There will be more renters

[DeanoC]

I wish to challenge the notion that all housing must be affordable for the masses.........it is not an entitlement that everyone of us must own their own home. The cries in the media that affordability is going down the tube merely feeds the entitlement mentality of those who miss out, or more accurately choose not to entertain alternatives of a lesser quality and/or location for their first home.

Unlike their parents, and their parents before them, settling for homes and locations more in tune with their current financial situation and striving to upgrade as the depth of their pockets allow, significant numbers have the bar set too high and feed their disappointment with an inability to spend less than they earn.

What a load of pretentious rubbish

Firstly, unlike their parents and grandparents, the AVERAGE home is 8-9 times their annual wage. This has nothing to do with iPods and Plasma TV's, nor their refusal to live in up and coming neighbourhoods. Back in the day, it was 2-3 times annual wage. Only one person had to work. The old timers love to pat themselves on the back and say how they did without, but the reality is that basic day to day goods are much cheaper. Annual wages compared to median prices are almost triple in some cases.

Secondly, housing affordability has little to do with the individual. It has to do with the broader economy. What property investors fail to understand is that housing is not really a productive part of the economy. The more money people spend on houses and rent, the less money they spend at the shops, on holidays, entertainment, etc. They spend less money in areas that keep Australians employed.

Housing affordability has a long term impact on the economy and standard of living. That is why it needs to be affordable. High house prices drag an economy down and in the long run cost jobs.

Now, I could also go on and on about instant gratification and other such notions, however, in order to keep to my contention, I do not believe that housing was ever affordable. People borrowed within their means and servicibility. They didn't graduate from the school of "having it all now".

Further, I contend that we will see more renters becoming the norm. In Australia, home ownership is ostensibly at circa 70 %. This is not so in other parts of the world,as indicated in home ownership ranks below:

Showing latest available data.

# 1 Ireland: 83%
# 2 Italy: 78%
= 3 Australia: 69%
= 3 United Kingdom: 69%
= 5 Canada: 67%
= 5 Finland: 67%
= 7 United States: 65%
= 7 Belgium: 65%
= 9 Japan: 60%
= 9 Sweden: 60%
# 11 France: 54%
# 12 Denmark: 53%
# 13 Netherlands: 49%
# 14 Germany: 43%
Weighted average: 63.0%

DEFINITION: Home ownership as % of all households (Data is for 2000).

SOURCE: Economist, 30 March 2002, and Euromonitor


http://www.nationmaster.com/graph/peo_hom_own-people-home-ownership

70% of Australians do not own their homes

Home ownership is at an all time low in Australia. It has not been this low since the 40's. Only 35% of Aussies own their homes outright. The rest of them have DEBT, and they have used their home to secure that debt. They may not pay a landlord, but they pay a bank every month to avoid eviction. If they dont make those payments, they are out on their ***

To call someone a home owner when they dont own their home yet, and to pass that off as evidence that 70% of the country own their home is a misrepresentation of statistics. It does not paint a realistic picture at all.

As it it, 65% of Australians have a monthly outlay for accommodation. Rising prices and interest rates means increased accommodation costs. Which means less money being spent on the economy as a whole

Again, not good for all of us in the long run.

 

[DeanoC]

I think that there are a lot of factors at play in home ownership versus rental rates. Here are a few points from a European perspective.

The Low Countries:

• The Netherlands and Belgium together are smaller than Tasmania, yet have distinct cultural traditions. The northern region of Belgium is Flemish (basically Dutch), whereas the South is French. So bear in mind that national identities change within a short distance.
• Belgium's rate of owner occupation is higher than France and the Netherlands, yet property prices are certainly lower than in the Netherlands. (Not sure about France.)
• Dutch prices rose sharply in the late nineties, perhaps a bit earlier than other countries, and have been slowly dropping recently.

Germany:

• Property is very cheap in Germany, and has been slowly declining in real terms for years. Buying there would be a very sensible option versus renting.
• I've heard that there are strong rent controls in Germany, and more rights for tenants. For example, they can redecorate their property.
• Rentals tend to be much longer term.
• I've heard that Germans will typically rent in their youth, and then buy a house as they get older.

Scandinavia:

• Sweden and Denmark both had housing booms. I've got a feeling that Sweden's is continuing, whereas Denmark is falling back.
• There's a trend in Sweden for families to own a holiday home outside of the cities, and rent an apartment in town.

The UK:

• House prices peaked in 2007, fell sharply in 2008 and rose again in 2009.
• Mortgages remain in short supply, the job market is tight, wages are down, and few properties are selling. These things should point at price falls, so I'm deeply confused by recent rises!
• The average first time buyer (without support from their parents) is now 37 or 38.
• The owner occupier rate peaked at somewhere just over 73%, and has been falling back since then. This is probably down to affordability constraints, and difficulty getting a mortgage.
• British houses are amongst the smallest in Europe.

The point that I'm trying to make above is that there isn't a homogenous European culture, nor can you make sweeping generalisations about it.

I'm wondering if there's a correlation between high home ownership rates and rapid price rises, but there are some notable exceptions (the Netherlands) that disprove the rule.

European cities tend to be higher density than in Australia and US. Properties are often smaller, or on smaller plots. Rows of terraced houses are common in the UK, whereas apartment blocks are more prevalent on the Continent.

Australian cities (to my eyes) have larger, more sprawling suburbs. That's probably a function of having more unsettled space when they were formed. But it does mean more car usage, and poorer public transport links.

As for investors versus FHBs, investors do get a few tax breaks that owner occupiers don't. (For example, negative gearing and depreciation.) An investor who's been in the game for a while probably has more equity to use as a deposit, giving them greater buying power.

In the UK there's been a collapse of first time buyers who've been unable to compete with investors for these reasons. The result is that investors have been propping up the bottom end of the property market, but it's unfortunately become far more difficult for buyers to enter it.

Thanks for this post. You just killed an entire day for me. Im going to spending all my time reading up on German property now

With regards to the UK, I think its a classic example of how credit fuels property more than anything else. Interest rates there have been so low that its kept the market up.

 

[Amadio]

Do you think that you could go back and edit out the part about Player's post being pretentious rubbish? There was nothing pretentious about it and nothing rubbish about it. I found it very interesting as is your post, but perhaps you could hold back on the testosteronal response.

 

[wylie]

I have always believed the percentage of people in Australia who "own" their homes has ALWAYS included those with a mortgage. I believe the percentage was similar in the "good old days".

This percentage of people who "own" their own homes is used (AFAIK) to differentiate from those paying rent, and does not mean there is no mortgage.

I also believe that many "young ones" these days will not settle for the crappy first house, the "fixer-upper" that was all we could afford. My own 21 year old son has told us that he certainly will not buy a crappy first house. He says his first place will be small but stylish.

I wish him well, but don't think he has a clue about what it is like to have a mortgage. Time will be his teacher, because he doesn't listen to us (or at least, he does listen, but discounts it, even though I reckon he really knows we DO know what we are talking about but would never admit it ).

My first house was $18K (bought it with family as my first IP) and I was on about $3.5K salary full time in a bank. I didn't get any discount at all on this loan and this house was a "fixer-upper" and needed PLENTY of elbow grease to make it rentable.

It was not a palace, nor a flea pit, but tending more towards the flea pit end.

In other words, it was not any easier "back in my day" and I'm only 49.

It wasn't any easier back in my parents' day either. My parents had to take in a boarder to help pay their first mortgage. Mum had three of us under three years old to look after PLUS feed and wash for a boarder.

Some "young ones" these days seem to think that it was easier 50 years ago...... but it was no easier then.

 

[Luv2Travel]

I also believe that many "young ones" these days will not settle for the crappy first house, the "fixer-upper" that was all we could afford.

Agree with this! Your average first home 30-40 years ago was probably a small 3 bedroom / 1 bathroom weatherboard house, today it seems to be a brick 3-4 bedroom / 2 bathroom, double garage, new kitchen, new bathroom etc. etc. So no wonder first home buyers can't afford it, I'm sick of hearing them whinge and complain (not to mention the new cars they drive when they turn 18 which would have gone nicely towards a deposit on a house, the weddings for tens of thousands of dollars which seems to be the norm these days, everything else they buy). My first home almost 10 years ago was a 30 year old 2 bedroom unit which "needed" (or I chose to) renovate in the suburbs. 10 years later I now live inner Bayside Melbourne, but I started at the bottom, built some equity, waited until my salary had increased with experience and bought into a nicer location. Boohoo to those who want it all now and cry because they can't.

 

[willair]

What a load of pretentious rubbish

Firstly, unlike their parents and grandparents, the AVERAGE home is 8-9 times their annual wage. This has nothing to do with iPods and Plasma TV's, nor their refusal to live in up and coming neighbourhoods. Back in the day, it was 2-3 times annual wage. Only one person had to work. The old timers love to pat themselves on the back and say how they did without, but the reality is that basic day to day goods are much cheaper. Annual wages compared to median prices are almost triple in some cases.

Secondly, housing affordability has little to do with the individual. It has to do with the broader economy. What property investors fail to understand is that housing is not really a productive part of the economy. The more money people spend on houses and rent, the less money they spend at the shops, on holidays, entertainment, etc. They spend less money in areas that keep Australians employed.

Housing affordability has a long term impact on the economy and standard of living. That is why it needs to be affordable. High house prices drag an economy down and in the long run cost jobs.



70% of Australians do not own their homes

Home ownership is at an all time low in Australia. It has not been this low since the 40's. Only 35% of Aussies own their homes outright. The rest of them have DEBT, and they have used their home to secure that debt. They may not pay a landlord, but they pay a bank every month to avoid eviction. If they dont make those payments, they are out on their ***

To call someone a home owner when they dont own their home yet, and to pass that off as evidence that 70% of the country own their home is a misrepresentation of statistics. It does not paint a realistic picture at all.

As it it, 65% of Australians have a monthly outlay for accommodation. Rising prices and interest rates means increased accommodation costs. Which means less money being spent on the economy as a whole

Again, not good for all of us in the long run.

My guess is it comes back too the interpretation of the data,but 65% seems high to me,and if that is fact then you are right in some ways with the less money to spread around..willair..

 

[buzzlightyear]

My first house was $18K (bought it with family as my first IP) and I was on about $3.5K salary full time in a bank...

This prompted me to think, what were the relativities when I purchased my first PPOR in 2002. Price was $307k and my salary would have been around $60-65k. Loan was 80% LVR. This was a 2br apartment in Sth Melbourne, approximately 80sqm .

Having rented and being a nomad for the past 8 years, at the end of last year I purchased a new PPOR, again at 80% LVR. This time the relativity was 4.7 for a house in Moonee Ponds being a 3 bedroom unrenovated on a corner block.

Not sure if the relativities tell you anything meaningful, given there are too many other variables.

 

[DeanoC]

My guess is it comes back too the interpretation of the data,but 65% seems high to me,and if that is fact then you are right in some ways with the less money to spread around..willair..

There is nothing to interpret really

30% pay rent
35% pay a mortgage every month
35% own outright

Home ownership implies OWNERSHIP. If you have used an asset to secure credit, which is the procedure one follows when they buy a house, then you dont own that asset until you have paid off your outstanding debt. You dont own the house. Its an asset that does not really belong to you. Its a leveraged asset, not an owned asset.

Saying that 70% of people own their homes, and that proves housing is affordable, is a complete misrepresentation of the statistics and facts

Genuine home ownership is at an all time low. If owning a home were affordable, fewer people would have debt and more would own their homes outright.

http://www.aph.gov.au/library/Pubs/rp/2008-09/09rp21.pdf

 

[wylie]

From the link you provided.... "Around 70 per cent of Australian households own or are purchasing their home. The rate of home ownership has remained remarkably stable at this level for over four decades according to data collected by the Australian Bureau of Statistics in its Census of Population and Housing and its Survey of Income and Housing (SIH)."

This first paragraph pretty much sums up what I always thought.... that 70% own OR are purchasing their home.

P.S. Just thinking back to the situation when my parents married..... before they took the plunge and bought their first home, they lived in a besser block garage out the back of Dad's brother's house..... luxury .

It would be very interesting to hear from people in their 70's about how "easy" it was "back then" to buy their first home.

 

[DeanoC]

Agree with this! Your average first home 30-40 years ago was probably a small 3 bedroom / 1 bathroom weatherboard house, today it seems to be a brick 3-4 bedroom / 2 bathroom, double garage, new kitchen, new bathroom etc. etc. So no wonder first home buyers can't afford it, I'm sick of hearing them whinge and complain (not to mention the new cars they drive when they turn 18 which would have gone nicely towards a deposit on a house, the weddings for tens of thousands of dollars which seems to be the norm these days, everything else they buy). My first home almost 10 years ago was a 30 year old 2 bedroom unit which "needed" (or I chose to) renovate in the suburbs. 10 years later I now live inner Bayside Melbourne, but I started at the bottom, built some equity, waited until my salary had increased with experience and bought into a nicer location. Boohoo to those who want it all now and cry because they can't.

This mindset kills me. Its so irrational and naive. It lacks perspective

At its most very basic, AND THIS IS A FACT, the average home home now is 8-9 times average wage in Sydney, and 6-8 in others. Back in the day, the average home then was 2-3 times average wage.

The price of goods has DROPPED over the last few years. Globalisation and improved production means that things like Plasma TV's and Xbox's dont break the bank. They have become cheap consumables. You are not blowing money, as a percentage of your income its minuscule compared to the outlay in the past!!!!

Likewise travel. 40 years ago it was expensive to fly. 20 years ago it was expensive to fly. Its cheaper now, and a strong currency makes it cheap to travel abroad. Its accessible because as technology advances these things become cheaper.

Just because it was expensive to fly 30 years ago does not mean that you made some sacrifice and went without to own a home. Just because TV's cost a fortune 15 years ago does not mean thry are expensive today. Using that as an indication of how people waste money is absurd.

Building standards have improved, as have methods. Those beat up old weatherboard homes were average back then. They are not average now. Average now is a brick house with a nice open plan kitchen. That is the average home, just like the average TV is a flatscreen.

Do you own your home? Sure you upgraded, but I expect that it came with a new mortgage too? A bigger one? So you are paying extra every month with interest rate hikes? For all the bravado of acting like a home owner, Im wondering if you actually own your house or if you just rent it from the bank.

 

[DeanoC]

From the link you provided.... "Around 70 per cent of Australian households own or are purchasing their home. The rate of home ownership has remained remarkably stable at this level for over four decades according to data collected by the Australian Bureau of Statistics in its Census of Population and Housing and its Survey of Income and Housing (SIH)."

This first paragraph pretty much sums up what I always thought.... that 70% own OR are purchasing their home.

P.S. Just thinking back to the situation when my parents married..... before they took the plunge and bought their first home, they lived in a besser block garage out the back of Dad's brother's house..... luxury .

It would be very interesting to hear from people in their 70's about how "easy" it was "back then" to buy their first home.

The very next paragraph says

The proportion of Australian households who own their home outright (that is, without a mortgage) has been far from stable. Based on data from the Census, the rate of outright home ownership fell from 45 per cent in 1947 to 32 per cent in 1976, rising to 43 per cent in 1996 before falling again to 35 per cent in 2006. Data from the SIH for the period 1995–96 to 2005–06 show a similar marked fall in the rate of outright home ownership, falling from 43 to 34 per cent.

You cannot understand an entire paper from ONE PARAGRAPH

 

[wylie]

DeanoC.... I think where you are getting it wrong, is that I didn't buy an "average" home, nor did my parents.

If you as a first home buyer want to buy an "average" home, then you are reaching far higher than those first home buyers that came one and two generations before you.

It is NOT about the "average home".

It is about buying a flea pit, living in crap conditions (or at lease lesser conditions than you might desire) for a few years while the magic happens and prices rise.

Average homes probably come somewhere in the middle of your upgrading journey.

It isn't about plasmas and holidays either, although finding money for a bus fare or even for the mortgage was difficult when I bought my first flea pit. Airline trip was so far out of my league I never contemplated it (nor desired it).

P.S. Just saw your comment about not understanding the paper. I read the first paragraph which confirmed what I had always believed to be the case. The para where it says actual ownership (opposed to having a mortgage) has gone up and down over the decades.

Basically..... same old, same old. It changes with the economic times.

 

[DeanoC]

DeanoC.... I think where you are getting it wrong, is that I didn't buy an "average" home, nor did my parents.

If you as a first home buyer want to buy an "average" home, then you are reaching far higher than those first home buyers that came one and two generations before you.

It is NOT about the "average home".

It is about buying a flea pit, living in crap conditions (or at lease lesser conditions than you might desire) for a few years while the magic happens and prices rise.

Average homes probably come somewhere in the middle of your upgrading journey.

It isn't about plasmas and holidays either, although finding money for a bus trip was difficult when I bought my first flea pit. Airline trip was so far out of my league I never contemplated it (nor desired it).

Most first home buyers are not on an average income. Im sick to death of people comparing anecdotal views to very simple and easy to understand facts:

30 years ago, median price was 2-3 times annual wage

Today, median price is 6-9 times annual wage depending on where you live

It has nothing to do with peoples ATTITUDES. It has to do with BASELINE PRICING. Houses are more expensive based on what we earn today then what they were 30 years ago.

Most FHB's want the average homes, but most have still bought where they could afford to. In the lower brackets like they always have. Its typical baby boomer schtick. They cant seem to understand that the cost of living has increased because necessities have gone up, NOT LUXURIES WHICH ARE CHEAPER

What else needs to be said? Look at the basics

Outright home ownership is dropping and people are taking on more debt
Median prices compared to wages are at an all time high

AFFORDABILITY HAS NEVER BEEN SUCH A BIG PROBLEM

 

[wylie]

DeanoC..... do you have a house and a mortgage?

 

[DeanoC]

Yes, I own my home outright. The second has a small mortgage, which I rent to my sister at way under market rate so they can save a deposit for a home of their own.

What has that got to do with anything though?

 

[Ausprop]

30 years ago, median price was 2-3 times annual wage

AFFORDABILITY HAS NEVER BEEN SUCH A BIG PROBLEM

30 years ago the median home wasn't a 4x2 with theatre and ducted ac. I recall our family of 5 living in a tiny 3x1 with no gadgets and couldn't even afford more than a gravel driveway.

this is a crisis of aspiration. I am yet to coin a catchy phrase for it tho

 

[DeanoC]

30 years ago the median home wasn't a 4x2 with theatre and ducted ac. I recall our family of 5 living in a tiny 3x1 with no gadgets and couldn't even afford more than a gravel driveway.

this is a crisis of aspiration. I am yet to coin a catchy phrase for it tho

Yes, but that is the median home today! Just because building standards and quality has improved does not mean that it is above average. IT IS AVERAGE.

Just like it costs less to buy a TV now then it did 30 years ago, so too has the quality of housing improved.

 

[Ausprop]

I think medians are a hugely distorted statistic. when we compare across 30 years we are looking at a completely different house in a completely different location.

there is so much misinformation in real estate it's ridiculous

 

[wylie]

What has that got to do with anything though?

I thought you sounded like you were angry with the world and perhaps were having trouble getting into the property game.

I have to say, regarding your comment above, that a 4x2 with theatre and ducted air being "average", this is where we part ways.

That home is not average (in my opinion).

 

[VYBerlinaV8]

Interesting, but it's been covered before.

1) The 'average' home 30 years was perhaps 2/3 the size of a new 'average' home.
2) 30 years ago, houses were about 3 times 'average' earnings. Now, most families have both partners working, hence houses (which are also much bigger, remember) cost 6 times 'average' earnings.
3) Because other items are so much cheaper, the 'average' household has MORE money available to spend on housing.

Once these things are taken into account, it's pretty much all supply and demand. Oh, and I've put 'average' in ' ', because to the inidividual, it's not that relevant.

FWIW, I owe the bank about 1/6th the value of my home, but much more on my IPs.