Investors keep first-timers out of market

[weg]

I wasn't having a dig at you, the perception of the norm has changed over the years. When I grew up it was normal to have 800m sq block with a house on it in the suburbs. When me dad grew up it was normal to have a smaller house closer to the city on 1000m sq block, now when my boy is growing up it is normal to have 450m sq block with a larger house further out from the city again.

I grew up on a 5 acre farm {lizzie we had a bucket for a toilet too} and later lived in 3 homes away from and near the CBD ranging from around 400sq to 730squ.

1000squ blocks have not ever been the norm for residential, and those that do buy small blocks are swapping big block/small house for small block/new and/or bigger house for the same location {not necessarily further out} because they're FHB and generally can only have one or the other.

The wide range of different types of housing also gives you more choice nowadays. Bigger range = less 'normal' btw.

I think your perception of normal may have be influenced somewhat by the media.

Lets face it, they think living in Potts Point is 'normal' and if you can't afford there then housing is unaffordable.

 

[Dan_p]

I grew up on a 5 acre farm {lizzie we had a bucket for a toilet too} and later lived in 3 homes away from and near the CBD ranging from around 400sq to 730squ.

1000squ blocks have not ever been the norm for residential, and those that do buy small blocks are swapping big block/small house for small block/new and/or bigger house for the same location {not necessarily further out} because they're FHB and generally can only have one or the other.

The wide range of different types of housing also gives you more choice nowadays. Bigger range = less 'normal' btw.

I think your perception of normal may have be influenced somewhat by the media.

Lets face it, they think living in Potts Point is 'normal' and if you can't afford there then housing is unaffordable.

How are you influenced by what is the norm in Australia?

Sure you get more choice, but they are generally more expensive by wage to house ratio.

http://economics.hia.com.au/media/House price to income ratio - FINAL.pdf

There is a graph attached showing the increase from 1995 to 2010, nearly doubling.

I don't know what growing up on a 5 acre farm has to do with it?

 

[lizzie]

Why not look at the averages? Or mean, isn't that where most people are at?

But why would you look at the average for a FHB?

Surely an average home is what is affordable as a 2nd or 3rd home - and FHB - only starting out - would be looking at the bottom percentile?

My first home - as a divorced single female - was in a very untrendy inner city miners cottage (wow, wish I owned it now!) ... two of the bedrooms didn't even have power points in them ... no parking ... pulled off the panelled kitchen walls to find - - no studs due to termites ... bathroom was in a leanto ...

Income was $40k - house cost $160k ... so 4:1 ratio

Taking current average income $80k - a house at $400k (lower interest rate) is a good comparison ... remember ... leanto bathroom, termite ridden walls, no parking and distinct lack of power points ... oh ... did I mention the mould covering the walls and rusty water from the pipes?

 

[Dan_p]

But why would you look at the average for a FHB?

Surely an average home is what is affordable as a 2nd or 3rd home - and FHB - only starting out - would be looking at the bottom percentile?

My first home - as a divorced single female - was in a very untrendy inner city miners cottage (wow, wish I owned it now!) ... two of the bedrooms didn't even have power points in them ... no parking ... pulled off the panelled kitchen walls to find - - no studs due to termites ... bathroom was in a leanto ...

Income was $40k - house cost $160k ... so 4:1 ratio

Taking current average income $80k - a house at $400k (lower interest rate) is a good comparison ... remember ... leanto bathroom, termite ridden walls, no parking and distinct lack of power points ... oh ... did I mention the mould covering the walls and rusty water from the pipes?

I take the average because it is a measured point in the middle of the data range.

In saying that if the ratio average between wages and house prices is much higher then before, then surely the lower end of the market, ie where fhb'ers should be looking would be higher too right.

Your example is purely, not indicative of what was happening to the masses. Your income at the time may have been below the national average. What was the national average income to average (median) house cost at the time of your purchase?

I understand expectations are highly inflated now for younger ones and this is a major part of the problem.

 

[weg]

How are you influenced by what is the norm in Australia?

Sure you get more choice, but they are generally more expensive by wage to house ratio.

http://economics.hia.com.au/media/House price to income ratio - FINAL.pdf

There is a graph attached showing the increase from 1995 to 2010, nearly doubling.

I don't know what growing up on a 5 acre farm has to do with it?

The 5 acre farm and the other properties were to show you can't make such generalizations.

I don't think I knew anyone who lived on a 1000sq resi block. I live alongside some of these blocks now and know that not only are they rare, I know the history of some of these, and know that most were owned by the wealthier middle and upper classes.

The working class lived in small cottages on small land.

On the graph...

No, ALL did not come close to doubling.

The figures now are also the figures I gave you... 3X and 4.5X not 8:1 as you said. Huge difference!

Interest rates were double then too which was not taken into account in that graph {article states that} which would make a huge difference to affordability.

Even if housing is slightly up affordability would be about the same.

Why is it low income investors can buy multiple houses and some FHB who have employment can't buy one??

House price to income ratio as a measure of housing affordability
As a measure of housing affordability, ?house price to income‟ ratios
alone
are imperfect as they do not
take into account interest rates. Ultimately, ho
m
e purchase affordability relat
es to debt servicing costs of
which interest rates are a key driver. This not only means that ?house price to income‟ ratios are
fundamentally defective as a measure of housing affordability but also makes intertemporal and cross
border comparisons of thes
e ratios redundant (given varying interest rates, tax regimes, population
concentrations, quality of housing stock, etc).
Indeed, h
ouse price to income ratios completely ignore the cost of finance. Few households purchase a
home without using some form o
f mortgage finance. Amongst first home buyers the proportio
n using
finance is well over 90 per cent
. As for upgrade buyers,
it is around 65
to
70
per cent
as this group has
higher equity levels
.
A key factor in the jump in the ?house price to income‟ rati
o over recent decades
has been
the structural
reduction in interest rates
.
Mortgage interest rates in Australia
in the 1980s averaged around 14
per
cent
,
but
since 2000 the average has been close
r
to 7
per cent
.
H
ousing affordability i
ndexes that factor i
n mortgage interest rate movements
provide a more robust
measure of housing affordability. The HIA
-
Commonwealth Bank of Australia Housing Affordability Index is

 

[Dan_p]

Even if housing is slightly up affordability would be about the same.

Why is it low income investors can buy multiple houses and some FHB who have employment can't buy one??

One thing is for sure, it is easier to get a loan for a property now.

I guess that will always be the case, people from every generation will think it is too hard and resort to blaming others for their predicament.

 

[Richard Feynman]

what sort of a fully qualified doctor cannot afford a deposit, unless they are going for a 1.5m house or a loan with 30% LVR?!?!?!!?!?!?!

especially saving for 4 years

Clearly, one with unrealistic expectations and/or abysmal levels of financial intelligence.

I had been working full time for half that long as a (lowly) graphic designer and bought in 2010 with no more help than a temporary $10k lend from my folks.

If anyone missed it, quote form the article:

Sunaina Nundeekasen, a 28-year-old Sydney doctor, has worked for the past four years and still not managed to save a large enough deposit.

''Even though I do get quite a good salary it's still going to be pretty tough,'' she says. ''When I went to the bank and discussed mortgages ? it became apparent there was no way I was going to be able to do it just by myself.''

 

[spanna]

This debate could keep going...... I know which decade i would have rather grown up in!!

 

[wategos]

Yet another article has appeared in SMH.
http://www.smh.com.au/business/prop...dream-a-nightmare-to-fund-20131115-2xmf5.html

The answer to the problem is right there in the article:

Negative gearing and capital gains tax are also factors affecting affordability, says Jacqui Phillips, spokeswoman for Australians for Affordable Housing.

They drive investors to purchase established houses, push up prices and prop up second or third home buyers at the expense of first timers and new home construction, she maintains.

''The solution that will get to the real cause of house price inflation and the exclusion of first home owners lies in policy ? including tax settings and in particular negative gearing and capital gains tax,'' she says.

 

[Angel]

Hi Wategos. I realise you are opposed to negative gearing. However in the many years I have been reading Somersoft, I have been unable to understand how my purchasing a couple of IPs affects anybody else. I read the above quotes earlier when I read that article and found that they do not actually explain HOW negative gearing forces investors to buy any particular kind of asset class, new or established, nor can I see how the author provides any evidence for her statements. Are you aware that second and third home buyers are people buying their second or third home, one after the other. I live in my second home, I built it in 1988 after I sold my first home. That "label" second home buyer (me) has absolutely nothing to do with whether the purchaser is an investor and whether they are negatively geared or not.

Pleeaase....
The SMH article is about as academically accurate as the emotive fear-mongering I receive in my inbox each month from the government-bashing Union I belong to. Any logic and facts seem to dissipate once they have correctly named my employer.

Feel free to explain to me how my owning three homes in a council region to the north of Brisbane has any affect on whether that doctor can or cannot afford to buy any of the homes I own, and how that has any affect on whether she can buy a place in Sydney.

Can you think of any good reason why an INVESTOR would want to buy a house in Sydney at the moment?

 

[Intrinsic_Value]

. However in the many years I have been reading Somersoft,

I have noticed that there is a direct correlation between all these affordability threads, and
(a) the recent POSITIVE movement in property
(b) auction clearance rates.

I cant talk for other states, but in Melbourne the market last peaked around 2009-2010. For the next few years the market trended downwards. Auction clearance rates plummeted, a smart first home buyer could have used this softness to their advantage when negotiating the final price.

Do we hear much about this???????
NOOOOOOO

 

[Intrinsic_Value]

Yep. And the younger generation has been written off as being lazy, and having no respect, and wasting money/resources/everything for at least the past 5000 years.

For the last 5000 years, the younger generation has always sought change.
Always has always will.

This is in accordance with the rules of mother nature.

However the younger generation as 'lazy', having no respect, and wasting money, has only been a product of the last 70 odd years. (within the latest long term cycle, we actually have been here before in times many years past)

The great depression did wonders for restoring the natural balance.

It will be interesting to see how the current state of global affairs play out over the next 10 odd years.

Personally I think there is another phase of 'natural balance' occurring, human beings being what they are are trying desperately to prevent it, however their attempts to prevent it are actually making the problem worse, when it comes the magnitude will be greater because of that human interference.

 

[BayView]

Yeah I'd personally rather not have to cap the number of children I can have so some people can live in a house and not an apartment.

Well, apartment or house; that'd be a choice, and thankfully here in Aus the vast majority still have it..

Mind you; I've witnessed a lot of people living in a very little apartment in a few places around the world, and vice versa.

However - and more importantly - at current global reproduction levels and keeping folk alive longer which we humans are so clever at, it might allow the world to feed itself in 100 years time...

Personally, I don't get all bent out of shape about GM food and this sort of thing which alarms many folk, but what other solution can you come up with?

There are vast tracts of uninhabitable land around the world which could probably be used for farming - diverting water to those areas and so forth.

We need to start now though, if the 2 kid idea isn't used.

I wonder how many folk here on SS are living in an apartment, and will willingly do so for their entire lives?

 

[buster]

One thing is for sure, it is easier to get a loan for a property now.

I haven't found it any earier, Ive found it harder if anything. The banks are much more cautious and hung up on servicibility.

 

[Angel]

I have noticed that there is a direct correlation between all these affordability threads, and
(a) the recent POSITIVE movement in property
(b) auction clearance rates.

I cant talk for other states, but in Melbourne the market last peaked around 2009-2010. For the next few years the market trended downwards. Auction clearance rates plummeted, a smart first home buyer could have used this softness to their advantage when negotiating the final price.

Do we hear much about this???????
NOOOOOOO

I think the news articles (rubbish journalism) are based on Sydney because let's face it, the borders around Australia are somewhere near Newcastle and Wollongong, aren't they? Wouldn't the smart people in Sydney be getting themselves an IP in Adelaide about now? I guess that wouldn't get anyone reading SMH.

 

[TMNT]

For the last 5000 years, the younger generation has always sought change.
Always has always will.

This is in accordance with the rules of mother nature.

However the younger generation as 'lazy', having no respect, and wasting money, has only been a product of the last 70 odd years. (within the latest long term cycle, we actually have been here before in times many years past)

incorrect, there is a very famous fact/saying, that the egyptians 2000 years ago odd have been saying that "the younger generation of today are no good"

proving that every generation think the younger generation are no good.

that being said I have read many a artcile that says Gen Z will the most educated, finacially savy, technologically savy, responsible generation ever, since theyhave been through a recession, have seen the poor attitude of gen Ys,

must admit have seen a few relatives with teens and my god they are switched on

 

[lizzie]

Mind you; I've witnessed a lot of people living in a very little apartment in a few places around the world, and vice versa.

Very true - I have a girlfriend who used to live in China ... her (and her husband's) apartment was so small she had to set up her portable kitchen on the landing ... there being no room inside. The apartment was about the size of the average family bathroom in Australia.

She also only ever ate meat when she came to Australia because it was to expensive in China for the average person to afford.

Makes you glad we live here - and really wonder what we have to whinge about

 

[TMNT]

Very true - I have a girlfriend who used to live in China ... her (and her husband's) apartment was so small she had to set up her portable kitchen on the landing ... there being no room inside. The apartment was about the size of the average family bathroom in Australia.

She also only ever ate meat when she came to Australia because it was to expensive in China for the average person to afford.

Makes you glad we live here - and really wonder what we have to whinge about

despite not being a huge beer fan,

I felt pretty bad when my guide in bali, a young 23 yr old chap with a new born a few years ago, said he liked the local stuff, but hadnt tried beer before because he couldnt afford it,

never knew of a country where beer was a luxury, here its like 1.30 per can

so I bought him one when we out to dinner, unfortunately, it was our last night there so didnt hear whether he liked it or not

 

[TMNT]

Brilliant snip of an age article today,

"Herd mentality is the fastest way to lose money in property. Let's face it. One of the key reasons why you are currently not able to win a property that you can both love and afford in an area that you want to live in is because too many other people are also in the market and they have more money than you.

The question therefore is why did you wait? Why did you not act six months ago, or a year ago when the market was at the bottom? Then vendors would have hugged you tight in gratitude for taking the property off your hands and happily swapped your cheque for the keys leaving you money for renovations.

Maybe it was because you didn't have the deposit saved, or things were busy at work, or your finance was not in order. But most probably, it is because you were scared. Or waiting for the official gun to fire and the race to start.

According to economists BIS Shrapnel in their Residential Property Prospects report (2013-2016), the market is expected to continue to increase in value through 2014 to 2015 before tapering off.

If you absolutely insist on buying only the exact property you want in the exact location that is currently above your budget, perhaps you need to reconcile yourself to renting for a couple of years longer, adding to your savings and waiting for the heat to go out of the market. It's just an option."

 

[Intrinsic_Value]

incorrect, there is a very famous fact/saying, that the egyptians 2000 years ago odd have been saying that "the younger generation of today are no good"

proving that every generation think the younger generation are no good.

Like I said in the current long term cycle, there are cycles within cycles, and its very interesting to look at the rise and fall of civilisations.

We live in a specific point in time, our 'reality' goes back about as far as our parents lifetime, yet over the concept of time, its nothing, so we over extrapolate based on our own personal references.