Hi Jingo,
To answer your questions:
Rogue, How would you explain the following then in relation to the ability of house prices to continue to grow in value over the long term:
1) The multitude of people who earn well in excess of the average wage and their ability and willingness to service much higher loans than an average wage earner.
I am talking average income earner. You see Jingo, that is how we calculate averages.... we factor in those many people who earn less than average and those many people who earn more.... and that's what gives us the average wage. Of course, not everyone finds it unaffordable. There are always some people who can afford a Ferrari and some who can't, but if an average earner couldn't afford even a Ford Falcon.... then Ford would go broke.
2) People who have been in the market for a number of years with significant equity in their homes upgrading to better areas with limited housing supply. (ie inner suburbs where land is scarce and period housing styles are actively sought).
I did specify 'entry level' in my post. These are the future generation of home buyers and the very people that investors will want to be paying big sums for their homes when they sell to fund their retirement. I agree those who have sufficient equity from buying post boom probably have nothing to worry about, unless of course they drew on that equity to buy boats and caravans and holidays and such. But they are the recent generation of home owners, not the current and future generation of home buyers.
3) Those who have family inheritances to draw upon, or equity from parents or other relatives? These people could in fact earn an average wage and still be able to purchase a home in an expensive area.
Family Inheritances - This has always been around and is effectively only wealth transfer. Even so, with the current average age of death, i don't expect my parents to die until i am retirement age, so i'll be taking out a 30 year mortgage sentence off my own back... just like most other people.
Equity from parents - Again, this is just debt/wealth transfer from one person to another.
To put it another way Jingo, say I can afford with my wage a $200k home, but my parents leave me $100k, so i can afford a $300k home. This may increase the demand by one person on $300k homes and therefore might increase prices in that price range, but it also removes demand by one person for homes in the $200k price range, which would lower prices in this range. So all this really is is wealth TRANSFER. It does not generate an increased demand for property, it creates an increased demand for 'quality' properties.
4) An increase in the number of migrants in our capital cities who purchase property here with money bought in from their home country.
Immigration is a somewhat valid reason for price increase expectations as a result of increased demand for houses, and we certainly have a higher than average net migration into Australia currently. However 190,000 new migrants does not create a need for 190,000 new houses.
Some will be couples, or families of 2, 3 or more people. Some are singles that will perhaps meet another Australian, marry and move into a family household. Some are not permanent migrants so can only alter demand temporarily. We are currently building around 150,000 new houses p/year. Our population has increased by 330,000 p/year. Our average household size is 2.5 people. So we're building a house for every 2.1 people when there are 2.5 people to every house. The Govt is currently looking at releasing more land for building to increase supply in the near future.
Building supply and migration are transitory. We might have good figures this year and bad figures next year. It cannot be relied upon as a sole indication of strong capital gains growth into the future.... it didn't help in Ireland, where prices are dropping substantially despite record migration and a housing shortage.
Migration also puts more demand on employment, which can have possible future implications on the unemployment levels, which in turn will not be good for the economy.