rate and based on inflation continuing at the same rate then it makes sense to assume that in the long run property prices will also continue to grow at the same rate, eg. prices doubling every 7 years.

Of course if you assume that population numbers will no longer increase or increase at a different rate, inflation average for the next 7 years will be way off the 3-4% range then the assumption that prices will go up every 7 years would no longer be valid and you'd have to look at the new numbers. Is there any reason to think that population growth or inflation average over the next 7 years won't continue to be near the average numbers we've had in the past ?