Housing Affordability Australia wide

20% deposit is lax lending standards? Pointing our hypocrisy is not personal mate. You're the one making the argument that standards are lax but then making the argument borrowing is impossible for this Tasmanian person because standards are too hard. Which is it?

 

Standards are too lax.

I'm not saying borrowing is hard for the Tasmanian because standards are too hard. I'm pointing out the article calculations are flat-out wrong and don't take into account the time required to save up a deposit.

In a rational market that wasn't distorted by speculators, negative gearing, cut down CGT and so on, this Tasmanian wouldn't be saving for all those years. Their house wouldn't cost $347K. If the median income was $50K the median house would be $150-200K. A 20% deposit would be $30-40K. On the calculations used, they'd save their deposit in under two years. They also wouldn't be in stupid debt so if their life circumstances changed they'd be okay.

 

It's a flawed article.
"While the median house price can vary significantly between suburbs, the calculations are based on a single person who has no dependants and puts down a 20% deposit on a 25-year home loan at an interest rate of 5%. The calculations are also based on having annual expenses of $17,907 and all other after tax income is allocated to making loan repayments".

Take the Adelaide one for example. The author says that a person could afford to buy a $430,000 home on a $57,100 salary. Add in stamp duty/buying costs, which are roughly 5% of the purchase price so the price comes up to $451,500. The purchaser would need a $90,300 deposit to achieve the 20% deposit so they'll have a morgage of $361,200. Good luck walking up to a bank and trying to borrow 361k on a 57k salary...

 

The state of the property market at any point in time "is what it is" so either you buy....or don't buy, there is always a choice to own or not to own. No matter how hard it is to buy doesn't stop those that want to do it from achieving it.

 

Who says it doesn't stop. I want to buy, but not in these crazy market circumstances.

 

And that is entirely your choice to make that decision.

Its not the market that's stopping you, it's your decision making...it's EVEYONES decision making that creates "the market".

I think people forget that they are actually playing a part in "the market" whether they decide to purchase or choose not to.

Whether you rent or you are in a PPOR.... you are playing a part in it.

 

Not always. When I'm overseas I'm not part of it.

 

But you said yourself that you "want to buy", that makes you part of the underlying demand side of the equation

 

Yes I want to buy, but at sustainable prices. Underlying demand can be underlying forever.

 

There is no "sustainable" price.

There is just "price" at a point in time.

Underlying demand forever isn't really an option.

As there will always be individuals that will buy property, with a fast growing population like Oz, there will "always" be people who choose to buy and can afford to buy.

 

Yeah, there's a lot of things about regional living to dislike; I know because I've lived most of my life in metro areas but also I've dabbled in living in the country in my younger years in an attempt to advance my career. You would never get me out of a big city now.

It's also not a good investment according to the latest RP Data/Core Logic report, most of the areas where there was a high proportion of owners selling at a loss were regions (regional QLD was especially bad for some reason, Mackay over 40% of sales were at a loss).

 

It seems really strange to me that the median house in Sydney (for example) might be $3 million in 20 years time - if wages growth is completely flat then who is going to be able to afford to buy those houses? People with 60-year or inter-generational mortgages?

 

Well, not a lot of people are buying in Perth now. And if the prices will not fall for at least 30% I'm not buying there either. There are always some badly informed individuals who can buy at anytime. But in my case, if prices here will not be sustainable in another 2-3 years, I'll just invest overseas again, as I did before.

 

Well that's where the mathematics of it break down. You can't have prices going up by 10% a year and wages flat. Impossible entirely.

And all those investors with I/O loans - their asset can only inflate with credit expansion. There needs to be a buyer waiting with $800K to hand over. And then next year its $880K.

To even achieve a flat 5% growth year on year requires an ever-increasing debt load which in the end is impossible.

 

Quite crazy but the Dundas Valley house my parents sold late 1996 for 170k just sold at the end of July this year at 1.32mill. That's ~12% growth rate every year. Unbelievable stuff, but it's true. I guess land supply in Sydney really is that constrained and is so valuable. All the new developments are either higher density in existing areas or are much further out. As long as the credit is flowing, institutions are lending, people are buying. It's very hard for the first home buyer to stump up that kind of money for Dundas Valley which used to be first home buyer areas (even say 7 years ago people used to turn up their nose at it to a degree) when they also have to pay crazy amounts of stamp duty so obviously buying elsewhere or buying a unit tends to be the entry point these days.

When my parents bought Dundas Valley (early 1970's, very much a housing commission type area) they were on a tight budget and it was the best option out of a bunch of options they had at the time in their price range. It was even negotiated down to the very last dollar.

Also I heard that in Hong Kong, prices have quadrupled since 2003. People paying millions for shoebox sized apartments. All supply and demand, I guess that money is coming from China.

 

Wow, that's an epic price increase!

My parents did the same - sold right before the inflation. Country town $55K sale price in 1997. Currently $300K at last sale. Mental.

 

Long term property owners would be delighted but from a nation interest level surely that can't be good for the city and the existing residents?

 

Problem is, even long term property holders would be looking to buy a more spacious place in HK but are totally priced out due to all the competition. So if they want to upgrade a property there it's very tough. Much better value outside of HK but if HK is your home, what can you do.....
I have an aunty living there and their living room is roughly the size of say 2.3 metres by about 1.8 metres. Enough for a sofa and a coffee table....

 

Has the Government done anything or is it just business as usual?

On an affordability related level there have been some recent discussions regarding Australian housing affordability. However, the plan has nothing to do with making prices cheaper it's all about finding ways to get people into the market, such as letting first home buyers negatively gear their property. Here's some transcript that I found from another site:

Mr COLEMAN: One other observation: Credit Suisse, the investment bank, put out a report last year, which was the most recent in a number of these reports, which said that Australia has the highest median household wealth in the world. The 50th percentile, the middle household, has the highest household wealth in the world—and the majority of that wealth is held in housing. Does that suggest that, as legislators, we should be reluctant to tinker too much with the system? Given that we are in fact the wealthiest nation in terms of household assets in the world, and most of those assets are in housing, it suggests that we should be cautious before we change the system too much.

Mr Harnisch : There are many views on this. I take the positive view. I appreciate there are those that take the pejorative view on this. As I said earlier, Australia has been, if you want to use the words, the lucky country. We are a first world country. We enjoy great economic conditions. One of those is our level of wages and conditions that has led the community to be able to enjoy a high standard of housing, and I think that should be celebrated. Therefore, the fact that Australia has a high level of investment, or the community has a high level of home ownership, shows the positive side of being a first world economy. It shows that people value home ownership and that it plays an important role in their life and wellbeing. Master Builders is unashamedly pro that market situation and pro making sure that the economy remains strong so that our future generations can also benefit from homeownership.

Mr COLEMAN: Thank you.

CHAIR: So it is important to have a stable housing market and sustainable growth?

Mr Harnisch : Certainly. We are strong on that as well. What we do not want is this speculation going on, or price fluctuation, if I could put it that way. It is not good for the industry, and I think, generally, for the economy it has some downsides. Obviously there are some upsides for those who might benefit from price inflation from time to time, but as a general proposition a sustained and more stable house price trajectory is obviously what the policy objective needs to be.

CHAIR: I think that is the interest of this committee too, because there are concerns. In one area APRA has asked the banks to reduce lending to investors. That was for prudential reasons for the banks, but a collateral benefit is also providing some protection for homebuyers and for investors against themselves. Some might think that this has come a little bit after the rapid increase. But it would appear that, in effect, the tax system is being played with here to achieve a cooling down of the market—that is, if you can only borrow 80 per cent of the value of a property, you can only deduct 80 per cent of the value of that property. Would you agree with that?

Mr Harnisch : It is something worth looking at.

CHAIR: But would you agree that if you have a million dollar property and you borrowed $800,000 you can only deduct the interest on the $800,000?

Mr Harnisch : Master Builders' policy is for responsible practices in line with our view that we need to have a sustainable market. If there are gaps where that stability is threatened by irresponsible behaviours, then the 80 per cent rule is something that could be considered. But in the end the 80 per cent rule also needs to be considered in the broader context in terms of the financial position and risk appetite of the investors. Yes, I can understand the proposition would work for an uninformed investor who comes in late in the market and is seeking to take advantage of any speculation at the peak of the market. But, in the end, the contention is that you cannot protect the uninformed and reckless investor.

CHAIR: But at the same time I think you agree that this was in fact a measure that would be protecting that latecomer and that slightly reckless investor.

Mr Harnisch : It depends on the where you sit in your philosophy on the market. One argument would be that people are entitled to make a mistake. And people do it daily. Look at the stock market. People buy and sell at the wrong time. Are we going to reintroduce legislation that prevents investors from buying shares at the top of their price and stop selling them at the wrong time?

CHAIR: Following on from what Mr Coleman said, given that we have a great deal invested in real estate—that is how we express our wealth—we should be mindful of the possibility of severe movements. In the same way as we might not have a threat of invasion, but we still have an army, a navy and an air force and spend a heap of money there, it would appear prudent that these things should be considered. It does not even matter if they are quite remote. Measures should be taken to maintain stability in what is our greatest expression of wealth.

Mr Harnisch : As a general proposition I would agree. But at the same time, if I could go to another asset class, the share market, I cannot see how governments can intervene through all sorts of regulations to stop investors making decisions that are to their detriment.

CHAIR: On the share markets you can buy a whole lot of BHP shares and there are still plenty for other people to buy, but if you have investors buying up all the houses then you have no homebuyers being able to buy. If they are buying up to speculate and you have more and more properties held in fewer and fewer hands, when interest rates turn, they will need to dump. You will have a greater impact than if more properties were spread across a lot more and more people's hands as their homes. They are not going to sell just because the price goes down.

Mr Harnisch : In a sense you are coming back to where we are coming from—

CHAIR: I think we are in violent agreement!

Mr Harnisch : I think so! The issue here is those who are currently locked out of the market. It is because of the supply impediments. If we can get rid of the supply impediments, housing will become more affordable. Therefore, they will not be locked out of the market, as you have been saying.

CHAIR: One thought that we have explored is that, when interest rates do go up and prices might be coming off, could negative gearing—and you are in favour of negative gearing—be used as a dynamic tool that could be offered to a home buyer to be able to introduce some warmth into the market when it is cooling down and allow a renter to have enough of a deduction to make a mortgage payment less than their after-tax rental payment, as a stabiliser?

*Bold parts were already highlighted from the source I copy and pasted from.

 

Do you honestly think I would advocate buying into or moving to somewhere like that at the moment?
I was taking for granted that readers would consider regional areas that don't collapse as soon as the mines slow down. There are plenty of agricultural, educational, health care and transport hubs to be considered. Some areas have all of these. Still, gurus aren't spruiking regional atm so it would have to be a move that would suit someone's plans (or lack of plans). I stand by my assertion that some regional areas are a great place to work hard and save well. I leave it up to you to work out where those places are.