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I don't think it's as simple as that. In Australia we've had a massive housing boom and consequently the market has been flooded with houses. Strangely this has

by zik 7y ago

I don't think it's as simple as that. In Australia we've had a massive housing boom and consequently the market has been flooded with houses. Strangely this hasn't led to lower house prices. There's a large amount of housing which is purchased and is sitting empty, mostly investment properties which people bought with the intention of re-selling at a much higher price so they're not concerned about renting them out. This has led to a perverse situation where very expensive houses are being built and left empty and prices continue to rise to support this.

imtringued 7y ago
Why does that matter? If no one can afford the property then the current property owner will make a huge loss.
mdasen 7y ago
That can happen for a time. Investors might sit on things hoping that it will appreciate in value. However, many times there's a myth of "empty houses" used to justify not building more. Some people have cited non-owner-occupied condos as "empty" when they're merely rented. When a large new property comes on the market, often the owners take time selling off units so as not to flood the market and drive down their investment (just as one doesn't want to unload shares all at once and overwhelm demand). There's always a certain level of vacancies and a lot of the time when people think there are a lot of vacancies, it's not actually high. They just notice a couple fancy buildings that aren't full. Prices are also sticky. If you bought a home at $X, you're going to psychologically want to get that back when selling. If you're a buyer, you've seen prices at X and you've become accustomed to thinking it costs that. And a lot of people say that there's been a "massive housing boom" when production is a tiny fraction of historical levels. This can be understandable. If your area used to increase housing by 1% per year from 1920-2007 and then shrunk down to 0% per year from 2007-2015, increases of 0.5% per year might seem like a boom. However, it's below historical levels and might be coming after a near decade of under-creation. As such, there can be huge pent-up demand combined with a level of building that's still well below normal (but seems high compared to post-mortgage-crisis levels). EDIT: https://twitter.com/TweetBenMax/status/1218712012114538497/photo/1 https://twitter.com/TweetBenMax/status/1218712012114538497/p... This isn't the best graph because housing production had already dropped off by the 90s, but it's still pretty clear. Everyone in expensive US cities thinks we're building lots of housing. However, when you look at it we're just not. Compared to the dip after the mortgage crisis, we're definitely building more. However, these expensive cities are also seeing historic levels of high-income job growth and migration towards them while having building at lower than historical levels. Maybe Australia is different, but it's probably just a comparison with post-mortgage-crisis lows and not actually a building boom. Even with new stock coming in, it can take years (think 5-15) to settle.
- zik 7y ago
  I'm not talking about non-owner-occupied housing. A group here did a survey using water consumption figures to determine which houses were actually occupied and found that substantial numbers were completely unoccupied. https://www.abc.net.au/news/2014-11-12/water-use-study-highlights-empty-flats-in-melbournes-docklands/5886246 https://www.abc.net.au/news/2014-11-12/water-use-study-highl... (Old link but the same still applies)
chii 7y ago
> There's a large amount of housing which is purchased and is sitting empty is that really true? I keep hearing people who can't find rental properties to rent, or have huge waiting lists. I suspect that perhaps renters' is a market that has a price expectation, which is not met when the property prices are so high. The "normal" rent is about 5% (p.a.) of the property's market value. However, as bank interest rates dropped, property valuations skyrockets, and rent income cannot keep up. This would lead to landlords who sees tenants as a PITA to just not rent out (saves on any potential damages, low/zero utilities etc, not to mention no inspection, agent fees and other misc).

by zik 7y ago

imtringued 7y ago

Why does that matter? If no one can afford the property then the current property owner will make a huge loss.

mdasen 7y ago

That can happen for a time. Investors might sit on things hoping that it will appreciate in value. However, many times there's a myth of "empty houses" used to justify not building more. Some people have cited non-owner-occupied condos as "empty" when they're merely rented. When a large new property comes on the market, often the owners take time selling off units so as not to flood the market and drive down their investment (just as one doesn't want to unload shares all at once and overwhelm demand). There's always a certain level of vacancies and a lot of the time when people think there are a lot of vacancies, it's not actually high. They just notice a couple fancy buildings that aren't full. Prices are also sticky. If you bought a home at $X, you're going to psychologically want to get that back when selling. If you're a buyer, you've seen prices at X and you've become accustomed to thinking it costs that. And a lot of people say that there's been a "massive housing boom" when production is a tiny fraction of historical levels. This can be understandable. If your area used to increase housing by 1% per year from 1920-2007 and then shrunk down to 0% per year from 2007-2015, increases of 0.5% per year might seem like a boom. However, it's below historical levels and might be coming after a near decade of under-creation. As such, there can be huge pent-up demand combined with a level of building that's still well below normal (but seems high compared to post-mortgage-crisis levels). EDIT: https://twitter.com/TweetBenMax/status/1218712012114538497/photo/1 https://twitter.com/TweetBenMax/status/1218712012114538497/p... This isn't the best graph because housing production had already dropped off by the 90s, but it's still pretty clear. Everyone in expensive US cities thinks we're building lots of housing. However, when you look at it we're just not. Compared to the dip after the mortgage crisis, we're definitely building more. However, these expensive cities are also seeing historic levels of high-income job growth and migration towards them while having building at lower than historical levels. Maybe Australia is different, but it's probably just a comparison with post-mortgage-crisis lows and not actually a building boom. Even with new stock coming in, it can take years (think 5-15) to settle.

zik 7y ago
I'm not talking about non-owner-occupied housing. A group here did a survey using water consumption figures to determine which houses were actually occupied and found that substantial numbers were completely unoccupied. https://www.abc.net.au/news/2014-11-12/water-use-study-highlights-empty-flats-in-melbournes-docklands/5886246 https://www.abc.net.au/news/2014-11-12/water-use-study-highl... (Old link but the same still applies)

chii 7y ago

> There's a large amount of housing which is purchased and is sitting empty is that really true? I keep hearing people who can't find rental properties to rent, or have huge waiting lists. I suspect that perhaps renters' is a market that has a price expectation, which is not met when the property prices are so high. The "normal" rent is about 5% (p.a.) of the property's market value. However, as bank interest rates dropped, property valuations skyrockets, and rent income cannot keep up. This would lead to landlords who sees tenants as a PITA to just not rent out (saves on any potential damages, low/zero utilities etc, not to mention no inspection, agent fees and other misc).