CPI Falls For First Time Since 2008

i don't think property can go up more than inflation in the long run.

 

Spot on @turk

Prices can still rise during a recession.

 

Though that doesn't mean people are better off on a per capita basis because of population growth. Ie population growth boost GDP, but it's like a company hiring 5 new people and saying wages have gone up (while everyone is still paid the same).

 

It has since the 1950's.

 

But that's not really long term. Also this period covers one-off factors such as more women in the workforce.
Of course it can go up higher than inflation in the short term, but this can cause problems, recall the recent GFC for instance.

 

I'm not sure what your point is with the graph as you haven't offered any comments. It doesn't disprove my point that the effect of population growth in boosting GDP does not make us better off on an individual basis (sometimes it is called ponzi growth). This is why per capita GDP growth is a lot lower than our headline GDP growth for recent years:

Australia's economy is slowing: what you need to know

"Griffith University Professor Tony Makin answers:

Australia has performed relatively well compared to other OECD economies over recent decades, though did actually experience a recession during the GFC according to income and production measures of GDP.

Taking population growth into account, Australia’s economic performance since the global financial crisis has been worse than the raw GDP numbers show. On a per capita basis, national income has grown on average below one per cent per annum, less than half the almost two and a half per cent per head per annum average rate in the decade before the GFC".

 

I think there is some merit to what you are saying, there is a limit to how high median prices can get ahead of wage growth. But that is not what drives capital gains over the long term.

As little as 50 years ago a house 10 ks out of Sydney was the first home buyer mortgage belt today it is million plus blue chip with a totally different buyer demographic. The demand for properies in these areas have risen exponentially in line with population growth.

Of course property prices can outstrip inflation, what is at one point a cheap entry level location for first home buyers or investors becomes tomorrow's sought after prestige area for a more cashed up group.

 

What did people invest in before housing? i.e. before the 1950s

Continuing increases in housing prices will depend on policy, which fortunately ends up being a globally co-ordinated effort. I think watching what the rest of the world does will be a good indicator for what Australia decides on.

 

Money in a savings account goes up more than inflation as well...does that mean savings accounts are untenable in the future as well?

That's what modern economies are all based upon. The only OECD country that isn't running an economy based on population growth is Japan and they've been struggling with a range of economic issues since the early 90's. I agree with you though. When you actually look behind the GDP figures growth isn't that impressive.

The Australian Government loves to talk about how Australia has gone 25+ years without a recession. Yet what rarely gets mentioned is that Australia has increased it's annual migration intake to 200k a year when the long term historical average was only 70k. GDP increases because migrants need to pay for a house/rental accommodation, schools, food and utilities. GPD raises even though standards of living can remain flat or even deteriorate e.g. lack of infrastructure to cope with population. Jobs also become more competitive especially for the young who lack experience and the 'low-skilled' who find their conditions get cut because there are people out there willing to supply their labour for less.

Even if we do argue about the merits of population growth the reality is that both major political parties in Australia are pro-migration and have a desire for a 'big Australia'. Unless current policy is changed that will lead to land becoming more scarce in Australia's capital cities, which will lead to higher house prices.Nobody has a crystal ball though so who knows what policies will get implemented. Labor jawboned about capital gains tax and negative gearing, but until home ownership levels plunge and people other than Gen Y are complaining of housing affordability I can't see much changing to actually make houses affordable because 69% of Australians still own homes so neither party wants to damage that much of the electorate.

 

They didn't.. they were struggling to keep a job to afford to eat, and there were World Wars and Depressions going on.

The very concept of having spare money to "invest" would have been a strange one to all but the very small minority. Even for the more fortunate, often it was just put into a savings account.

 

You mention the OECD, but Australia's population growth is triple of the OECD average. If you look at Japan on a per capita basis rather than the headline GDP they are actually doing quite well (ie the lack of growth is an illusion of demograhics). I could also go into all the problems of adopting the population ponzi scheme: it creates an infrastructure deficit, congestion and social problems, and never mind the environment.

Now They Tell Us: The Story Of Japan's 'Lost Decades' Was Just One Big Hoax

"Yet the “lost decades” story is not just a hoax but one of the most absurd and transparent hoaxes ever promoted in the English-language media. You don’t have to take my word for it. Just read William R. Cline in the current issue of The International Economy. Echoing Paul Krugman who made a similar case earlier this year, Cline points out that Japan’s seeming underperformance is an illusion that stems not from economics at all but from demographics. Under the headline “Japanese Optical Illusion: The ‘Lost Decades’ Theory Is A Myth,” Cline records that whereas the U.S. labor force increased by 23 percent between 1991 and 2012, Japan’s labor force increased by a mere 0.6 percent. Thus, adjusted to a per-worker basis, Japan’s output rose respectably. Indeed Japan’s growth was considerably faster than that of Germany, which is the current poster child of economic success. (Japan’s workforce numbers began falling about a decade ago in a development that reflects a long-term policy: in common with China, Japan is morbidly concerned about food security and, even earlier than China, adopted a policy of population reduction. This was kicked off with the Eugenic Protection Act of 1948. Japan moreover backstops its population reduction program with some of the world’s tightest immigration controls.) "

 

A saving acount is not a good comaprision. The interest rate is not subject to the same laws of supply and demand. Also it is not subject to the same barrier to entry:

Who crashed the economy?

"Residential housing has limitations different to shares and other investments. If you brought $1000 Westfield when the listed in 1960, they would be worth in-excess of $109 million. The reason why people can still buy Westfield today, is simply, they buy fewer shares or a smaller portion of the company.
However with housing, if it becomes un-affordable, if prices increase more than inflation or wage growth, then you just can’t buy one brick instead of 100,000 bricks to live in. Houses are not indivisible.
The housing market is a supply and demand market. Many so called real estate experts have a perception that houses can continue to appreciate in value, some even predicting the next boom that will see prices further double over the next decade.
What they are failing to observe is an equilibrium point somewhere where the costs to service the debt on a house brought at exorbitant prices simply outstrip wages. That is, if house prices continue to rise faster than wage growth there will be a point where the house buyer will need to spend 100% of their wages to service the debt. Clearly this is not sustainable, although there are in fact some individuals trying their best in this situation".

 

Scarcity, location, population growth, transportation, infrastructure etc are all drivers of price.

Freestanding houses in desirable suburbs will become less affordable but even units in these areas will follow suit. Hence laws watering down owners' rights in strata buildings allowing developers to buy and redevelop older/smaller blocks where planning controls, density and feasibility permits.

In the longer term well located property will still win out and affordability will be a multi-generational issue.

 

Here you are talking about local factors affecting certain properties, not property collectively. Such facors can make them go up higher than inflation, for sure. It can also work the other way and lead to steep declines eg one industry towns like mining towns, even large parts of cities like Detroit.

 

But isn't that the point, and the game we are all playing here? Arguments about national, inflation adjusted, like-for-like property prices relative to household wages are purely academic.

As investors we are (should) all be looking at individual properties for local drivers that will allow for above inflation levels of returns.

 

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