Can property prices outpace wage growth?

That’s all well and good - but that doesn’t mean they have borrowing capacity sufficient to grow the median price. Have you considered that many of the JV borrowers are modest income earners earning less than the median , forced to form consortiums in order to match a 2 person median household income?

If this was a real trend , we wouldn’t be hearing every broker and every real estate agent telling us borrowers can get enough money to pay asking prices , let alone bid them up.

It’s also going to get real messy when life changes and person 3,4 or 5 - who is jointly and severely liable for ALL the debt ( common debt reduced aside) partners up and want to do their own PPOR thing with a new spouse .

Co borrowers are no new phenomenon , and they aren’t going to change things too much

 

I was going to state that the two house hold thing is massively overstated (even the ABS stats on this are massaged in my opinion when I looked at them in depth).
The reality is that parents may start off with both working, but most (not all) do not continue that way. If they do, one is part time and not earning significant income. Which is why effective cuts to family benefits have a bigger impact than most would appreciate.

 

People trying to predict property prices 10 years or 20 years from now assuming households will stay exactly the same as they are now. I am simply pointing out that might not happen.

It's not important what impact they are having now. How about 20 years from now? Nothing changes in the next 20 years? Sure.

 

Oh, I don't dispute that. Last year, the childcare industry lost fifty per cent of jobs in Tasmania. Booming two income families?

 

I didn't claim they are having any impact now

I said they might have an impact 10 years from now.

In terms of all buyers being jointly and severely liable for ALL the debt, that's not the only way to structure a joint purchase

 

This is what I am talking about. There are males and females at my work who are working .8, which means they have 1 working day a week off. What happens if a group of 5 friends are chatting one day and decide they are jack of paying $150+ per day for child care. Instead they each a day of the week off and look after the other kids on their day off?

That's 5 kids out of childcare and a combined saving of $3,750 per week or $195,000 per year. If this took off it would certainly disrupt the childcare industry.

 

Multi-generational living isn't a new idea , its still quite common in many poor countries .
It was also common in many countries like Australia and the U.K right up to the 1950s and 60s when you still had a poor working class population.
Very common prior to WW2.
You also had the grandparents moving back in when they no longer worked and were unable to look after themselves.
All it tells you is how living standards are slowly declining after a strong growth period that followed for 50 or so years after WW2

 

Mmm,..it would. The benefit of a center is that the staff are trained, there is insurance, and they are generally safer than most homes. There are working with children and police checks on workers. Also a center can be relied on to bring in staff if someone is sick. There are external benefits to getting a center to look after children too. For example, if there is a problem it's not such a big deal to get grumpy and change centers. Doing that with a work person provides new issues.
The child care industry is reasonably subsidized by government. Given the current regulations around childcare e.g. family day care, this disruption would likely face difficulties starting up and gaining traction.

 

I disagree that it is an indication of living standards slowly declining. My adult sister with 2 kids moved back in with my parents a few years ago. My parents are a lot happier with the grand kids around. My neices love living there and my sister has somewhere to live. Maybe it's an indication that "nuclear family" isn't the best answer for everyone all the time?

 

I do understand what you are saying but I'm not talking about dumping your child with strangers. I am talking family friends. Like houses where kids already live. People are already dropping their kids off for 'play dates' with family friends. It's not too different to that, just a bit more regular and organised.

Some parents would not want to look after 5 kids all day anyway, so maybe get 4 parents together and send the kids to childcare one day a week or 3 parents and send the kids to childcare 2 days a week. It's still a massive saving.

In terms of childcare being subsidsed, sure. What do you think pushed prices up to $150 per day? That is a huge fee and all that money is going somewhere, and it's not the staff.

In terms of insurance at childcare centres it's true they have insurance. Doesn't really help the parents when the childcare centre kills their kid.

 

I don't care how it is structured. I care how lenders treat it.

 

I'd need to go looking but from memory the family day system started from this kind of idea.

I do not agree with the subsidization of childcare necessarily, though I can see it's benefits. I completely hear you on it pushing up prices.

One would hope that insurance is never used! But it's nice to have there.

 

So if a company owns a house and I buy shares in the company then I am liable for all of the company's debt? News to me.

If a house is owned by a unit trust and I buy a unit in the unit trust then I am liable for all other unit holder's debt? I am pretty sure it doesn't work like that.

It is entirely possible to set up a shared house in a unit trust and I buy a unit that gives me a right to live in the shared house instead of paying rent. I don't think I would be jointly and severally liable for all other unit holders debt.

It does matter how ownership is structured.

 

So you're telling us that borrowers are going to form consortiums via companies or unit trusts by the tens or hundreds of thousands, involving multiple related or unrelated parties, in order to be able to borrow more than 6 or 7 x their individual incomes, as the solution to being able to borrow more money than APRA would like them to be able to borrow, and then be able to keep on borrowing outside those structures without having to be held accountable for any of that debt?

And you think APRA would let this fly, when they have a clear agenda about banks limiting DIR's?

Never mind that trusts may be dead in the water within the next couple of years if Bill gets in. And never mind the land tax implications for trustees in multiple states of Australia. And never mind how neg gearing is a flop in trusts and is disadvantageous to investor capacity.

I live in the real world, not some fanciful theoretical world where everyone ( especially young investors and FHB's) can afford to access sophisticated tax and legal advice , actually understand it , and then make it work with all the other parties - including when they decide they want to go their own way...

Never say never... but that's quite a stretch.

But who knows, maybe you're ahead of your time and we'll all be daddy day caring and living in non nuclear families and unit trusting in 10 years time. So lets see where things go. I'll be happy to stand corrected if it goes that way. Doubt it though.

 

Sorry, did that answer either of my questions?

If I buy shares in a company then will a lender hold me jointly and severally liable for all the debt of the company ?

If I buy a unit in a unit trust then then will a lender hold me jointly and severally liable for all the debt of the other unit holders?

I am not suggesting tens or hundreds of thousands or companies or unit trusts will happen. That's just you being absurd to discredit my argument.

You suggested that the only way prices can increase to $2 million in 10 years is if x, y and z.

I am suggesting it is not the only possible way. The whole point of disruption is that no one saw it coming. I don't know what will happenin the next 10 years or the next 20 years but I am suggesting there are a lot more possiblites than your very narrow "only way".

 

And Im suggesting you are living in la la land. You arent seeing the forest for the trees. APRA wants DIR's at 6 x income. Full Stop. Their chairman started saying so over 18 months ago.

The X Y and Z isnt my X Y and Z. Its straight from the horses mouth - Wayne Byres of APRA. There's no point any of us trying to make cases for why something other than X Y and Z might occur. He has said over and over again that X Y and Z is what he wants... so X Y and Z is whats going to happen until or unless APRA changes tact.

 

Exactly what a taxi driver would have said 20 years ago if I explained uber to them

 

Okidoki. I stand corrected. You had me at Uber

 

At the end of the day, each will act according to their beliefs. I happen to believe moving forward, CF+ real estate with debt reduction isn't the best way to invest for me. Others may see it as their only way to move forward. I prefer to manufacture profits, then reduce debt, rinse and repeat, continually expanding that wealth ball. Just choose your poison for your situation and chew like mad.

 

You have a much different asset base and borrowing capacity than average Joe's.

Not much "median" in your life

However anyone wants to look at it... from deregulation in the late 80's until re-regulation (APRA) in the mid teens borrowing power went like this..... 3.5x , 4.5 x, 5.5 x , 6.5 x, 7.5 x, 8.5 x, 9.5 x.....and well beyond

Now it's going like this in Sydney @10 or 10.5 x x income back to 6x or 7x income, and getting capped there.

And in Melbourne @ 8.5 or 9x income back to 6 or 7 x income, and getting capped there

So any reasonable person would have to conclude that in that environment, growth cant exactly run away from wage growth in those two cities.

It can happen in other cities and locations where they sit well below 6 or 7 x income.... and that's what we are already seeing in some regionals and hopefully starting to see in Brisbane and flowing on to Adelaide and Perth eventually....