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Australia's Housing Frenzy

118 points by mathgenius 9y ago

danieltillett 9y ago
House prices in Australia are insane. We have not had a recession for almost 30 years and most people here under 40 have no idea what a recession means. When this party ends the hangover is going to be horrendous.
- alfiedotwtf 9y ago
  I still remember driving home one day from work during the GFC, and was completely shocked that (from memory) every second to third house was for sale. 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.
shshhdhs 9y ago
> Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche.. 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.
- chris_wot 9y ago
  Yep. I bought in a newer area, quite a distance from the city. I paid about $760,000 for it. It's not huge, and apparently after 2 years it's close to $840,000. That's insane.
  - cletus 9y ago
    That's an annualized growth rate of 5.13%. How exactly is that insane? If you assume inflation is 2-3% the real rate of return is ~2.5%. The YTD return for the S&P 500 is 18.6%. Now that's insane.
    - conanbatt 9y ago
      The last year for S&P has been tremendous. 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
    - ganeshkrishnan 9y ago
      You are discounting the leverage of home loans. With 100k down payment you get 5% of 1 million dollars returns which is 50k a year or 50% growth of your investment
- teddyh 9y ago
  — When the market is on everyone’s mind, it’s time to sell. Joseph P. Kennedy, 1929 (paraphrased)
  - conanbatt 9y ago
    I want to say that in argentina, housing prices doubled in a few years up to 2009. Argentina housing was not hit by the Great Recession because we had no debt associated with housing. Housing prices didnt drop at all, and they were still very high by people's income. 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.
nl 9y ago
The only thing more important to the Australian economy than China is housing. 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.
- strken 9y ago
  The evidence presented is usually the (very high) levels of consumer debt, the (very high) exposure of Australian banks to property, the lack of economic diversification, and the effects of foreign speculation. 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.
  - nl 9y ago
    Yeah, civilians take that to imply a crash in prices. It's not.
hguhghuff 9y ago
House prices won't go down in Australia. There's an infinite supply of corrupt Chinese cash that needs to be laundered, and every Australian is entitled to sell their piece of Australia to get their fair share. Ha ha downvotes from those with a vested interest in getting those sweet sweet Chinese dollars.
- chris_wot 9y ago
  I suspect you are being downvoted because of your simplistic worldview.
  - hguhghuff 9y ago
    Those who hope for high house prices downvote - they know their paper wealth depends on the Chinese keeping house prices propped high. Those who feel Australian society ruined by the housing obsession vote back up. Nice and simple.
    - chris_wot 9y ago
      Those who think that Chinese investors are only one part of an incredibly complex issue don't vote you up or down.
    - freeloop3 9y ago
      I can't downvote, but I hope for high house prices. What do I do?
      - hguhghuff 9y ago
        You look into you heart and know that we're selling everything valuable in Australia to China. Our houses, our farmland, our infrastructure, our natural resources. Everything must go. 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.
hyperpallium 9y ago
Article is pretty comprehensive. Just add that the government in power during a housing price collapse will be out, so they'll do whatever they can to forestall it. 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.
- dageshi 9y ago
  Presumably interest rates will just be slashed to near zero in order to alleviate the pain and boost inflation in order to erode the debt. Basically what happened in the UK/US post 2008 crash.
Gatsky 9y ago
Pronouncements like this come out all the time in Australia, for at least the last 7 years. This is an example of a headline that can't lose - you are telling people that can't afford a house what they want to hear, at the same time spreading fear amongst those that do own property, and eventually you'll be 'right'. 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.
- alfiedotwtf 9y ago
  No. I've had banks throw money at me... to the point where he knew I couldn't extend myself to afford repayments, so he bumped my rental's rent to above market prices in order to approve the loan! I've heard this confirmed from others too. Gobsmacked... lucky I walked away :/
- stephen_g 9y ago
  There are some analysts and economists I've read who are looking at the situation and warning that there is a lot more fraudulent lending than most would think. On an anecdotal level I've also heard more than a few people say they it was hinted by banks that they could put a bigger number in the 'income' box and borrow more money. 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.
  - a_bonobo 9y ago
    >On an anecdotal level I've also heard more than a few people say they it was hinted by banks that they could put a bigger number in the 'income' box and borrow more money. There is at least one survey showing that liar loans are common in Australia: https://www.domain.com.au/news/australian-housing-market-built-on-500-billion-of-liar-loans-ubs-20170911-gyf32l/ 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-made-the-financial-crisis-worse.html?_r=0 https://www.nytimes.com/2015/02/13/upshot/how-mortgage-fraud...
IntelMiner 9y ago
Having recently returned to Australia after a few years abroad, the state of the nation is on a terrifying precipice. Mostly due to political reasons 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
- fit2rule 9y ago
  I'm a brain-drainer - born and bred in Perth, but well and truly never lived in Australia. As soon as I could, I left .. and every time I return, it is as a tourist. 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.)
  - calsy 9y ago
    You were born and bred in Perth, but never truly lived in Australia, that makes no sense.
    - asdfgadsfgasfdg 9y ago
      OP probably means had a job and lived as an adult etc.
    - fit2rule 9y ago
acd 9y ago
Why are banks allowed to create cheap credit out of nothing and when the bubble eventually bursts the banks are always saved by the tax payers? 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!
thomasfoster96 9y ago
Variations of this headline have been running for years now, so I don’t really think this one is going to be any more accurate regarding timing than any of the other predictions. There seems to be an un-ending political will-power (from both sides of politics and at both the state and federal levels) to continue housing policies that predate Australia’s last recession, and to offer only stop-gap measures to get young people back into the housing market or to maintain prices. 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.
- stephen_g 9y ago
  I doubt negative gearing affects the rental rate much. Possibly in the single digit percent kind of area, but nothing like what 'a fraction' implies. Statistically, rental rates have an extremely strong correlation to vacancy rates. Although there are claims that when negative gearing was briefly abolished, rents went up, they actually went down in many markets and up in a few, but all of them were just following vacancy rates like they always have. Part of this may have been that it wasn't abolished for long enough to see the effect of the reduction in new stock encouraged by negative gearing, but it's pretty terrible at doing that (90% of NG investment is in existing property) so that probably wouldn't have been much. 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.
zeristor 9y ago
The Open Data Institute did a talk on the correlation between empty properties and high house prices yesterday: https://www.youtube.com/watch?v=hbua6Ccyguo https://www.youtube.com/watch?v=hbua6Ccyguo
- conanbatt 9y ago
  TL;DW version? It's a modern take of Georgism to say land speculation is whats causing housing prices to soar.
deleted 9y ago
[deleted]
jesusthatsgreat 9y ago
The problem is ultimately the fact that money is an infinite resource, therefore it's a poor store of value. Property is a more stable / smarter store of value because it's actually needed by everyone in life and is relatively finite (in that land is finite). 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...
- zxcmx 9y ago
  But that would be... inflation! High inflation would affect collective bargaining agreements, benefit increases, super increases and all sorts of measures designed to keep compensation increases in line with increased cost of living. 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 https://www.rba.gov.au/inflation/inflation-target.html [2] http://www.huffingtonpost.com.au/2017/03/20/this-chart-shows-just-how-ridiculous-sydney-house-prices-are_a_21903757/ http://www.huffingtonpost.com.au/2017/03/20/this-chart-shows... [3] http://www.abc.net.au/news/2017-04-20/inflation-data-suffers-from-exclusion-of-housing/8457718 http://www.abc.net.au/news/2017-04-20/inflation-data-suffers...
  - skybrian 9y ago
    I don't know about Australia but if it's like the US, housing is not excluded entirely but there is a lag based on how long it takes for rents to rise. 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.
pdm55 9y ago
Take a walk on the wild-side around West End, Brisbane, where I live. Factory-city has become apartment city: https://www.google.com.au/maps/@-27.4845284,152.9998144,3a,60y,34.7h,91.7t/data=!3m6!1e1!3m4!1sz-hYnkmH0L4OsUiV6LaI7g!2e0!7i13312!8i6656 https://www.google.com.au/maps/@-27.4845284,152.9998144,3a,6... What you can see there is all the construction going on say six months ago. When I strolled around last week, every apartment building had "For rent" signs out the front. Typical rents seem to be about $500 per week for a two bedroom apartment. The main attraction is the proximity to the CBD. But will they be filled? Perhaps Brisbane's typical 1 hr commute into the CBD will motivate people to move here. I doubt anyone knows.
eliben 9y ago
What I find most amazing about this is Australia being the 10th least population dense country in the world [https://simple.wikipedia.org/wiki/List_of_countries_by_population_density https://simple.wikipedia.org/wiki/List_of_countries_by_popul...]. It's very interesting to ponder how our proclivity of huddling together in tight cities can cause such anomalies.
- ghomrassen 9y ago
  Well, the vast majority of Australia is the Outback, which people don't really want to live in.
- calsy 9y ago
  No need to ponder, its very simple, people would rather not live in the desert.
  - eliben 9y ago
    There's plenty of land in Australia which is absolutely not desert. Also there are cities built in deserts these days.
    - calsy 9y ago
      There is plenty of land that is not desert, but the majority is desert. 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.
      - ghaff 9y ago
        Some of the fastest growing US cities are in the desert. However, there is (sort of) water available for those. (Water supply in the southwest is a major issue though.) I assume inland Australia would have bigger issues with water supply as they don't have a large mountain range draining into the interior.
cletus 9y ago
So I'm from Perth. Well, technically I largely grew up in mining towns but basically I'm from Perth. I've now lived in NYC for 7 years. I've also lived in the London, Zurich and Germany (Cologne). 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.
sho 9y ago
Matt Barrie (founder & CEO of freelancer.com) wrote a far lengthier and more detailed essay on this a week or two ago, which has kicked off this latest round of navel-gazing: https://medium.com/@matt_11659/matt-barrie-australias-economy-is-a-house-of-cards-6877adb3fb2f https://medium.com/@matt_11659/matt-barrie-australias-econom... Be warned, it's a long read - but I think he's basically right.
- nimish 9y ago
  That's a lot of words to say that Australia is affected with terminal Dutch disease On balance however, what exactly would you expect Australia to offer the world better than anywhere else?
rwmj 9y ago
Is measuring total housing assets vs GDP [first graph] useful? On the one hand housing is related to the size of the population, and population is related to GDP, so it seems like the two measures should roughly follow each other. On the other hand price and availability of land must be a big factor (hence the US ratio being very low). Also it's unclear that total housing assets is a real thing since the vast majority of houses are not bought or sold regularly so the price can be unduly affected by a frothy minority of sales.
dmh2000 9y ago
if Australia ends up like the crash in the US in 2009, that's the time to start buying up the foreclosed houses. Because the market will come back. Folks in the US who didn't panic made out very well.
- conanbatt 9y ago
  Everyone knows this. People expecting a dip are everywhere.
almonj 9y ago
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jgalt212 9y ago
Rent component of CPI: is it all rents (lagging indicator) or just newly singed leases (current indicator)?
simonblack 9y ago
Australia's house prices are skewed badly by Sydney's house prices. Sydney's is unfortunately roughly one-quarter of the total Australian housing market. 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.
- closeparen 9y ago
  That’s a pretty small skyline for a city where the only way to build is outwards. Sure you’re not forgetting an axis?
  - cknight 9y ago
    There are cultural issues at play there which will take quite some time to overcome. High rises in Sydney are popping up around train stations now, but the vast majority of the metropolitan region's land area is taken up by single or double-storey family homes with yards. Pretty much every new high-rise development in these sorts of areas is met with substantial resistance. I don't blame them either - after living in medium-density places in Europe for a few years, I'm sick of it, and want my own house. 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.
    - mceoin 9y ago
      ANU? Small town, excellent STEM programs.
vasilipupkin 9y ago
all you need to do is buy bitcoin and wait 3 months and you will have enough money to buy a house. Simple.
- conanbatt 9y ago
  If you had invested 100k in bitcoin in 2011, you would have 300 million today ~
  - vasilipupkin 9y ago
    Exactly, and it's not too late

118 points by mathgenius 9y ago

House prices in Australia are insane. We have not had a recession for almost 30 years and most people here under 40 have no idea what a recession means. When this party ends the hangover is going to be horrendous.

alfiedotwtf 9y ago
I still remember driving home one day from work during the GFC, and was completely shocked that (from memory) every second to third house was for sale. 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.

shshhdhs 9y ago

> Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche.. 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.

chris_wot 9y ago
Yep. I bought in a newer area, quite a distance from the city. I paid about $760,000 for it. It's not huge, and apparently after 2 years it's close to $840,000. That's insane.
- cletus 9y ago
  That's an annualized growth rate of 5.13%. How exactly is that insane? If you assume inflation is 2-3% the real rate of return is ~2.5%. The YTD return for the S&P 500 is 18.6%. Now that's insane.
  - conanbatt 9y ago
    The last year for S&P has been tremendous. 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
  - ganeshkrishnan 9y ago
    You are discounting the leverage of home loans. With 100k down payment you get 5% of 1 million dollars returns which is 50k a year or 50% growth of your investment
teddyh 9y ago
— When the market is on everyone’s mind, it’s time to sell. Joseph P. Kennedy, 1929 (paraphrased)
- conanbatt 9y ago
  I want to say that in argentina, housing prices doubled in a few years up to 2009. Argentina housing was not hit by the Great Recession because we had no debt associated with housing. Housing prices didnt drop at all, and they were still very high by people's income. 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.

nl 9y ago

The only thing more important to the Australian economy than China is housing. 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.

strken 9y ago
The evidence presented is usually the (very high) levels of consumer debt, the (very high) exposure of Australian banks to property, the lack of economic diversification, and the effects of foreign speculation. 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.
- nl 9y ago
  Yeah, civilians take that to imply a crash in prices. It's not.

hguhghuff 9y ago

House prices won't go down in Australia. There's an infinite supply of corrupt Chinese cash that needs to be laundered, and every Australian is entitled to sell their piece of Australia to get their fair share. Ha ha downvotes from those with a vested interest in getting those sweet sweet Chinese dollars.

chris_wot 9y ago
I suspect you are being downvoted because of your simplistic worldview.
- hguhghuff 9y ago
  Those who hope for high house prices downvote - they know their paper wealth depends on the Chinese keeping house prices propped high. Those who feel Australian society ruined by the housing obsession vote back up. Nice and simple.
  - chris_wot 9y ago
    Those who think that Chinese investors are only one part of an incredibly complex issue don't vote you up or down.
  - freeloop3 9y ago
    I can't downvote, but I hope for high house prices. What do I do?
    - hguhghuff 9y ago
      You look into you heart and know that we're selling everything valuable in Australia to China. Our houses, our farmland, our infrastructure, our natural resources. Everything must go. 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.

hyperpallium 9y ago

Article is pretty comprehensive. Just add that the government in power during a housing price collapse will be out, so they'll do whatever they can to forestall it. 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.

dageshi 9y ago
Presumably interest rates will just be slashed to near zero in order to alleviate the pain and boost inflation in order to erode the debt. Basically what happened in the UK/US post 2008 crash.

Gatsky 9y ago

Pronouncements like this come out all the time in Australia, for at least the last 7 years. This is an example of a headline that can't lose - you are telling people that can't afford a house what they want to hear, at the same time spreading fear amongst those that do own property, and eventually you'll be 'right'. 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.

alfiedotwtf 9y ago
No. I've had banks throw money at me... to the point where he knew I couldn't extend myself to afford repayments, so he bumped my rental's rent to above market prices in order to approve the loan! I've heard this confirmed from others too. Gobsmacked... lucky I walked away :/
stephen_g 9y ago
There are some analysts and economists I've read who are looking at the situation and warning that there is a lot more fraudulent lending than most would think. On an anecdotal level I've also heard more than a few people say they it was hinted by banks that they could put a bigger number in the 'income' box and borrow more money. 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.
- a_bonobo 9y ago
  >On an anecdotal level I've also heard more than a few people say they it was hinted by banks that they could put a bigger number in the 'income' box and borrow more money. There is at least one survey showing that liar loans are common in Australia: https://www.domain.com.au/news/australian-housing-market-built-on-500-billion-of-liar-loans-ubs-20170911-gyf32l/ 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-made-the-financial-crisis-worse.html?_r=0 https://www.nytimes.com/2015/02/13/upshot/how-mortgage-fraud...

IntelMiner 9y ago

Having recently returned to Australia after a few years abroad, the state of the nation is on a terrifying precipice. Mostly due to political reasons 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

fit2rule 9y ago
I'm a brain-drainer - born and bred in Perth, but well and truly never lived in Australia. As soon as I could, I left .. and every time I return, it is as a tourist. 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.)
- calsy 9y ago
  You were born and bred in Perth, but never truly lived in Australia, that makes no sense.
  - asdfgadsfgasfdg 9y ago
    OP probably means had a job and lived as an adult etc.
  - fit2rule 9y ago

acd 9y ago

Why are banks allowed to create cheap credit out of nothing and when the bubble eventually bursts the banks are always saved by the tax payers? 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!

thomasfoster96 9y ago

Variations of this headline have been running for years now, so I don’t really think this one is going to be any more accurate regarding timing than any of the other predictions. There seems to be an un-ending political will-power (from both sides of politics and at both the state and federal levels) to continue housing policies that predate Australia’s last recession, and to offer only stop-gap measures to get young people back into the housing market or to maintain prices. 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.

stephen_g 9y ago
I doubt negative gearing affects the rental rate much. Possibly in the single digit percent kind of area, but nothing like what 'a fraction' implies. Statistically, rental rates have an extremely strong correlation to vacancy rates. Although there are claims that when negative gearing was briefly abolished, rents went up, they actually went down in many markets and up in a few, but all of them were just following vacancy rates like they always have. Part of this may have been that it wasn't abolished for long enough to see the effect of the reduction in new stock encouraged by negative gearing, but it's pretty terrible at doing that (90% of NG investment is in existing property) so that probably wouldn't have been much. 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.

zeristor 9y ago

The Open Data Institute did a talk on the correlation between empty properties and high house prices yesterday: https://www.youtube.com/watch?v=hbua6Ccyguo https://www.youtube.com/watch?v=hbua6Ccyguo

conanbatt 9y ago
TL;DW version? It's a modern take of Georgism to say land speculation is whats causing housing prices to soar.

deleted 9y ago

[deleted]

jesusthatsgreat 9y ago

The problem is ultimately the fact that money is an infinite resource, therefore it's a poor store of value. Property is a more stable / smarter store of value because it's actually needed by everyone in life and is relatively finite (in that land is finite). 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...

zxcmx 9y ago
But that would be... inflation! High inflation would affect collective bargaining agreements, benefit increases, super increases and all sorts of measures designed to keep compensation increases in line with increased cost of living. 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 https://www.rba.gov.au/inflation/inflation-target.html [2] http://www.huffingtonpost.com.au/2017/03/20/this-chart-shows-just-how-ridiculous-sydney-house-prices-are_a_21903757/ http://www.huffingtonpost.com.au/2017/03/20/this-chart-shows... [3] http://www.abc.net.au/news/2017-04-20/inflation-data-suffers-from-exclusion-of-housing/8457718 http://www.abc.net.au/news/2017-04-20/inflation-data-suffers...
- skybrian 9y ago
  I don't know about Australia but if it's like the US, housing is not excluded entirely but there is a lag based on how long it takes for rents to rise. 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.

pdm55 9y ago

Take a walk on the wild-side around West End, Brisbane, where I live. Factory-city has become apartment city: https://www.google.com.au/maps/@-27.4845284,152.9998144,3a,60y,34.7h,91.7t/data=!3m6!1e1!3m4!1sz-hYnkmH0L4OsUiV6LaI7g!2e0!7i13312!8i6656 https://www.google.com.au/maps/@-27.4845284,152.9998144,3a,6... What you can see there is all the construction going on say six months ago. When I strolled around last week, every apartment building had "For rent" signs out the front. Typical rents seem to be about $500 per week for a two bedroom apartment. The main attraction is the proximity to the CBD. But will they be filled? Perhaps Brisbane's typical 1 hr commute into the CBD will motivate people to move here. I doubt anyone knows.

eliben 9y ago

What I find most amazing about this is Australia being the 10th least population dense country in the world [https://simple.wikipedia.org/wiki/List_of_countries_by_population_density https://simple.wikipedia.org/wiki/List_of_countries_by_popul...]. It's very interesting to ponder how our proclivity of huddling together in tight cities can cause such anomalies.

ghomrassen 9y ago
Well, the vast majority of Australia is the Outback, which people don't really want to live in.
calsy 9y ago
No need to ponder, its very simple, people would rather not live in the desert.
- eliben 9y ago
  There's plenty of land in Australia which is absolutely not desert. Also there are cities built in deserts these days.
  - calsy 9y ago
    There is plenty of land that is not desert, but the majority is desert. 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.
    - ghaff 9y ago
      Some of the fastest growing US cities are in the desert. However, there is (sort of) water available for those. (Water supply in the southwest is a major issue though.) I assume inland Australia would have bigger issues with water supply as they don't have a large mountain range draining into the interior.

cletus 9y ago

So I'm from Perth. Well, technically I largely grew up in mining towns but basically I'm from Perth. I've now lived in NYC for 7 years. I've also lived in the London, Zurich and Germany (Cologne). 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.

sho 9y ago

Matt Barrie (founder & CEO of freelancer.com) wrote a far lengthier and more detailed essay on this a week or two ago, which has kicked off this latest round of navel-gazing: https://medium.com/@matt_11659/matt-barrie-australias-economy-is-a-house-of-cards-6877adb3fb2f https://medium.com/@matt_11659/matt-barrie-australias-econom... Be warned, it's a long read - but I think he's basically right.

nimish 9y ago
That's a lot of words to say that Australia is affected with terminal Dutch disease On balance however, what exactly would you expect Australia to offer the world better than anywhere else?

rwmj 9y ago

Is measuring total housing assets vs GDP [first graph] useful? On the one hand housing is related to the size of the population, and population is related to GDP, so it seems like the two measures should roughly follow each other. On the other hand price and availability of land must be a big factor (hence the US ratio being very low). Also it's unclear that total housing assets is a real thing since the vast majority of houses are not bought or sold regularly so the price can be unduly affected by a frothy minority of sales.

dmh2000 9y ago

if Australia ends up like the crash in the US in 2009, that's the time to start buying up the foreclosed houses. Because the market will come back. Folks in the US who didn't panic made out very well.

conanbatt 9y ago
Everyone knows this. People expecting a dip are everywhere.

almonj 9y ago

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jgalt212 9y ago

Rent component of CPI: is it all rents (lagging indicator) or just newly singed leases (current indicator)?

simonblack 9y ago

Australia's house prices are skewed badly by Sydney's house prices. Sydney's is unfortunately roughly one-quarter of the total Australian housing market. 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.

closeparen 9y ago
That’s a pretty small skyline for a city where the only way to build is outwards. Sure you’re not forgetting an axis?
- cknight 9y ago
  There are cultural issues at play there which will take quite some time to overcome. High rises in Sydney are popping up around train stations now, but the vast majority of the metropolitan region's land area is taken up by single or double-storey family homes with yards. Pretty much every new high-rise development in these sorts of areas is met with substantial resistance. I don't blame them either - after living in medium-density places in Europe for a few years, I'm sick of it, and want my own house. 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.
  - mceoin 9y ago
    ANU? Small town, excellent STEM programs.

vasilipupkin 9y ago

all you need to do is buy bitcoin and wait 3 months and you will have enough money to buy a house. Simple.

conanbatt 9y ago
If you had invested 100k in bitcoin in 2011, you would have 300 million today ~
- vasilipupkin 9y ago
  Exactly, and it's not too late