Australia's Housing Frenzy
bloomberg.com
bloomberg.com
We've had unprecedented global quantitative easing over the past decade, so it's quite natural that house prices globally will meet and surpass all time highs.
This is what happens when you keep printing money and set precedents such as bank bail outs and debt write offs. If all money woes can be solved simply by printing money it begs the question why don't we just keep printing more? And the realisation soon hits home that if you were to do that, the price of everything would rise, the rich would get richer and they could simply hoard all land and property indefinitely while sucking every last cent out of people starting out in life...
It works up until the bit where people start getting angry and create a toxic environment in which nobody wants to live or do business...
Central bank keeps telling us that inflation is "on target" at just 2% or 3% p/a for about the last 5 years. Meanwhile, housing inflated more like 40% (70% in Sydney!)[2] over that time, so how does that work?
OH WAIT, housing was excluded from CPI[3]. I wonder who decided that, and whose interest(heh) that might possibly be in?
[1] https://www.rba.gov.au/inflation/inflation-target.html
[2] http://www.huffingtonpost.com.au/2017/03/20/this-chart-shows...
[3] http://www.abc.net.au/news/2017-04-20/inflation-data-suffers...
People are not all affected by changes in housing prices immediately. If you own your home or pay below market rent you won't be affected until later. A survey asking how much people actually pay will have a built-in lag.
People borrow the vast majority of the cost of a house to buy it, so housing prices are largely only restricted by how much banks are willing to lend and how much it costs to borrow — all of which is heavily influenced by central banks.
The NYT has a good “buy vs rent calculator” that’s worth checking out:
https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Even though the calculator is useful, it’s important to have a really good understanding of why housing is so much more expensive today (as a percentage of avg annual income) than it was 50-60 years ago. For that I recommend a short, but extremely useful book, The Housing Trap:
https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Is there a conclusion on the global movement of rent prices in comparison to house prices?
That is incorrect. Loose credit most definitely affects rents, as in more people can now afford to buy real-estate (houses, apartments), that reduces the supply of available places to rent (assuming no new constructions take place, for the sake of the demonstration), and generally speaking a reduced level of supply has been accompanied by higher prices, in this case higher rents.
We could consider that the inflation that was supposed to happen with QE ended up just inflating assets prices. But that would still be an overall good thing, because asset prices are not what harm the greatest body of people, nor affect their wages like regular inflation does. People will not be thrown into poverty because apple has historic highs.
In terms of housing, we should look at rental prices more than housing prices. Is that going up as fast as house values? I dont think so.
I think it takes a lot of gall to post this, considering that asset prices hurting people is the topic of the thread and the gist of GP's post. I would say it's certainly not an overall good thing; it's good for the landed class and hurts everyone else.
Inflation typically doesnt take into account investable assets, it just accounts for the requirements of daily living. Rental prices is one of those, housing prices are more tangential. Its reasonable to exclude the last.
> it's good for the landed class and hurts everyone else.
If it were cheaper and more people purchased land, then the landed class would be bigger. There is some paradoxical notion to saying the rules you have favors the 'rich' and they should change so there are more 'rich'.
Many types of loans are secured by assets, so when those bubbles pop, the loans get called, which depresses asset prices further and further.
Bubble implies it has to pop, inflation is just raise in prices overall.
To this moment its unclear if we have a bubble or not.
Sadly it looked like this silliness was going to continue forever.
Fortunately, the market has given us inflation-proof cryptocurrency, and these central banking bastards are finally going to have to test their theories and put their ideological balls on the line in a free market with the ability of nation states to control currency as the price for shitty science. Good luck to them - they will need it.
Finally, cryptocurrencies with fixed, limited inflation schedules provide a competitive non-inflationary alternative to state issued currency.
I guess it's fine if people want to describe that situation as low inflation with an asset bubble. But I think what is actually happening is that, although much of the world now gets to eat well and enjoy consumer goods, all kinds of assets (property, artwork, luxuries and anything requiring rare resources) are moving up and up out of people's reach).
There are other circumstances at work here then more money in circulation, such as land use restrictions, building codes, nimbyism, credit costs/restrictions, tax policies, etc. If investors can build housing and make money they will certainly do it. It's not just the supply of money, but also the supply/demand of a product that effects prices.
Computer prices have been rapidly deflating since before I was born, but I've bought several computers. Deflation only prevents purchases when the savings from waiting outweigh the cost of not having the item.
.. which frees up resources into products/industries people value more. Why is that a bad thing vs people overspending a lot to buy things they might not need? To much deflation is bad but how about a stable money supply with very low (if any) injection of money by the government?
> how about a stable money supply with very low (if any) injection of money by the government?
Majority of money supply in existence is some form of debt. I have $1000 cold hard cash, I put it in a bank and the bank then lends it someone else. Now there are $2000 in existence. Central banks don't and can't control this process directly. This is the vast majority of money out there. The amount that CBs prints is really tiny in comparison. In fact they are aiming at exactly what you suggest - some relatively low inflation rate but they tend to overshoot because they can't get the precise inflation rate they want and undershooting makes the process much harder to control. The fact that money is debt is exactly the reason you're now seeing inflation in US, even though the Fed stopped printing money long ago. Now they'll be starting to reduce money supply but you'll continue to see inflation rise until some sort of equilibrium is reached or (more likely) next bust comes. The money printing is supposed to act as a sort of confidence boost in recession/depressions but now that confidence is back, the money supply is growing and growing even though money printing has stopped.
Good. I think the world could do with less consumerism.
Very true, but it simply is a semantic gap. I suspect(not know) most economics students are taught 'deflationary scenario' or 'deflation' is when savings from waiting outweigh (cost of not having the item or benefit of having the item).
People don't have a say in who or what is 'saved' by printing money. Or where the new money goes. A handful of people decide, most of whom are in a very comfortable position in life and quite often have vested interests in maintaining the status quo. After all, it works for them and got them to where they are, so very few people would do something to jeopardize their own wealth / position. How many politicians own more than one property for example? Are they really going to voluntarily introduce measures to lower property prices in the interests of the younger, less well off people / families?
I agree an entirely deflationary monetary system isn't the answer however the more you print money, the more you're effectively saying "It's no big deal if you get in to debt, we'll just create more money to clear it like we did the last time and the time before that".
After Lincoln won they just weasled their way back in.
The Fed can just electronically debit an account and create money out of thin air. However, the power to control the US money supply is a constitutional right of Congress. We should take that back. It should be done via a k-percent algorithm. Get rid of fractional reserve banking while you're at it.
The fact the Fed's balance sheet swelled to 4.5trillion with free money is just outrageous. Wall St, nor the Fed, can regulate themselves and they their "dual mandate" is financial alchemy at best.
Actually, it isn't. The Fed was created as an end run around the Constitution. The Constitution does not grant this power because of the experience with the Continental Congress and their profligacy at printing money.
> Get rid of fractional reserve banking while you're at it.
Nothing wrong with that. Its excesses are held in check under a free banking system.
>"The Constitution contains only two sections dealing with monetary issues. Section 8 permits Congress to coin money and to regulate its value.
www.let.rug.nl/usa/essays/general/a-brief-history-of-central-banking/money-and-the-constitution.php
And replace it with what? The barter system?
Something Milton Friedman and Paul Krugman agree on, at least at times, is that commercial banks should be like utility companies.
Oh ... wait ...
https://www.foreignaffairs.com/articles/1932-01-01/crisis-go...
The problem, at its root, is that we have large parts of the world with negative trade balances. What that boils down to is that there are large parts of the world that don't have any economic use but get included anyway.
Those parts represent interruptions to an economy that only works long-term if it's a circle.
Now just so we're clear: the problem is overcapacity, and a demand-limited economy. The solution is obviously not to cut parts out and lower demand further (why not ? Because anyone doing that will get outcompeted in a credit-based economy and therefore doing this is not a Nash equilibrium).
Loans and Home mortgages would be impossibly difficult to get. You do realize that when we get a loan from the bank, the loan amount minus the down-payment exists only electronically? The balance is supposed to be wiped out if we repay the loan but that never happens.
I am not saying fractional reserve banking is perfect but what are the alternatives?
However, with a k-percent rule keeping inflation at 0.5-1% it would not be that much harder to get financing. I do agree we need monetary growth to avoid commodity money. In other words, we don't want people holding money because it grows in value--we want people to have some incentive to invest it.
If you want to give people free money to buy houses, just give them free money. Wall St & the Fed are a criminal middleman profiting off everyone else's expense.
The real question is how do you fairly grow the money supply if we cut out the Fed? Maybe finance national healthcare this way. Hospitals could issue currency and buy securities on the open market. We could even restrict it to treasuries to subsidize the national debt like we do now.
The problem with only locals buying property are many, but mainly that prices stagnate. That is not bad per se, but there is a voting sector that doesn't want price stagnation (older people basically). Governments in Australia have used foreign investment rules as a kind of secondary economic switch to keep prices going up, to the benefit of some, the chagrin of others, and ultimately maintain a status quo that benefits politicians.
It's a tough problem, property prices, and one with no clear right or wrong answer.
Imagine there was only one bank, we'll call it Banky Mc Investment Inc. or BMI.
Fred wants to buy a house. That house "costs" $1 trillion dollars. Bob owns the house and decides to sell.
Fred goes to BMI and says, "can I have a loan for $1 trillion?" BMI says "sure thing Fred" and BMI transfers "$1 trillion" to Bob's account. BMI then goes to Bob, and says "hey Bob, it looks like you've got a lot of cash in your account. Would you like to invest it in the BMI morgage investment pool, ultra low risk, backed by valuable real-estate? Bob says "sure thing!" and BMI's books balance. Sure, Fred now has a lot of debt, but there is no reason why this couldn't happen, even with a "limited money supply".
You don't need cash to put IOUs on the books.
Look at Donald Trump’s son in law as an example — I use him not to make a political point but because there’s alot of public information out there. He uses cheap capital to buy lots of cash flow in the form of apartment complexes. Being deeply in debt means that his liabilities get discounted by inflation, while inflation allows his company to escalate rents.
If you have cash or equity now, the smartest move you can to make is to borrow as much as you can afford and buy assets like real property or businesses that generate cash flow. Businesses like laundromats are probably more valuable than tech investments in the next decade.
The solution to the rich hording everything is taxation and redistribution.
How did that work out in countries with almost 100% tax and full distribution policies?
"I don't get it, people like drinking water but they don't like drowning"
"The only reason I am in debt, is because i can't ask for a big enough loan"
QE is not "printing money". It is exchange of interest bearing assets from the financial assets like government bonds from the private sector, for non interest bearing assets(cash). The net financial assets(money) owned by the private sector remain exactly the same, so there is no direct correlation with inflation.
QE is a strategy to manipulate/lower long term interest rates by changing the asset portfolio of the private sector. Traditionally, central banks only directly controlled short term interest rates. However, in the wake of the financial crisis, credit markets were still tight despite central banks reducing overnight interest rates to zero(the "liquidity trap"). Since you really cant go (much) lower than zero, new techniques were needed to stimulate the economy.
QE does not (directly) lead to inflation, as is further reinforced by the West post 2008 or even Japan in the 2000s. Inflation has consistently stopped short of target during QE. The precise changes to the risk portfolio of the private sector, along with the conditions of the economy means QE can have either inflationary or even deflationary effects.
The problem primarily exists in Sydney and Melbourne. Melbourne in particular is experiencing high population growth, and the city is already sprawling, without the ability to dramatically increase housing density around the central city. Growth in land prices is likely to continue for a while because of this, perhaps not at the same high rate. Apartment prices are more at risk. The ridiculous price growth in property over the last 10 years has created many asset rich baby boomers, who will continue to invest in property and transfer wealth to their children. It certainly is nothing like the sub prime loan crisis - Australian banks have remained quite selective in giving out home loans.
Gobsmacked... lucky I walked away :/
On that, it will be interesting what would come out if a future royal commission into the banking sector happens.
But even if not, it wouldn't matter. You can have the best capital adequacy in the world, and have only lent to people with rock solid ability to service their loans - but you have a real problem if there's a drop in prices and you have hundreds of thousands of people with negative equity on once-million dollar assets.
There is at least one survey showing that liar loans are common in Australia: https://www.domain.com.au/news/australian-housing-market-bui... About 500bn mortgages are based on inaccurate/false information, 1,100bn are 'correct'. Note that these numbers are estimates because they are based on surveys, Australia's banking system does not need to check this.
Liar loans were a big factor in the US' started financial crisis: https://www.nytimes.com/2015/02/13/upshot/how-mortgage-fraud...
And it's true that some people have been really stupid financing multiple properties off of each other and trying to live off of rentals then having it all fall down. But that's hardly more than a tiny minority of idiots.
Furthermore the Australian property market really has at least two completely different levels. You've got Sydney with multi-million dollar hovels. And then you've got pretty much the rest of the country which is reasonably priced. There might be a third one which is "CBD apartments" which are also crazily high priced - but if you live there you're an idiot too.
Guess where most of the media is? Guess where most of the focus on pricing is? Yes... it's Sydney.
Now it's true our houses are relatively expensive. I watch some American shows where they're house-hunting and get pretty much mansions for 1/4 of the price of a normal house here, but, I suspect those are in semi-remote places.
But is it a party? Not really. Is it over? Not by a long shot. You can't trust any of this news.
Of course if you're buying a house way beyond your budget, or buying multiple houses, you're an idiot and get what you deserve. Also there's always the risk you do everything right but then lose your job, run out of savings, and can't make repayments - but we're all in that position.
Edit: Not sure why an honest question after a google gets a down vote.
No they are not semi-rural places. They are literally 1/4th the price. I grew up in Logan, which is outside of Brisbane. My parents house was sold for $700k. It takes about 1hr 15min to get to the city in peak hour, and public transport isn't really viable.
$700k is about 7.5x the average income. Homes used to be larger, within 30 minutes drive of the city during peak hour, and 3x average income. Taking 7 years to just save for a deposit and taking out a 600k loan and paying it off over decades is not affordable in any language.
Well no, it is true. A shock to the economy will obviously create a major effect in high-cost structure societies compared to low cost structure societies. That is what I like about some places like China. Here in Australia, people just think "well my wage pays for it so who cares". They don't see how it exposes you when you suddenly don't get the wage or when you want to do something other than get paid a wage.
What is not true is that this is some kind of bubble due to house prices and wages being out of sync. In reality, house prices can continue to rise even if wages don't rise simply because the definition of a house is not a constant. A house becomes a small house, becomes an apartment. You can keep creating affordable housing simply by increasing density.
>The problem primarily exists in Sydney and Melbourne.
and Brisbane and surrounding areas, which encompasses most of Australia's population.
>who will continue to invest in property and transfer wealth to their children
which creates a massive divide.
News to sad to fail? Because no one can ignore bad news forever...
With a lot of hot money going around Melbourne these days, low interest rates, and a daily influx of Chinese investors, it's a bubble that's inevitable going to implode.
...on Chinese investors - I used to be on Williams street by 6am every day, and without fail there two busloads of Chinese investors ready to look at the new apartments being built there.
The game now is, which side dries up first - supply of houses/appartments, or the demand of Chinese investors.
I live in a rental, which is being rented out below what the market rate would be, thanks to an extent to negative gearing. There are at least half a dozen building sites in my street, which is about 20km from the centre of Melbourne. The median house price has soared this year to well over AU$1m (units are more than half that). We get at least a dozen flyers each week, written in both Chinese and English, advertising that there are buyers in the area with budgets up to AU$2m or that houses have sold for more than AU$1m.
When the bubble does burst, there’s no doubt that it will be disastrous in parts of Melbourne and Sydney. It’s unclear whether there is the capacity to make up for a glut in new housing projects with public infrastructure projects. That’s not to mention the enormous hit that huge numbers of home owners will take when their homes drop in value.
No doubt the post-mortem will be quite damning for many policy makers.
Edit: ‘fraction’ was inaccurate, and it’s academic as to the extent negative gearing affects rents.
The yields are low because rents have to be affordable to most of the population, whereas banks will lend ridiculous amounts of money to speculators for houses, fuelling the bubble.
All in all, NG (in concert with the capital gains tax discount) mostly encourages speculation, artificially increasing house prices, so it should be at least restricted to new-builds only.
The article's quote seems to be accurate from my anecdote. I visited Sydney recently, and the tour guide taking me to the blue mountains started his trip by driving through neighborhoods to point out the ridiculous home prices. I thought it was strange, but then everyone I met was eager to discuss the home prices, or asked me the price of my home (in the US). It seemed the housing market is on everyone's minds.
The YTD return for the S&P 500 is 18.6%. Now that's insane.
I truly wonder in this age of high asset prices, which assets are relatively best. Stocks won the last couple of years but after that
Joseph P. Kennedy, 1929 (paraphrased)
I predicted that prices would drop, the same way people predict now that housing prices will drop. 8 years in, and prices grew organically from that point.
It is exceedingly difficult to lower housing prices without a direct hit.
Be warned, it's a long read - but I think he's basically right.
On balance however, what exactly would you expect Australia to offer the world better than anywhere else?
Physically, Sydney is a very long narrow strip squeezed between the mountains and the sea. The poulation of Sydney is constantly expanding. To expand the population, you need to build further and further away from the CBD. Eventually, the commute becomes up to four hours per day. Eliminating that commute puts a lot of demand pressure on the inner Sydney suburbs, and consequently extremely high housing prices.
Melbourne is not quite as constrained physically, so prices there are about 25% lower. But commute times are rising rapidly.
Away from Sydney and Melbourne (where JUST TWO housing markets make up 40% of the Australian housing market) housing prices are much more 'normal'.
For a US analogy, imagine if a quarter of all US houses were trying to squeeze into New York.
The problem with Australia is that too little thought was given to making viable cities outside of the state capitals. I would love to live in a smaller town but my partner needs a major STEM research university to work at. Europe has such universities in small towns, but Australia does not. Everything is too concentrated in the capitals.
Though even as a Sydney-sider, I don't consider Canberra to be a small town. Not after living in German university towns for the last 5 years with pops <150k.
Having said all that, Canberra is an example of how Australia has (once) planned out a charter city and had it succeed. However I am not sure we can do it again without the federal government being as deeply committed as it was in overseeing its own future seat.
It's a good idea to be critical, and to encourage others to be critical, about whether that really makes sense.
This meme that you can't grow except through sprawl is pernicious. Most cities are choosing to leave options on the table.
I'd hate to be trying to buy right now.
It's very interesting to ponder how our proclivity of huddling together in tight cities can cause such anomalies.
Any stat comparing population size with land mass is misleading. Australia is hot, 300km off the coast and you’re in drought territory. Go in further and you won’t last a day in the sun without shade and water.
It’s not the US, there are towns in the outback, the majority choose not to live there. People will ordinarily group together in a single area where jobs, infrastructure and general quality of living are high.
For any given 'feature' in a suburb (shopping centre etc.) the houses in walking distance will have a higher value. If you have several multi-family homes or even towers you have a large supply of walking-distance-dwellings. If you have a bunch of single-family houses (the common thing in Australia) then you have low supply.
In other words, Australia tries to huddle together as least as possible which causes many weird anomalies (don't get me started on quality of life/walkable suburbs/rise of US-style drive-everywhere-life with increased obesity/etc)
The nation is in a run away housing boom, one of which people have been warning will explode since around 2000/2001. The fact it's continued this far has made it more and more alarming
The extremely conservative government in charge since 2013 (ironically called "The Liberal Party") has pushed in blatantly corrupt and utterly abhorrent directions in virtually every political policy since day one
The nation is warning of a "brain drain" taking place as the young and skilled jet off to the US, Europe and others. Australia has become a digital backwater due to the "National Broadband Network" (NBN) becoming a political football and being firmly run into the ground
With a ballooning near half trillion dollar government debt (at the time of writing) and a housing market on the verge of either total collapse under its own weight, or simply running out of runway to continue expanding, an aging populace with its educated young leaving and a government paralyzed by its own incompetence, Australia is heading for some seriously tough times
That said, I hope there are some houses left to buy, at the end of a long dusty road, next to a beach or two, some day in the future. Would be fun to return when the madness is over (i.e. Australia gets real Internet, &etc.)
The housing boom is driven by a combination of: (a) Australia's cultural devotion to home ownership as a conventional life milestone; (b) foreign investment and immigration, and (c) high incomes due to the mining boom and prolonged overall economic strength. Of those factors, (a) and (b) are not going to end any time soon. A global recession/economic crisis would obviously affect (c), but Australia has weathered several of these in past decades. If/when it happens, it should cause a slowing and/or a correction, but not a total crash, unless the world economy crashes. On the other hand, continued global growth, particularly in China and India, will keep fuelling demand for Australia's resources, products, services and land. Why is the worst-case scenario more likely than the best?
The political situation might seem grim, but it's not nearly as bad as the US or the UK or parts of continental Europe.
The "brain drain" issue has been a concern for many years, but if anything I'm starting to see that reversing; people I know who had left for Silicon Valley or New York or London for better career opportunities are now looking to move back, because Australia seems so idyllic compared to the chaos that's reigning elsewhere. I've noticed a vast improvement in the scale and quality of entrepreneurial activity in Australia in the past few years, and I keep hearing from expats that they're noticing how much better things are getting back home, and how much they'd like to come back and be a part of it.
The NBN is an issue that people love to use to hurl abuse at the government whilst simultaneously complaining about ballooning national debt. You can't have it both ways. It was a costly and risky project from the moment it was conceived by the previous government, and since then it's just been a case of getting it done while keeping cost blowouts and delays to a minimum. As a technology professional who cares about fast broadband as much as anyone, I can tell you that the NBN services I've had at my previous home (FTTB) and my new home (FTTP) are as reliable and fast as I could hope for, and I find cellular and terrestrial internet in Australia to be at least as good, and usually better than what I've experienced on recent trips to the US.
I don't deny there's cause for concern; I've been as mindful of, and worried about the risks as anyone. But painting it as all negative, and pinning all the blame for all the problems on the current government is inaccurate, unfair and excessively pessimistic.
So yes, there are challenges; there are great challenges everywhere in the world, as there always are. But there are also great opportunities and reasons for optimism.
It pays to take a balanced view.
High immigration rates mentioned in the article are because Australia is a great place to live; this will comtinue.
We did have a housing correction a decade or two ago, with a mostly soft-landing. But instead of prices actually falling, people avoided selling of they could.
The only way prices will fall in practice is if the economy implodes - while this could happen, like a nuclear war, there would be much more serious problems to consider than house prices if it did.
It's a modern take of Georgism to say land speculation is whats causing housing prices to soar.
Many seem to think that the Australian property market will crash like the US market did during the financial crisis.
It'll be interesting to see. I'm sure the apartment markets in Sydney, Melbourne and Brisbane will see some falling prices at some point, but few professionals are forecasting a US-style crash. Instead, most think prices will just stop growing.
I see lots of people saying "the bubble will burst", but it seems to me many of them are hoping to get into the market rather than looking at any evidence.
I'm not working in finance, but whether false or true, this seems like an attempt at some kind of evidence of the potential for cascading failure.
Perth had a lot going for it 20 years ago. The standard of living was incredibly affordable. The weather was nice. It was a dull place but well-suited to outdoor activities and raising a family.
In the early 2000s the resources boom happened, fueled by China's insatiable appetite. In the space of 5 years, a 1970s brick home <5km from the CBD went from <A$100k to A$400k. One of my biggest regrets was walking away from buying a house in 2002 that overlooked the ocean for A$430k that 4 years later would've been worth probably A$1.5-1.8m.
Now at the time the same headlines reigned. Prices are going to crash. But in hindsight there were four important factors:
1. Housing was previously too cheap and there was a correction;
2. The resources boom created a massive backlog of construction projects that choked supply for building in the housing market meaning building a house took longer and was more expensive. In the 90s you'd have TV ads for house and land packages for A$100k that would take 3-6 months to build. In a short space of time building a house took 12-18 months and cost $300k+ plus land.
3. The resource boom brought an influx of skilled migrants that increased demand.
4. Those in mining and construction got paid a whole lot more which means they could spend a whole lot more and there's only so much inventory of desirable property (near the city or on the coast or river). Trading up to those properties created a windfall from current owners which they then spent and so on.
So the GFC came in 2007. Australia didn't have the subprime problem that the US did. More importantly though, in 2008 China stopped buying as many resources. Again the predictions of doom came. Momentum probably drove the market still up (in parts anyway) for another 2-3 years. Since then it's either gone down (<10% mostly) or stagnated. In the last few years this has caught up with rents and properties that once might have 50 applicants for $500/week now couldn't be filled at $350/week.
This seems to be the Australian norm for property cycles. It happened in Sydney in the 1970s. Sydney became really expensive but probably stagnated until the mid 1990s at least.
While this was all going on in Perth and Brisbane (Western Australia and Queensland are the two big resource states), Sydney and Melbourne were going nowhere.
What changed around 2010-2011 is the same thing that happened in many other places around the world: money came into real estate in the large cities. Particularly foreign money. Particularly Chinese money.
Some will argue low interest rates were driving this but they're wrong. Properties above $3-5m in NYC for example aren't bought by people with a mortgage. They're bought with cash.
It seems like certain people in China built up a large amount of wealth in the 2000s and the government placed restrictions on how that capital could leave. I believe that certain investments including real estate were one such exception. Wealthy Chinese wanted to get money beyond Beijing's control. They also wanted to have an "out" by buying residency/citizenship in other countries.
So in the last 7 years median prices in Sydney went from (IIRC) ~A$680k to A$1.1m. Bear in mind that this is even with large swathes of suburban wastelands in Sydney's West ostensibly bringing the median down. The effect on the harbour, the ocean and in Sydney's inner suburbs and North Shore is even more pronounced.
All the while software engineers might still be getting paid the same A$150k + bonus they could get 10-15 years ago.
High property prices really are a disease. It makes rent more expensive. It makes everything you buy more expensive since something has to cover the cost of the premises those goods and services come from.
I believe Switzerland has a far better policy approach to this than many other countries I've seen. The intent seems to be that it is an undesirable outcome to have foreign money come in and buy up the country, basically. Likewise, they don't want a rampant speculative market so short term capital gains on property are taxed punitively. It may have changed but when I was there this meant 100% of gains if sold within 2 years and this eventually scaled down over the next 8 years.
People need somewhere to live. Even if they don't buy, prices drive rent. Only luxury buildings get built in NYC now because it doesn't cost much more than "affordable" buildings but it's a whole lot more profitable. That needs to change. The world's cities can't just be used for money laundering and a holding asset for the ultra-wealthy across the world.
So as for Sydney and Melbourne I don't think the prices are going to come crashing down. They may stagnate for years and even dip. But the Australian banking industry is pretty well-regulated (by comparison to the US anyway) and for those at the high end of the market, they've paid cash anyway so who cares what they do or lose? What I mean is dropping prices won't force them to sell.
Ha ha downvotes from those with a vested interest in getting those sweet sweet Chinese dollars.
Those who feel Australian society ruined by the housing obsession vote back up.
Nice and simple.
That's not living, it's not a society, it's not a future for our children, it's just self interest and greed.
If you have integrity then you stand for what's right, if, like half Australia, you depend on this corrupt system, then you keep nice and quiet.
There's a difference between immigrating to a country because you want to live there, and immigrating to pump it for its resources until it runs dry.
That's because no one wants to look at the fact that our housing boom is driven by the proceeds of crime on a gargantuan scale.
I object only to real estate sales to people who are not permanent residents or citizens. I don't give a shit what country any Australian is originally from ... we are all Australians who hold citizen or permanent residen status, no matter the color of your skin or religion.
Our previous government was corrupt to the hilt so this continued for over a decade. That said India now have strict regulations in place[1] to curb this behaviour. I am not sure why other countries cannot follow suit.
I have no issues with foreign investment comes into infrastructure and commercial space. I think its mutually beneficial. However, inflow of foreign money into housing is just evil. Local population with fixed means of income just cannot.
[1] http://www.freepressjournal.in/india/rera-all-you-need-to-kn...
I live in an area with lots of these investors and they don't work. They talk about it in hushed tones like it is a scheme or a rort, which is obviously is.
This breaks the site guidelines. Could you please read them and not do that again?
What i an trying to say is private investors in the banks and its debt profits during the good boom time on the loans but the tax payers pays for the losses after bubbles burst. This is not pure capitalism it’s something else.
Big thanks goes out to all coders working on block chain technologies! You will change the world to a better place!