Poor first home buyers Sydney

Discussion in 'Property Market Economics' started by Gockie, 30th May, 2015.

  1. 2FAST4U

    2FAST4U Member

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    I think you're totally ignoring cash flow investors who tend to invest in the 'first home buyer suburbs'. Look at how popular threads on Adelaide are on here- particularly in the southern (Christie Downs, Christie Beach, Hackham) and northern suburbs (Elizabeth). We see it as well with Melbourne people looking for cheap western suburbs places and who can forget Brisbane with investors snapping up Logan and the prize of them all- Mount Druitt in Sydney. Most of the people who invest in these suburbs intentionally buy houses below the median price of the suburb (it helps with valuation down the track) and do small renovations so they can value add. I know because that's exactly what I'm doing- competing against first home buyers in the outer suburbs.

    Your point might have a merit with foreign investors who are limited to buying apartments and OTP (but the rules aren't strictly enforced so they can purchase anywhere).
     
  2. TNT

    TNT Member

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  3. BayView

    BayView Member

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    They should be buying below median.

    Therein lies the problem with the affordability arguments.

    Yep. the FHB's always miss the vital point of; existing PPoR owners were once young and poor, and had to work their way up to that next PPoR which is above the median and in the nicer location.

    Oh no, wait; it's those investors and their NG that are the real bandits.:p
     
  4. BayView

    BayView Member

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    HJ, you continually rant on about the median as the bogey man.

    I gave you an example of how that can be skewed a couple of posts ago..

    Older houses on larger blocks, being bought and then replaced by smaller, new town houses - which are more expensive.

    And that is happening everywhere I might tell you.

    All it takes is for a larger proportion of more expensive houses to sell compared to cheaper ones and up she goes.

    Meanwhile, the cheaper houses are still out there.

    They are just not within walking distance to the CBD as you would like.

    What we need is for a massive population cull to occur - to take it back to the level of 1946, and you'll be righto to go.

    Or, train all the population we now have, and all the immigrant population we are continually getting - to not want to live near a city.

    Good luck with that.

    Have you found an apples and apples example for me yet? I'm gunna keep dogging you on this.
     
  5. hobo-jo

    hobo-jo Not a bear just a realist

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    I just gave you an entry level suburb (Elizabeth) where prices are well below the Adelaide median and have still increased by almost 300% in 15 years. Wages have not kept up. You will find the same increase or similar in many other FHB/outer suburb areas that are well below the capital city median or even rural towns.

    Many FHBs could still buy something out in Elizabeth or 1.5 hours from the Sydney CBD as I think someone mentioned doing earlier. My argument is not that they can't buy, it's that affordability has worsened substantially (hence basically all of your and keithj's posts are Straw man arguments). They are putting themselves at greater risk by taking larger loans (relative to income and in any real measure) and are worse off, having to pay more for housing, compared to previous generations.
     
  6. Shadow

    Shadow Evil Specufestor

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    Not since 2003. Australia's house price to income ratio has been relatively steady for 12 years now. Even Sydney prices, until last year, were no higher relative to incomes than in 2003. It has only been in the past several months that Sydney has risen above its 2003 price/income ratio.
     
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  7. Shadow

    Shadow Evil Specufestor

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    Correct. The idea that FHBs should be able to afford median-priced homes is ridiculous.

    If FHBs were buying median priced homes then who would buy the 50% of all homes priced below the median? The unemployed? Children? Dead people?

    FHBs, by definition, are just starting off in the housing market. They should be buying the cheapest homes, well below the median. Homes in the bottom quintile.
     
  8. keithj

    keithj Member

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    Back in 2008 we had this debate. Me & the RBA thought your metric was rubbish then, and we still think it's garbage now. BTW since yesterday another 350 FHB families were able to afford a home :D... so that's me, the RBA and another 8000 families since May reckon housing is still affordable, and on the other side of the fence is you and your flawed ratio.

    Average Wage vs Median Price is a crap ratio that the media/pollies continue to use to stir up the gullible masses. It completely ignores the fact that the vast majority of non-FHB have a massive deposit (often > 50%) to put down against their 2nd purchase.

    As we all know, the way to get to be a non-FHB and get your hands on this massive 50% deposit, is to be a FHB first. All those 85,000 that did so back in 2005, and now in that position.




    Back in 2008 the RBAs SOME OBSERVATIONS ON THE COST OF HOUSING IN AUSTRALIA made some good points that are still v. relevant today.

    [​IMG]



    So as long as the Average FHB income / 30th percentile home ratio stays at a reasonable level (with adjustment for IRs), then the continued decrease in the deeply flawed Average Wage vs Median Price ratio is unlikely to be an issue.
     
  9. BayView

    BayView Member

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    They don't need to take on bigger loans.

    It is a choice to borrow up to your maximum DSR.

    And, the Banks will have something to say about it anyway.

    From my understanding, Banks will currently only allow anyone to borrow up to 50% of their gross income for all loans?

    And from my understanding, maximum borrowings (without LMI) are at 90%, and with 20% real cash savings for deposit and purchase costs?

    Personally; my view is that if you need to get LMI to do a deal - you can't afford the risk, and shouldn't do it. It is another hefty expense you have to carry.

    For the record; I agree with you that affordability has decreased.

    But your slant - like everyone else who brings up the topic - is that FHB's can no longer buy anything. The media certainly push that angle.

    But the world has changed since my younger days and my parents days etc - dual incomes are almost the normal now, so that has had a large effect.

    Current Gubb policy is not to blame, HJ - because nothing has changed since 1985 on that score (except the FHOG and two years without NG from 85-87), so to get rid of NG won't change anything in the longer term IMO, and to shift to only new builds will probably push the newer estate properties prices up..

    One suggestion I heard of recently was to introduce a diminishing allowance for each IP purchased - something like a 75% deduction on IP no.2, 50% on no.3 etc.

    This may work, and it may be worth the Gubb selling it to the Public, give it a go for a couple of years and see what happens.

    The problem I have with this; is that we would again be punishing those who are trying to use their initiative and volition to improve their lot, and be less of a burden on the welfare system later on.

    My view is that we put in place mechanisms that allow all folks to prosper for toil and sacrifice...not restrict them.

    Ultimately, the market will settle at that place where affordability is favouring the majority of folks.

    The rest will have to change their plans and expectations and adapt.
     
  10. hobo-jo

    hobo-jo Not a bear just a realist

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    Care factor zero.

    Show me where I said that. I don't care what the media pushes, it's mostly self serving rubbish.

    Capital Gains Tax has changed, foreign investor rules have changed, development costs have changed, lending regulation has changed, monetary policy has changed, I assume immigration policy has changed... probably other major changes I can't remember in the 20 seconds I took to think.

    Thank goodness. All I was trying to get out of you. Conversation over :D

    Take note keithj, BayView is on my side now.
     
  11. BayView

    BayView Member

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    Now you are just adding a bit of a clutch at straws to try and prove your argument from the statements you have made.

    You state that Gubb policy is the cause of the lack of affordability, and that NG is one of the problems (if not the main problem according to you) and should be abolished.

    Now you are adding in CGT - investors have been investing for CG and cashflow, and tax benefits - while holding the property - forever. CGT has not been a reason not to invest as far as I know; it's a reason not so sell though.

    CGT is charged at 100% of the gain in the first 12 months (discourages flipping), and 50% of the gain after that - at your marginal tax rate. What was it before this that was better for any investor? If anything; it is a disincentive.

    Foreign Investor rules I don't know much about - I know that it has recently been tightened.

    Development costs are not Gubb policy as far as I know (unless you consider GST as Gubb policy that has increased prices) On this I totally agree. My own PPoR build had the equivalent of GST of more than a year's salary for the average person...but that's been around for years now.

    Lending regulations change with the times and the Banks' spreadsheets and Loan Book. They are currently getting tough again. They were tough after the GFC too. Not Gubb policy per se.

    Monetary policy might have changed, but that is more to do with wider economic interests I'd imagine...lower rates certainly affect demand for housing; but Gubb does not control rates...I have to laugh when I hear the average Joe in the street blaming the Gubb for the high rates...like they can wave a wand and make them just right for all of us at a whim.

    "Dear Joe, Please make the interest rates low for me as I have been doing it tough the last few years. Ta"

    Immigration policy I know nothing about, except to say that from my experience the population has only continued to grow from both births and immigration since I was a kid. The percentages may fluctuate up or down from time to time - but it is a constant thing; or has been as long as I can remember.
     
  12. hobo-jo

    hobo-jo Not a bear just a realist

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    I'm not adding it. I said here "tax policies". But I don't have to include absolutely every government policy for my point to be made.
    Prior to the discount (at least for 15 years or so) it was indexed/reduced cost base, arguably the 50% CGT discount is far more generous (considering house prices have inflated at a far greater rate than inflation).

    Don't agree with much of the rest of your post either, but arguing point by point is not going to go anywhere and take things off topic.
     
  13. Tonibell

    Tonibell Member

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    I thought it normally works the other way with this.

    A block worth $500K gets developed into 5 townhouses that sell for $350K each.

    The increasing density is what keeps the market affordable for new entrants.
     
  14. turk

    turk Member

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    http://www.bullionbaron.com/

    One of the very early articles I wrote on this site compared the cost of buying a home with renting one in Adelaide (Rent vs Buy: An Australian "Cost Comparison"). Earlier that year I'd sold a property I owned in Adelaide (returned to renting), I put my money where my mouth is and at the time it made more sense from a financial (and personal) perspective to forgo the security of owning (or more accurately "paying off") my own home.

    Almost 5 years later I am still renting the same property, the lower cost of which (less than the mortgage I had) has been an enabler to put away some extra savings and investment. In the meantime property prices have basically gone nowhere (fell around 8-10% over 2010 to 2012 and have since rebounded back to 2010 levels) and interest rates have dropped.

    The comparison I did previously using figures in Adelaide, at the time most other Australian capitals were quite comparable (i.e. yields around 4-4.5% for houses), but today Sydney and Melbourne are in a league of their own. The figures I lay out below make owning look quite attractive, but that same argument probably doesn't hold true in Sydney and Melbourne where prices have gone gangbusters and yields are woeful.


    Seems you think affordabiliy has improved in places, would this be a below median suburb?
     
    Last edited: 17th Jun, 2015
  15. hobo-jo

    hobo-jo Not a bear just a realist

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    There has been an improvement in some cities over the last 5 years (Adelaide, Brisbane, Hobart, etc) as prices have fallen or flat lined.

    As stated earlier in the thread my view here was on affordability over the last 10-15 years compared to the decades prior.
     
  16. turk

    turk Member

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    Thank goodness. All I was trying to get out of you. Conversation over:D
     
  17. hobo-jo

    hobo-jo Not a bear just a realist

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    lol good chat. Finally something turk and I have agreed on. Historic moment.
     
  18. turk

    turk Member

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    Take note keithj and BayView, hobo is on my side now.

    Which also puts him on your side, now play with him nicely.:p
     
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  19. Angel

    Angel Member

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    So someone here is saying that investors DO bid against FHBs. Is it now OK to do so in the poor outer suburbs of Non Sydney and Non Melbourne, where you would never find a Hipster, not even visiting his grandmother.
     
  20. unloadmymind

    unloadmymind Member

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