Complain or Conquer, is housing affordability really the issue?

Discussion in 'Property Market Economics' started by albanga, 10th May, 2016.

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  1. SirDingo

    SirDingo Well-Known Member

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    Obviously the education system needs improving as it appears that you are having difficulty with either reading or comprehension, or possibly both. I clearly stated: "a somewhat free country with comparative freedom".

    Not too difficult for most logical thinking individuals to understand.

    Once again, you are wrong. I clearly stated: "That's fine with me ... people can choose to live however they like. That is their prerogative, their choice".

    Hardly what any reasonable thinking person would describe as a "complaint".

    But congratulations! You have once again chosen to hijack yet another forum thread to go completely off topic. Methinks it would benefit all forum users if you would stick to the subject at hand by imparting your ever-so-valuable insight into housing affordability, rather than continually searching for opportunities to make not-so-passive-aggressive commentaries on other members' viewpoints.
     
    Last edited: 10th May, 2016
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  2. Natedog

    Natedog Well-Known Member

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    I can be pretty sure none of us debating "stuff" on the Internet are living in a tin shed with no fresh water or guarantee of our next meal. Some people just need to accept that we have it pretty damn good living in this little place we call Oz.
     
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  3. Francesco

    Francesco Well-Known Member

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    Some perspectives on whinging...

    Many well known forumers who have some success on IP ladder, have by and large not taken that approach. You may notice that. Perhaps, they saw the 'glass half empty' and helped themselves with effort, some mistakes, learning from the forum, persistence, and a dose of sometimes dismissively called 'good luck', they attained financial success. IMO, NG helped especially in the early stage of trying to break through for a sizeable portfolio, but it is not the only enabling factor.

    Being in the 'lucky country', helps heaps: 24m people in a country-continent that is resource-rich luck. For comparison, 24m people in Shanghai gets buckleys of luck and gets only to 'exploit' much less. This situation is not lost on migrants to this lucky country - they see more of 'glass half full' opportunities and help themselves to it, than whinging. One of these 'glass half full' opportunities is NG.

    NG is an enabler for those without financial independence to cross over to financial independence. It is a multiplier for those who help themselves and particularly for those who start from the lower social demographics. Pulling those who want to climb up the ladder of financial independence by pulling away the rung of NG is short sighted. Taking away NG has consequences: less will get financial independence means more will need Aged Pension, rent will rise because of less rental properties, etc. For one, it may reduce your opportunity to be financially independent, assuming that is a worthy priority.

    If FHBs think there are too many investors in the market there are ways of reducing them without taking away NG. For example, APRA can instruct lenders to maintain an acceptable range of lending to OOs and PIs. APRA has done this tentatively with lenders with immediate results. Do this first. I think this is a better approach. And when investor numbers are noticeably lower in the market and cause for a whinge... revisit.
     
    Last edited: 11th May, 2016
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  4. emza

    emza Well-Known Member

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    It's really weird when people can't see fundamental differences between one situation and another and then label efforts to fix problems as complaining (and then profess some sort of confusion, as though they truly don't understand what the problems are).

    The median house used to cost 2-3 x the median income. Now it's 8-10 x the median income or more. I'd assume that most investors on this forum can do basic maths and so would understand there has been a whopping increase in real prices there.

    That change, the leap in percentage of income required to buy a house, has effects that spread out into the economy.

    As I wrote before - if you have a job then your business has customers and those customers need money to spend. The higher their mortgages, the less they have to spend and you are directly at risk of losing your job.

    People on this forum tell their struggle and strive stories all the time and they precisely demonstrate this mechanism in action. They talk about how they cut back everything to the bone so they could save their deposit. They bought their house and then had the same old car for a decade and struggled and saved so they could get ahead.

    This action takes money out of the economy. If all the customers of a coffee shop decide to save for a large deposit and cut their coffee spending by 50%, then that coffee shop's revenues will drop by 50%.

    All spending is income.

    This mechanism is the paradox of thrift. What is individually good (saving money) can be bad on the macro scale (reduction of demand results in unemployment and recession).

    The "thrift" that Australia is experiencing is driven by housing prices. People are taking our gigantic mortgages that are multiples higher than ever before. This takes hundreds of thousands of dollars for each mortgage out of the economy and reduces demand on all levels.

    If you have a job and you're on your investment journey, the expansion of mortgages should worry you. Your income is totally dependent on the spending of others. And that spending is severely reduced because housing has gone from 2-3 the median income to 8-10 or more.

    There are plenty of other issues with housing affordability that aren't complaining... the billions the taxpayers are giving to the wealthy via NG and the CGT discount. This is an incredibly harmful use of this money and people dare to say it's just complaining to want to change it? You have the choice of giving billions to education or healthcare or to the top 10% of the wealthiest Australians and you'd seriously choose the rich over a hospital or a school?

    It's fine to have a position but it's not okay to be completely ignorant of opposing sides. If you're a Creationist, you should be able to at least list the opposite positions to yours in an unemotional way. If you support vaccination, you should still be able to describe what and why anti-vaxxers believe, even if you utterly disagree with it.

    If you're a property investor, you should be able to articulate and understand why so many people oppose NG/CGT discount, have serious issues with housing affordability and why one of the largest political parties is going to an election with fundamental changes to housing.

    To profess confusion or label it as complaining puts you at an incredible disadvantage. By shutting off those other viewpoints you will find the market and society move on without you and suddenly you're caught in a very bad position. People who think housing only goes up and cut off all opposing ideas are the ones who lose it all when something does change.
     
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  5. bob shovel

    bob shovel Well-Known Member

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    Agree. When you do the numbers most families probably aren't that far ahead by both patents working rather than one parent looking after the kids. there's probably only a couple hundred dollars extra pr week which is the carrot the government wants out there to get both parents back to work
     
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  6. Plutus

    Plutus Well-Known Member

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    Aren't you talking about 8-10x average wage? if not what is 8-10x?
     
  7. albanga

    albanga Well-Known Member

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    I have to say the whole 8-10X versus the 2-3X times is just a seriously flawed argument that completely ignores any kind of human advancement of the past 30 years.

    In the simplest form it is a very easy comment to make:
    Median mortgage / Median Income = Xtimes

    But by far the biggest issue here is that this price is drastically inflated by (using Melbourne as the example) inner city and Eastern suburbs BUT come on are these the suburbs we actually care about when discussing house affordability???

    Let's turn our attention to the West now and not far West, let's focus on say Sydenham where the Median house price is 437k (CURRENT) with a median household income of $1419 (2011 CENSUS).
    That same simple calculation has us down to 5.92X.
    Now lets add on a conservative 2% inflation to median household income over that time and it increases to $1566 per week. Using our same simple calculation we are now down to 5.3%.
    Yes an increase no doubt on 2-3X but a far cry from 8-10X being thrown around everywhere.

    So the next argument no doubt becomes well that same thing was relevant in the 80's but it totally disregards the fact that Sydenham (Just 1 of 10,000's of suburb examples) didn't even exist in the 80's. The choice of suburbs and how they were serviced surely cannot be used as a comparison anymore, can it?

    Sydenham has every single amenity any person or family could want. Schools, hospitals, proximity to CBD, shopping, restaurants, public transport.etc.

    This and then coming back to one of the main reasons for my topic was that there is far less a requirement now for people to need to travel great distances to work. How many people can now comfortably work from home, how many people have work life balance where they can have a home office? How many people have internet businesses? What is the need to be so close to the CBD anymore?

    I think this argument totally ignores all these basic principles. We have developed so far from the 80's giving people so many opportunities but AGAIN it comes back to some people will take this opportunity whilst others will continue to complain because there is a housing affordability issue where they want to live 5km's from the CBD!

    And just a side note if someone in this position, took the opportunity even 12 months ago, Sydenham median house price increased by 9.11%! This means the median house price for Sydenham 12 months ago was 397k. If I deduct simple inflation of 2% by 12 months from my median income calculation we are at $1534, calculation again is now only 4.9%X.

    So maybe instead of complaining about 8-10X property prices and NG and CGT 12 months ago being the case for not being able to sit in Brunswick sipping a soy latte they instead saw an opportunity in Sydenham and purchased. They would now be sitting on some beautiful equity, purchasing at 4.9%X AND how effected would there life be? I would argue very very little! Sydnehm cafes can still do a soy latte.
     
  8. D.T.

    D.T. Specialist Property Manager Business Member

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    You need to read what the person I was replying to said in order to understand the conversation.

    They suggested that property price is currently 8-10x salary and property price should be 2-3x salary. This would mean that property prices would be about a quarter or a third of what they are now. Eg $50K in adelaide in some suburbs, I'd buy them. Who wouldn't?
     
  9. Guest

    Guest Guest

    I see what you are saying @D.T. but the Adelaide price to income ratio is probably more like 6-7x, still well more than double historical price ratios.

    If Australian property dropped in half or worse (an unlikely scenario in my view) most investors claiming they would 'snap everything up' would be in no position to with their existing portfolios deep underwater (mortgages higher than value of the property).
     
  10. Plutus

    Plutus Well-Known Member

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    I did, and you were talking about wages... hence my confusion when you said you weren't. You're then wrong by saying 2-3x average salary is $50k. I believe you're basing that off Adelaide, where housing isn't 8-10x salary anyway.

    Either way 2-3x is never going to happen, 6-7x is more reasonable and within the realm of possibility.
     
  11. Redom

    Redom Mortgage Broker Business Plus Member

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    I can appreciate the frustration - particularly during election time where there's some level of class warfare debates in our faces everyday.

    The answer to affordability type questions would be different depending on where you live. As a numbers person, i can definitely sympathise with Sydney-siders. I don't think its complaining or whinging, i think its quite reasonable for some.

    Scenario & Numbers:

    Take a young gun couple high flying couple with two little children in their early thirties, say earning salary packages of $120k p.a. each. Assume they've saved up their deposit etc, with good savings behaviour. This would put them near the top say 20% of house hold incomes in Australia.

    These people have worked incredibly hard, went to the best schools/uni's, are amongst the best educated people in the country and working hard. This attitude is one of success in their respective fields. These are not people who are entirely 'entitled', 'complainers' etc, nor do they exhibit the typical 'pity' me attitudes. I definitely empathise with this segment.

    Lets assume they want a house for their kids and dog to run around in, and for another future child/grand parents, etc.

    Of there 120k packages, they see 70k p.a. each. Thats about 11.5k p/m net.

    Lets account a whopping 35% of their salaries to mortgage repayments (about 4k) (This % typically defined as mortgage stress levels internationally). Given their education level and general intelligence, this prudent couple make a few sensible financial decisions and include an interest rate sensitivity to their calculations (5.5% rate) and go P/I on their loan.

    Now, working backwards, this gives them a home loan of around 700k. This is a purchase price of around 800k for a 4 bedder house. Quite a large owner occupier debt, but serviceable on their incomes.

    They work very hard, have busy lives and are switched on to their careers and families. So they want to live 15 minutes out from their city workplaces, so they get to spend some time with their kids, etc.

    Now, this is where it gets interesting, in Sydney, there is a very very limited amount of supply within a 15 minute region that you'd be able to purchase anything near a 800k home for. Lets go 30 minutes, and you may well be struggling. It could be 45 minutes each way journeys for this young flyer couple.

    Then comes the usual conversation about what they need to trade off - time with the kids, a smaller house, no backyard and no dog, etc...

    Now imagine the people that haven't done very well in their careers and are on lower incomes that work in the city - they live out very far and have 90 minute commutes!

    Maybe people genuinely believe this couple are complainers and suffer from entitled mentality. But i can certainly empathise with their frustrations.

    This is the decision that many many young Sydney siders face and come to.

    Not everyone is as crafty with wealth creation as PC'ers are, plenty are quite unaware and uneducated about it (even the really intelligent folk!).
     
  12. bobbyj

    bobbyj Well-Known Member

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    Complain and conquer?
    That way you get the best of both worlds. Whinge at the water cooler about how expensive the market is whilst reflecting on your capital gains over your IPs.
     
  13. chylld

    chylld Well-Known Member

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    At 80 LVR (because they're responsible, and have saved up the required deposit +costs) this gets an 875k property.

    Also, they do not NEED a 4-bedroom house. They would do just fine in a 3-bedroom apartment. WRT Sydney, there are currently 9 such properties for sale on the lower north shore, let alone other areas close to the city.

    Perhaps because I grew up in Sydney, I think that a detached house is a luxury, and an apartment is more than adequate. It is like complaining that cars are too expensive since a Bentley is out of your reach, even though a Commodore perfectly fits your needs.
     
  14. wylie

    wylie Moderator Staff Member

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    My thoughts too.
     
  15. bobbyj

    bobbyj Well-Known Member

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    Is it just me or have others come to the conclusion that perhaps the Australian dream of owning a home may not necessarily transcend onto the next generation?

    I think tough luck to those who can't afford it and good work to those who sacrifice, have some forethought and planning to secure and hold onto one. Nothing was meant to be fair in this world and yes, perhaps our parents generation had it better and were luckier. Doesn't mean we deserve the right to cheap property and an easy path.

    All this talk about how it's unfair and how expensive homes have become reeks of entitlement.

    Property investors take the risk, the sacrifice and some have lost money. It's far easier to criticise from the sideline whilst doing nothing and taking no risk or putting in effort. Those people can continue to pay me rent.
     
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  16. EN710

    EN710 Well-Known Member

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    I don't call them entitled but their expectation and reality is not matching up.

    It is reasonable to want high paying job, low travel time, plenty of free time, etc. It is usually not realistic to have all of them all at the same time.

    They can change their career
    They can do something to improve their marketability
    They can find new place to work
    They can find new city
    It is not going to be easy but they are all doable.
     
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  17. wogitalia

    wogitalia Well-Known Member

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    You could stop the wife working and knock 30k a year off the husband and they'd still be in the top 20% of households in Australia...

    That family you described is pretty damn close to being a 1%er... which just highlights the absurdity of it all that they can't actually reasonably afford a median house.
     
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  18. chylld

    chylld Well-Known Member

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    Almost as absurd as the ongoing mentality that people need and/or are entitled to a house.
     
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  19. emza

    emza Well-Known Member

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    Lol, the position that the current state is right and just and the only way it can be.
     
  20. emza

    emza Well-Known Member

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    Housing is a human right.