6 ms·

We need one soon though. The housing market is a massive bubble that needs deflating.

2muchcoffeeman 10y ago
What is the reasoning behind this sort of opinion? If the economy keeps doing well, wouldn't salaries increase? Couldn't the government invest more in less populated areas around the capital cities so that living in those areas becomes more feasible? Why have a recession?
- bevax 10y ago
  In modern economy, when business is doing well, profits and top salaries grow, but that's it. Salaries never went proportional with productivity or profits and this is another sad example here: despite 25 years of ongoing growth, people are confronted with extreme household debts. Obviously political decision makers became too greedy and lobbyists too influential. You see it anywhere, not only in AUS.
- flukus 10y ago
  Salaries and housing prices have become completely decoupled. Home ownership is now out of reach of most Australians. More urban sprawl isn't really a solution because traffic will never cope. Most people haven't seen the benefits of economic growth, so they don't really care if we have a recession, it's mostly going to hit the wealthy investing in housing. A housing market crash will be the biggest redistribution of wealth the countries ever seen.
  - 2muchcoffeeman 10y ago
    > More urban sprawl isn't really a solution because traffic will never cope. I'm suggesting that new business centres be created so that people can live in cheaper areas, and still be close to their jobs. This should reduce traffic since fewer people will need to commute. But I am not a City Planner. I have no idea what is feasible or not. But there must be lots of industries that don't need to be in the CDB.
    - caf 10y ago
      Ultimately there should be a string of cities between Melbourne and Sydney, a la the Boston to Atlanta corridor.
  - pbhjpbhj 10y ago
    Considering the general problem: there has to be a better way to control landlords. Allow them to earn a reasonable living but keep a cap on house and rental prices whilst preventing speculators from inflating prices too. Controls that would keep a lockstep between median wages and house prices without having to rely on a price crash coming and giving a few lower income people a chance. Is the problem lack of political will to fix this sort of error (capitalism beating socialism)? Or maybe that solutions are applied but are ineffective?
    - Joakal 10y ago
      There's a lot of buyers who just keep the property, not even renting it out. Several policies contribute to high prices: > Negative gearing. > 1st house exempt from pension assessment. ie, 2 billion dollar house, but can collect pension. Have 100k(?) cash in bank? No pension. > First home buyer grant. Originally intended to encourage more housing, instead is used to buy existing properties. Proposed policies in parliament: > Using super for houses. Yes, people could put their retirement savings in a house in a market that could collapse and lose a lot of money.
      - XorNot 10y ago
        The last one - super for houses - will obviously and explicitly destroy the lower and middle classes. There's a lot of people who will not see this as a bad idea - and then a lot more who'll be forced to dip into it anyway to have a hope of even owning a house, or any property large enough to start a family in.
        daemin 10y ago
        Basically people will have to drain their super to afford to buy a house, then when retired they will have to sell (or reverse-mortgage) their house to afford to live.
        spangry 10y ago
        Yeah, if the government adopted a 'super for deposits' policy it would be unconscionable, not to mention idiotic. The failure of the first home-owner grant scheme is ample evidence that a 'super deposits' scheme is not in the public interest. It's not even in the interests of first home buyers: I suspect it would simply bait marginal FHBs into catching falling knives. Even with the FHOG scheme, I'm fairly sure the government was advised at the time that it was a stupid idea, but they went ahead with it anyway. The reasons why this 'super for deposits' idea has recently been floated are: a) Someone at Coalition HQ finally figured out how to read demographic statistics (god help us) and realised that Gen Y (18-34) are now the largest voting block in the country (for our American friends: Australia has compulsory voting). Incidentally, I think this is the reason behind the 'surprisingly' close election last time around (Bowen's negative gearing policies addressed some of Gen Y's concerns around home ownership). b) They also figured out that housing affordability is a serious issue for Gen Y. You might have noticed how everyone is all of a sudden so very concerned about housing affordability. c) Both sides of politics are terrified of the bubble popping on their watch. They're acutely aware that voters confuse correlation and causation when it comes to economic policy (see: Howard & Costello's budget surpluses) and don't want to be forever branded as 'those guys that ruined the Australian economy'. So they'll do anything to kick the can down the road. So (a) + (b) means they want to be seen to be doing something to improve housing affordability. However, this presents a problem: something becomes more affordable when that something becomes cheaper (i.e. prices go down). Unfortunately, doing anything that lowers house prices pisses off the second largest voting demographic in the country: the baby-boomers (53-71). Combine (c) with the above and the solution becomes obvious: a policy that makes Gen Y feel as though they're in a better position to buy a house, that also pushes prices up (due to increased demand in a market with fixed short-run supply). This has the nice bonus effect of kicking the can just that little bit further down the road. And really, who cares about the distant future? Although, I'd bet they aren't factoring in how ratings agencies might perceive such a policy. Australia is already on 'credit watch'. This kind of policy could very well be the final straw, resulting in a credit rating downgrade for the Commonwealth. And because the Commonwealth underwrites almost all retail bank deposits (explicitly), a Commonwealth downgrade is almost equivalent to the banks being downgraded. Were this to happen, overseas lenders would increase their rates on wholesale funding that they lend to our banks (roughly 50% of the banks' cash). In turn, our banks will be forced to raise variable rates on retail housing loans, ironically triggering the bubble pop that the government was trying to avoid in the first place. In short, it's just awful policy whichever way you look at it. However, I wouldn't want to bet against it happening anyway; this government seems to have an awfully large supply of stupid.
  - caf 10y ago
    A recession will also throw a very large number of people out of work, and that is going to impact the less well off.
    - flukus 10y ago
      Convince me it will? The less well off are just above the welfare line as it is. They can work 20 less hours a week and not see a big drop in income. It's the boomers a recession will hurt. People on minimum wage actually do shit for a living.
- cyberferret 10y ago
  I live in Northern Australia, one of the most expensive cities to live in within the country (exceeding even Sydney in a lot of cases), and salaries have absolutely NOT increased to match the rate of real estate pricing. Sure in some niche jobs (mining sector etc.) there are positions paying massive money ($100K+) to young kids just out of school or an apprenticeship, but overall, in the government sector and small business, the disparity is widening at an alarming rate. I honestly have no idea how young couples starting out today even are able to afford a small two bedroom unit without BOTH of them being in high paying jobs. I think we will surely see population growth slowing as there is pretty much no way young couples can have a baby and have one parent off work for up to a year to care for the baby, AND own/rent a house/apartment. Our city is seeing a massive exodus of people, heading south for cheaper pastures - so much so that they (our state government) are holding crisis community meetings to try and ascertain how they can get people to stay. We are talking people who have been here for generations too, not just your average 'fly in fly out' workers.
  - saiya-jin 10y ago
    welcome to the western world, what you describe can be said about most european capitals and many many US cities (and probably rest of world too). not going to change, at least not for the better, anytime soon.
  - TheSpiceIsLife 10y ago
    I used to live in Adelaide. There's no way I could afford to buy a house anywhere I actually wanted to live. Some out of the ordinary life circumstances arose, and I ended up moving to Launceston in Tasmania. I was able to buy a house in an area I wanted to live in here for $215,000. I can't fathom taking on twice that on, even on dual incomes, that sort of loan would make me feel ill. My job is in metal fabrication, the past 12 months have been much slower than the previous 10 years, things have slowed down a great deal.
    - jpatokal 10y ago
      Only twice that? In Sydney, median house prices are north of $1,000,000 now, and in my unsexy and until recently very-working-class inner west suburb the median is tickling $2M. (Yes, it's completely insane, and even more insane is that nobody else seems to find it insane...)
- mb_72 10y ago
  Overseas purchasers willing to pay far above market rates are partly responsible, especially in Sydney and Melbourne. The government department responsible for making sure foreign investment rules are followed are underfunded and quite ineffectual in enforcing said rules. More info here: http://firb.gov.au/real-estate/ http://firb.gov.au/real-estate/
- bootload 10y ago
  "What is the reasoning behind this sort of opinion?" The banking system is not using excess capital to create or generate business. Instead it is being poured into land speculation. Dumb money.
- 2muchcoffeeman 10y ago
  None of the replies really explain why you'd want a recession. If the value of my property plummeted too far and I was stuck with a massive mortgage, the first thing I would do is stop any discretionary spending until I could figure out what the future looked like. Imagine that happened to a lot of the middle class. I agree that prices are too high, but I can't see anything good coming from a crash.
  - tmnvix 10y ago
    > I agree that prices are too high, but I can't see anything good coming from a crash. Depends on your perspective. For many (possibly most) people, lower house prices are good.
  - ZoeZoeBee 10y ago
    The good would be a decrease in the number of persons forced to rent, rather than own. Among households headed by Australians aged under 35 an extraordinary 63.4 per cent rent.[http://www.smh.com.au/federal-politics/political-opinion/no-longer-a-nation-of-home-owners-now-were-renting-20151016-gkb7gr.html http://www.smh.com.au/federal-politics/political-opinion/no-...]
- spangry 10y ago
  To make the technical (and somewhat cold-hearted) argument: because it will correct a massive mis-allocation of capital in the Australian economy. This mis-allocated capital is being poured into existing residential real estate (80% of property investment is in already existing properties). It's capital that could otherwise be put to some productive purpose, like business loans for example. The above is basically a stylised description of what has actually been happening in Australia over the past two decades: real estate loans have been crowding out business loans: http://i.imgur.com/g7a9QDL.png http://i.imgur.com/g7a9QDL.png . The upper bound for sophisticated public discussion on economic policy is, IMHO, when pollies yammer on about 'productivity' (a depressingly low 'upper bound', and not without its own issues). If we are truly serious about lifting multi-factor productivity, then we should not be distorting capital investment decisions with crazy-expensive tax breaks for property investors. It would be great if we could correct this problem, without serious macroeconomic upheaval, by gradually phasing in tax reforms. But that opportunity passed us by about a decade ago. The reforms still have to occur, mind you. It's just that now we pretty much have to eat a massive property bust (and possible crisis in the financial sector) first. As for the reforms, my top 3 would be: - Change capital gains back to indexation by inflation (rather than a flat 50% discount after 1 year of ownership). - Get the States to slowly repeal stamp duty on property and insurance, and slowly introduce a tax on the unimproved value of land (say, over a 5 year timeframe). - Simplify and repeal a whole bunch of zoning and land planning laws and regulations, at both the State and local council level.
  - daemin 10y ago
    One of the big ones should be removing negative gearing on existing non-primary-residence properties. This is a fairly big reason why the boom is continuing.

What is the reasoning behind this sort of opinion? If the economy keeps doing well, wouldn't salaries increase? Couldn't the government invest more in less populated areas around the capital cities so that living in those areas becomes more feasible? Why have a recession?

bevax 10y ago
In modern economy, when business is doing well, profits and top salaries grow, but that's it. Salaries never went proportional with productivity or profits and this is another sad example here: despite 25 years of ongoing growth, people are confronted with extreme household debts. Obviously political decision makers became too greedy and lobbyists too influential. You see it anywhere, not only in AUS.
flukus 10y ago
Salaries and housing prices have become completely decoupled. Home ownership is now out of reach of most Australians. More urban sprawl isn't really a solution because traffic will never cope. Most people haven't seen the benefits of economic growth, so they don't really care if we have a recession, it's mostly going to hit the wealthy investing in housing. A housing market crash will be the biggest redistribution of wealth the countries ever seen.
- 2muchcoffeeman 10y ago
  > More urban sprawl isn't really a solution because traffic will never cope. I'm suggesting that new business centres be created so that people can live in cheaper areas, and still be close to their jobs. This should reduce traffic since fewer people will need to commute. But I am not a City Planner. I have no idea what is feasible or not. But there must be lots of industries that don't need to be in the CDB.
  - caf 10y ago
    Ultimately there should be a string of cities between Melbourne and Sydney, a la the Boston to Atlanta corridor.
- pbhjpbhj 10y ago
  Considering the general problem: there has to be a better way to control landlords. Allow them to earn a reasonable living but keep a cap on house and rental prices whilst preventing speculators from inflating prices too. Controls that would keep a lockstep between median wages and house prices without having to rely on a price crash coming and giving a few lower income people a chance. Is the problem lack of political will to fix this sort of error (capitalism beating socialism)? Or maybe that solutions are applied but are ineffective?
  - Joakal 10y ago
    There's a lot of buyers who just keep the property, not even renting it out. Several policies contribute to high prices: > Negative gearing. > 1st house exempt from pension assessment. ie, 2 billion dollar house, but can collect pension. Have 100k(?) cash in bank? No pension. > First home buyer grant. Originally intended to encourage more housing, instead is used to buy existing properties. Proposed policies in parliament: > Using super for houses. Yes, people could put their retirement savings in a house in a market that could collapse and lose a lot of money.
    - XorNot 10y ago
      The last one - super for houses - will obviously and explicitly destroy the lower and middle classes. There's a lot of people who will not see this as a bad idea - and then a lot more who'll be forced to dip into it anyway to have a hope of even owning a house, or any property large enough to start a family in.
      - daemin 10y ago
        Basically people will have to drain their super to afford to buy a house, then when retired they will have to sell (or reverse-mortgage) their house to afford to live.
      - spangry 10y ago
        Yeah, if the government adopted a 'super for deposits' policy it would be unconscionable, not to mention idiotic. The failure of the first home-owner grant scheme is ample evidence that a 'super deposits' scheme is not in the public interest. It's not even in the interests of first home buyers: I suspect it would simply bait marginal FHBs into catching falling knives. Even with the FHOG scheme, I'm fairly sure the government was advised at the time that it was a stupid idea, but they went ahead with it anyway. The reasons why this 'super for deposits' idea has recently been floated are: a) Someone at Coalition HQ finally figured out how to read demographic statistics (god help us) and realised that Gen Y (18-34) are now the largest voting block in the country (for our American friends: Australia has compulsory voting). Incidentally, I think this is the reason behind the 'surprisingly' close election last time around (Bowen's negative gearing policies addressed some of Gen Y's concerns around home ownership). b) They also figured out that housing affordability is a serious issue for Gen Y. You might have noticed how everyone is all of a sudden so very concerned about housing affordability. c) Both sides of politics are terrified of the bubble popping on their watch. They're acutely aware that voters confuse correlation and causation when it comes to economic policy (see: Howard & Costello's budget surpluses) and don't want to be forever branded as 'those guys that ruined the Australian economy'. So they'll do anything to kick the can down the road. So (a) + (b) means they want to be seen to be doing something to improve housing affordability. However, this presents a problem: something becomes more affordable when that something becomes cheaper (i.e. prices go down). Unfortunately, doing anything that lowers house prices pisses off the second largest voting demographic in the country: the baby-boomers (53-71). Combine (c) with the above and the solution becomes obvious: a policy that makes Gen Y feel as though they're in a better position to buy a house, that also pushes prices up (due to increased demand in a market with fixed short-run supply). This has the nice bonus effect of kicking the can just that little bit further down the road. And really, who cares about the distant future? Although, I'd bet they aren't factoring in how ratings agencies might perceive such a policy. Australia is already on 'credit watch'. This kind of policy could very well be the final straw, resulting in a credit rating downgrade for the Commonwealth. And because the Commonwealth underwrites almost all retail bank deposits (explicitly), a Commonwealth downgrade is almost equivalent to the banks being downgraded. Were this to happen, overseas lenders would increase their rates on wholesale funding that they lend to our banks (roughly 50% of the banks' cash). In turn, our banks will be forced to raise variable rates on retail housing loans, ironically triggering the bubble pop that the government was trying to avoid in the first place. In short, it's just awful policy whichever way you look at it. However, I wouldn't want to bet against it happening anyway; this government seems to have an awfully large supply of stupid.
- caf 10y ago
  A recession will also throw a very large number of people out of work, and that is going to impact the less well off.
  - flukus 10y ago
    Convince me it will? The less well off are just above the welfare line as it is. They can work 20 less hours a week and not see a big drop in income. It's the boomers a recession will hurt. People on minimum wage actually do shit for a living.
cyberferret 10y ago
I live in Northern Australia, one of the most expensive cities to live in within the country (exceeding even Sydney in a lot of cases), and salaries have absolutely NOT increased to match the rate of real estate pricing. Sure in some niche jobs (mining sector etc.) there are positions paying massive money ($100K+) to young kids just out of school or an apprenticeship, but overall, in the government sector and small business, the disparity is widening at an alarming rate. I honestly have no idea how young couples starting out today even are able to afford a small two bedroom unit without BOTH of them being in high paying jobs. I think we will surely see population growth slowing as there is pretty much no way young couples can have a baby and have one parent off work for up to a year to care for the baby, AND own/rent a house/apartment. Our city is seeing a massive exodus of people, heading south for cheaper pastures - so much so that they (our state government) are holding crisis community meetings to try and ascertain how they can get people to stay. We are talking people who have been here for generations too, not just your average 'fly in fly out' workers.
- saiya-jin 10y ago
  welcome to the western world, what you describe can be said about most european capitals and many many US cities (and probably rest of world too). not going to change, at least not for the better, anytime soon.
- TheSpiceIsLife 10y ago
  I used to live in Adelaide. There's no way I could afford to buy a house anywhere I actually wanted to live. Some out of the ordinary life circumstances arose, and I ended up moving to Launceston in Tasmania. I was able to buy a house in an area I wanted to live in here for $215,000. I can't fathom taking on twice that on, even on dual incomes, that sort of loan would make me feel ill. My job is in metal fabrication, the past 12 months have been much slower than the previous 10 years, things have slowed down a great deal.
  - jpatokal 10y ago
    Only twice that? In Sydney, median house prices are north of $1,000,000 now, and in my unsexy and until recently very-working-class inner west suburb the median is tickling $2M. (Yes, it's completely insane, and even more insane is that nobody else seems to find it insane...)
mb_72 10y ago
Overseas purchasers willing to pay far above market rates are partly responsible, especially in Sydney and Melbourne. The government department responsible for making sure foreign investment rules are followed are underfunded and quite ineffectual in enforcing said rules. More info here: http://firb.gov.au/real-estate/ http://firb.gov.au/real-estate/
bootload 10y ago
"What is the reasoning behind this sort of opinion?" The banking system is not using excess capital to create or generate business. Instead it is being poured into land speculation. Dumb money.
2muchcoffeeman 10y ago
None of the replies really explain why you'd want a recession. If the value of my property plummeted too far and I was stuck with a massive mortgage, the first thing I would do is stop any discretionary spending until I could figure out what the future looked like. Imagine that happened to a lot of the middle class. I agree that prices are too high, but I can't see anything good coming from a crash.
- tmnvix 10y ago
  > I agree that prices are too high, but I can't see anything good coming from a crash. Depends on your perspective. For many (possibly most) people, lower house prices are good.
- ZoeZoeBee 10y ago
  The good would be a decrease in the number of persons forced to rent, rather than own. Among households headed by Australians aged under 35 an extraordinary 63.4 per cent rent.[http://www.smh.com.au/federal-politics/political-opinion/no-longer-a-nation-of-home-owners-now-were-renting-20151016-gkb7gr.html http://www.smh.com.au/federal-politics/political-opinion/no-...]
spangry 10y ago
To make the technical (and somewhat cold-hearted) argument: because it will correct a massive mis-allocation of capital in the Australian economy. This mis-allocated capital is being poured into existing residential real estate (80% of property investment is in already existing properties). It's capital that could otherwise be put to some productive purpose, like business loans for example. The above is basically a stylised description of what has actually been happening in Australia over the past two decades: real estate loans have been crowding out business loans: http://i.imgur.com/g7a9QDL.png http://i.imgur.com/g7a9QDL.png . The upper bound for sophisticated public discussion on economic policy is, IMHO, when pollies yammer on about 'productivity' (a depressingly low 'upper bound', and not without its own issues). If we are truly serious about lifting multi-factor productivity, then we should not be distorting capital investment decisions with crazy-expensive tax breaks for property investors. It would be great if we could correct this problem, without serious macroeconomic upheaval, by gradually phasing in tax reforms. But that opportunity passed us by about a decade ago. The reforms still have to occur, mind you. It's just that now we pretty much have to eat a massive property bust (and possible crisis in the financial sector) first. As for the reforms, my top 3 would be: - Change capital gains back to indexation by inflation (rather than a flat 50% discount after 1 year of ownership). - Get the States to slowly repeal stamp duty on property and insurance, and slowly introduce a tax on the unimproved value of land (say, over a 5 year timeframe). - Simplify and repeal a whole bunch of zoning and land planning laws and regulations, at both the State and local council level.
- daemin 10y ago
  One of the big ones should be removing negative gearing on existing non-primary-residence properties. This is a fairly big reason why the boom is continuing.