That might explain away some of the fancy beach suburbs, but it doesn't explain why basic houses in the countryside and small regional towns cost far more than their equivalents in the USA, UK, and most other developed countries.
Solving the housing affordability crisis
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That might explain away some of the fancy beach suburbs, but it doesn't explain why basic houses in the countryside and small regional towns cost far more than their equivalents in the USA, UK, and most other developed countries.
Can't say I know much about house prices in regional towns of other countries, but I wasn't aware that Australian prices were so much higher. What sort of price difference are you talking about?
We're not worried because there are, and always will be people who live like that. These are the ones who end up selling for a loss so that someone else who makes money. Sad, but that's life.
And because of your effort you will no doubt do well. You have bothered to take the time to learn something else other than what the best Iphone app is, or which horse will win the 4th at Tandwick, or which is the best engine to put in yer VY Commodore, or which site is the best to buy yer handbag online...and so on.
You are just too sensible!
We don't either, but we (the ones who have been around for a much longer time) don't enter into the whole massive degree of unaffordability argument.
When it is mentioned how cheaper life was back in the old days compared to now, what I see today is the person complaining about not being able to buy the nice house, unit or townhouse in an inner suburb (let's face it; yer lower end bogan is not on this site as a rule), and you can guess that these whiners are not driving around in a very old second-hand car.
These sorts of little factors make a huge difference to how much house you can afford. It gets mentioned from time about doing it tough, going without and living life very simply to get ahead for a while.
But I don't see it happening with these whiners; they will all still have the Iphone, a decent car with a big loan, a credit card that gets smashed all the time...and so on.
What they forget is back in those old days when houses were cheap is 20 year olds didn't have a car - even Mum and Dad only had one if they were lucky. Many families didn't have phones, or had one only in the house.
And so on.
I'll admit I was being a bit silly here. Sometimes I do that.
It's my standard answer when someone blames investors for high prices.FWIW, I actually agree with your response, and would add several other factors as well (which have been discussed elsewhere).
Did you stop and consider that some of these changes might not be related to the 'spend easy' generation of today, but rather a shift in the cost of these products...
For example a base VN Commodore in 1988 cost around $20k. The average weekly earnings was around $25k. So a standard sedan cost around 80% of the average wage.
Today the average weekly earnings is around $66k and VE Commodore is $35k or only around 53% of the average wage.
I can't be bothered digging up phone statistics but I'm sure you would agree that the cost of telephony services today would be a fraction of it's cost 20 years ago.
The same argument goes for those that use plasma screens as an example of the younger generations money wasting ability. What other sorts of screens are available today?! I don't see Harvey Norman with a range of CRT screens anymore!
Older generations seem to think that any extra dollars saved by technological improvements and cheaper production of goods should automatically be assigned to housing...
Sources:
http://www.classicholdencars.com/tag/vn-commodore/
http://www.carpoint.com.au/news/2006/large-passenger/holden/commodore/ve-commodore-how-much-1312
http://www.ato.gov.au/superfunds/content.aspx?menuid=0&doc=/content/60489.htm&page=35&H35
I think you'll find that higher housing prices are actually a symptom of cheaper production of goods. Fundamentally, most people will spend as much as they can - if living their lifestyle is cheaper, they have more to spend in getting into the best propeerty they can.
Yes you are probably right, with the enabler being easier credit. But that would mean that the price rises we have seen over the last 20-30 years are an anomaly that can't be repeated unless you think that we will continue to find cheaper manufacturing bases than the developing countries we already use. Another thing to keep in mind is that cheap oil has been a key driver of the many cheap luxuries available today, take that away and prices of many things could rise dramatically forcing the price of housing down.
I sold my 88 model vl commodore a year or two back for just over $100,000.
Muscle car boom and all that.
I think its worth mentioning because everyone was convinced muscle cars were in a bubble. Example would be Phase three fords that were rapidly approaching 1 million.
A couple of years later and yes the steam has come out of the market.
But just like housing there are pockets that are effected more than others.
My car resold a year later for $10,000 MORE than what i sold it for.
Some lost ground but many still offered good value and the stability in the market is a reflection of that.
Off topic but worth thinking about.
I have just seen this all unfold with our son and his first mortgage. He has made choices that I would not make, but is making ends meet. Without the new car, expensive iPhone etc, he would have more money, no doubt.
His choice.
EDIT: Whilst I don't disagree with some of what you are saying, there is still a LOT of choice, but it seems the young ones (judging by my own sons) will not even consider going backwards technologically or status wise.
I remember a friend telling me her parents had to lay-by a toaster because they couldn't afford to buy it outright. We can get them for $20 now, so I am not saying you don't have a point.
Easy credit is definitely an enabler.
As to longer term prices, I think we need to consider a few other factors, including demographics (in 15 years Gen X will be on average at peak spending age), money flowing into Australia is still being shared amongst a smallish population, and that there are plenty of other countries that will manufacture if and when China gets too expensive.
Goods generally can get a lot cheaper than now. Look at the US, for example, everything from cars to jeans to basic food is cheaper there. Unfortunately, having such cheap things in Australia is likely to again be a symptom - of a growing demographic of poverty.
You beat me to it, VY.
A compliment at last!!!
What is the significance of this in relation to housing?
You are right about them having it cheaper in the US but with 9% unemployment, 45m on food stamps, etc I have to wonder how many actually get to enjoy it
At peak spending age, people are more prone to purchase larger homes. Upgrading and renovating means more money chasing a finite number of desirable properties and tradies to build more. Demand increases. It's also that when people feel wealthier, they spend more, even if they don't get more.
You are right about them having it cheaper in the US but with 9% unemployment, 45m on food stamps, etc I have to wonder how many actually get to enjoy it
Quite a few, but a lot miss out.
I thought there may have been something I was missing regarding GenX. We are making our way through the baby boomers peak spending at the moment, given the number of them vs GenX I actually see the demographics painting a fairly bearish outlook in that respect.
Unconventional Economist recently covered on MacroBusiness:
http://macrobusiness.com.au/2011/05/ageing-to-punish-retail/
http://www.abs.gov.au/Ausstats/[email protected]/mf/3201.0
Scroll down about 40% of the page, to the diagram "Population Structure". There are actually more Gen Xers than Baby Boomers!
The Baby Boomers reached their peak spend about 5 years ago.
I don't see how that chart you referenced shows there is more GenX than baby boomers... Check UEs chart in the link I provided, even in the high population growth scenario the percentage of total population in their peak spending years is decreasing as the baby boomers head into retirement...
EDIT
You would need to combine the entire Australian population of Generation 'X' and 'Y' together to match the number of Baby Boomers in Australia (ABS 2006 Census data) http://www.babyboomers.com.au/media.html
Harry Dent has written some interesting stuff about this. His argument, which makes sense to me, is that we will see a period of low growth between the peak spend of the Baby Boomers (about 2006) and the peak spend of Gen X (about 2025-2030 allowing for generational changes).
Check out http://www.hsdent.com/swiw.pdf scroll right to the end and check out the Australia chart.
Based on your UE link, I think we may not be that far apart in opinion, we're just talking different timeframes.
Agree that demographic changes can change the utility rate of houses, i.e. how many people live per house.
the key for Australia and why housing has increased in income multiples is thet lack of efficient and productive supply.
The issue IMO is if a government took the approach of addressing this efficiency the loss in equity and wealth effects would hurt the wider economy so it is political poison to address it.
In the eshort term credit can crunch housing.
In the long term it coes back to costs of production assuming a growing population.
Even in the US I am certain that with their growing population they will eventuall see housing move back to costs of production in areas where population grows. This of course is the reason they count down the days for the glut in houses to be used up. The end of a glut in houses has the double effect of putting equity back in peoples balance sheet encouraging spending and secondly but importantly also leading to jobs in construction further driving demand.
Critically in a place like detroit where population of working people shrinks all bets are off. You might as well compare house prices in Hillend, NSW of 1875 with today and ask why is it not 10x income anymore because of copurse the population has shrunk since the gold rush, hence costs of production become irrelevant to price. It is the demand based on utility / population v supply which is greater than demand leading to a price piotentially below production costs.
The risk for housing in Australia is that a large proportion of costs are government costs. This is especially the case in Sydney. The risk is if Uneployment rises and govrevenues slide reducing development costs drives employment and ironically taxes. They have taxed because the market has been able to afford it.
I think house prices are driven primarily by public policy and like I would not have invested in an insulation business in 2009 I also would not invest in property when nearly every policy is stacked in its favour. I cannot imagine new policies to ramp prices from here. It would take economic vandalism to get anything more out of median prices from here. Perhaps a complete ban on land release or increased levies both of which short term hurt jobs. This would create a land market like Hong Kong irrespective of Australias natural endowment of land.
This does not mean I am bearish all property and am seriously considering development land in Sydney. Land in Sydney capable of being developed is cheap compared to places like fringe Perth with more liberal policies around development. Liberal development policies lead to lower house prices but higher land prices where land is capable of development for obvious reasons.
If Sydney (NSW Lib government) moves to a more liberal land release policy and more liberal taxation of development which it appears to be, then acreage with a 3 to 5 year view on greenfield development is a potential gold mine. Risky sure but I can see large upside in this and have done enough research and contrasting between Perth and Sydney to see the light around this particular property class in Australia.
the key for Australia and why housing has increased in income multiples is thet lack of efficient and productive supply.
The issue IMO is if a government took the approach of addressing this efficiency the loss in equity and wealth effects would hurt the wider economy so it is political poison to address it.
In the eshort term credit can crunch housing.
In the long term it coes back to costs of production assuming a growing population.
Even in the US I am certain that with their growing population they will eventuall see housing move back to costs of production in areas where population grows. This of course is the reason they count down the days for the glut in houses to be used up. The end of a glut in houses has the double effect of putting equity back in peoples balance sheet encouraging spending and secondly but importantly also leading to jobs in construction further driving demand.
Critically in a place like detroit where population of working people shrinks all bets are off. You might as well compare house prices in Hillend, NSW of 1875 with today and ask why is it not 10x income anymore because of copurse the population has shrunk since the gold rush, hence costs of production become irrelevant to price. It is the demand based on utility / population v supply which is greater than demand leading to a price piotentially below production costs.
The risk for housing in Australia is that a large proportion of costs are government costs. This is especially the case in Sydney. The risk is if Uneployment rises and govrevenues slide reducing development costs drives employment and ironically taxes. They have taxed because the market has been able to afford it.
I think house prices are driven primarily by public policy and like I would not have invested in an insulation business in 2009 I also would not invest in property when nearly every policy is stacked in its favour. I cannot imagine new policies to ramp prices from here. It would take economic vandalism to get anything more out of median prices from here. Perhaps a complete ban on land release or increased levies both of which short term hurt jobs. This would create a land market like Hong Kong irrespective of Australias natural endowment of land.
This does not mean I am bearish all property and am seriously considering development land in Sydney. Land in Sydney capable of being developed is cheap compared to places like fringe Perth with more liberal policies around development. Liberal development policies lead to lower house prices but higher land prices where land is capable of development for obvious reasons.
If Sydney (NSW Lib government) moves to a more liberal land release policy and more liberal taxation of development which it appears to be, then acreage with a 3 to 5 year view on greenfield development is a potential gold mine. Risky sure but I can see large upside in this and have done enough research and contrasting between Perth and Sydney to see the light around this particular property class in Australia.
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