Who's to Blame for Australia's Expensive Property?

what did i just read? i think my eyes are bleeding.

changing demographics of an area are usually related to the - drum roll - changing demographics of an area .... linked to gentrification, normally.

changing demographics of an area are also usually an aging population, linked to typical suburban growth / change stagnation.

changing demographics of an area are also usually linked to the original demographic of an area. If the demographic was originally a poorer one, typically that area will remain poorer until aforementioned gentrification happens. If they were originally immigrant based, they will typically remain an immigrant based demographic until the children and grandchildren grow up and the area becomes "typical aussie" homes. While this may have it's base in pop growth / immigration, it certainly doesn't play a defining role in the processes that occur to CHANGE the demographic - in fact, it's the complete opposite.

where did you get the idea that a changing demographic relates solely to pop growth?

 

Ok .... so when Tasmania's population was declining in the early 2000' s , I was told that it was stupid to invest in Tasmania for that reason .

I assume the subsequent more than doubling of value of the units I bought was really just a figment of my bank balances imagination ....

To put everything down to population growth is just too simplistically.

Changing demographics aren't just related to population growth , they are also related to the aspiration and expectations of each generation . I wanted a place with a bit of land , quiet place in the suburbs . My kids think it's boring and want to be where it's at . They'll probably buy somewhere a lot closer to the city . I rented there for a while when I was younger but didn't want to buy there .

If they were in Melbourne or Brisbane they might be buying one of those units that are being built in oversupply

Cliff

 

The images in this post aren't showing.

What is the total paid over a 30 year term using your figures?

 

It’s the chicken and the egg. Why do you think gentrification happens!? Population growth is usually behind it otherwise there is no need for Governments, developers and businesses to start upgrading or building new infrastructure and communities. If population growth stopped the building industry would collapse. It simply doesn’t make any sense to gentrify an area unless there will be demand for living there. People want to be located close to their work, entertainment, ameneties etc. and these are usually located in capital city CBDs.

You can analyse any capital city in Australia and the results will come back similar that suburbs located closer to the CBD will generally always be worth more than outer suburbs (exclusions are mainly due to hill and beach locations). Yet what is classified as an ‘outer suburb’ gets further and further away as the population grows. I’ve lived in both Adelaide and Sydney. Anything more than 20km away from the CBD is considered a long way in Adelaide. In Sydney if you live 20km away from the CBD that’s considered close and ‘far’ is considered more like 40-50km. Therefore, people in Sydney are happy to pay a premium price for living 20km from the city while Adelaide people are not (yet).

Take Hurstville for example. It’s a suburb in Sydney that used to be dominated by anglo housing commission ‘bogans’. It wasn’t a desirable place to live and it used to be considered ‘far’ (when the population lower). Lo and behold population growth occurs and more suburbs are built. Suddenly people place a premium upon their time because they don’t want to have the opportunity cost of spending hours each day travelling. Now they look at the potential of Hurstville and think ‘gee this place isn’t so bad’ and they move in. This happens across the board on a microeconomic level and eventually Hurstville becomes a good place to live. The local State Governments realise there is a premium price to be paid for the land so they sell it and use the proceeds to relocate the existing Hurstville tenants out to Macquarie Fields or somewhere else further from the CBD. Rinse and repeat this is what happens across all capital cities of Australia.

 

Agreed!
There is certainly a lot more to property prices than just population growth alone otherwise densely populated countries would all have the highest property prices. Property comes down to economic fundamentals (until booms when numbers all go out the window). I just bought up population growth because that is a factor that seems to always get overlooked by most mainstream sources. E.g watch the news and them talking about affordability. They’ll blame investors, negative gearing, foreign buyers, Governments for not building more public housing, Governments for not releasing land but they’ll never look at the underlying reason for all that supply, which arguably comes down to demographics of which population growth is a major part.

 

but that doesn't explain why a group of people move into an area like St Kilda, Subiaco, Adelaide (suburb) etc - immigration doesn't change those demographics.

suburban sprawl as a result of immigration doesn't necessarily equal a demographic change - just more of the same suburbs.

 

I guess there is a limit to how far people are willing to live when it comes to suburban sprawl and what type of living conditions they are used to. Even the inner city areas that are now worth lots of money and have been ‘gentrified’ generally still carry a stigma against them. Perhaps ethnic groups that come to Australia aren’t really aware of the stigma or simply don’t care. They see the market value in the area. E.g there is a pocket of suburbs in inner north Adelaide that most Australians would avoid at all costs. However, new arrivals from the Middle East and the sub-continent love it because it’s close to the city. They start opening businesses and takeaway shops in the area and suddenly the area seems nice and their friends want to live there etc. Subsequently, the price of the area quickly doubles in a short space of time and the original dominant demographic now don’t feel as though they fit in the area as much so they move away. That or the Housing Trust forces them to move.

 

blame the damn humans!

 

you're kind of arguing my point with me.

my whole point re Adelaide, St Kilda, Subiaco - all used to have a stigma and now are popular - and the reality is, not much has changed about them except the people and the shop types.

is that driven by immigration? i can't see it - but i do understand your point about stigma/value etc.

must remember, as well, aussies aren't "pioneers" like that anymore - as a group, aussies need to see someone else enjoying something first before declaring they knew about it all along.

 

Hi BB,

I can't see the total over the 25 year term I used (the default). Here's the link to the site:

Infochoice

But I'd presume that the lower monthly over the same calculated duration (25 years) would mean the 2014 number is still cheaper...

Cheers,
Michael

PS Just went back to that post myself and I can still see the images. Is anyone else having problems? They're loaded to the media library here at PropertyChat.

 

Site doesn't really help without knowing what your inputs were and how you used them. Mine are detailed on the last page.

When I try to get to the images directly, I get: "You do not have permission to view media within this album."

Perhaps you have to make them public? Or maybe a site bug identified...

 

MichaelW, you most likely have your media set to owner only so only you can see it. You need to change the permissions on your images to allow everyone to see them.

 

Thanks, fixed. Should be visible now?...

 

Yep, so you are right if someone paid the bare minimum repayments on their mortgage then would work out quite similar. My calcs were based on a repayment amount higher than the minimum.

In an interest rate environment of 11% we can expect inflation will be higher, reducing the real value of the debt faster, higher wage increases, meaning they will be in a better position to pay it down faster (look at wage growth currently, very low). Takes a shorter amount of time to save the deposit in the 1992 scenario. All around much more affordable if you take the holistic approach that I mentioned.

 

Yep, and you were arguing that affordability was worse...

All good mate.

Cheers,
Michael

 

My view hasn't changed. The affordability is better in the 1992 scenario.

If in your mind it makes sense that you'd calculate a loan repayment rate of the minimum allowed over a 25 year term, ignore the 2 year head start that the 1992 buyer will have, ignore the higher inflation and wage growth environment that comes with the 1992 purchase, make an assumption that rates will not rise above the 5.5% interest rate used from 2014, all to make the argument that the 2014 purchase is more affordable, then so be it. I beg to differ

& to be honest the purchase price of $350k vs $550k is VERY generous. I've seen properties in some Adelaide suburbs double or triple since 2000 (same property, no major renovations), let alone 1992.

 

All good mate, I think we'll need to just beg to differ.

I also think salary inflation is understated. In 1992 I was earning $25K pa, today I earn $350K pa. I think that works out around 13% pa and not the anemic 2 or 3% I keep hearing bandied about. Sure, I changed jobs so that all plays into it, but that's sort of the point. Its predominately the higher socio-economic demographics that purchase houses, not the lower ones. So, using the income inflation for the "median" wage misses the point. You should look at the income inflation for the upper socio-economic demographics and correlate this with servicability.

Its not a simple equation, there's far too many variables not considered like the little one I called out above.

In short, affordability for those who actually buy houses, hasn't changed much and has likely improved. If you want lower socio-economic demographics to be able to afford houses, don't try and fiddle with house prices via demand/supply interventions, address the income inequality and ever increasing gap between the demographics. THAT, right there is why housing affordability is now perceived to be an issue and FHOB's are crying poor. They're typically the fresh out of Uni Gen-Ys on their first salary. That was me in 1992 (yes I'm that old). But I couldn't afford an average house in 1992 so bought a crappy unit in Carramar in Western Sydney. Fast forward to 2015 and I earn $350K pa and my wife earns another $100K pa. Our gross household income jumps from $25K (1992) to $450K (2015) and, yes, suddenly we can afford to buy an average house. More to the point, we can afford a pretty jolly good house, even in Sydney!

For me, one of the actual house buyers in the market, affordability is SIGNIFICANTLY improved since 1992... And, I guarantee that if you take that fresh out of Uni law grad Gen-Y wannabe FHOB and fast forward 22 years, they too will suddenly see affordability is not such a big deal. Its just they're not yet in the right buying demographic. It takes time to climb the social demographics ladder... Using median incomes where the top end is stretching away from the median distorts the affordability picture. You need to use the median income of THOSE ACTUALLY BUYING HOUSES to see what's happening with affordability.

Which sort of takes me full circle back to my original post. Property is eminently affordable. If it wasn't you wouldn't have 80% clearance rates week after week transacting sales at record volumes. By simple observation, housing is affordable or else it wouldn't be selling. Just don't ask which demographics or nationalities are buying properties or that will open up a whole different can of worms.

Not my best post but you get the point. Its not median salaries in Australia over median house prices that determines affordability. Its a whole lot more complex than that...

Its late, I'm going home to that gorgeous wife of mine. We just got our Occupation Certificate on our new home build in Bardon QLD and have a bottle of Boli' waiting. We haven't even toasted it and are already considering our next property purchase. I'm meeting @See Change on the weekend to talk all things Brisbane property...

Cheers,
Michael

 

Glad we can agree on that, this pretty much sums up what I was saying in the article I wrote in the original post

I see affordability as a scale, not a single line in the sand where an asset goes from being affordable to unaffordable.

It's true that if someone is paying the price then it's being 'afforded' in the sense that they have the capacity to pay the asking price (or have the bank pay it for them while they service the loan), but I don't see that as an indication of affordability in the way that I described it earlier (doing so without significant risk &/or disadvantage to oneself).

Transactions occur at the top of every major bubble in history (that's what makes the market), by your reasoning those who bought at the top of the US housing bubble using subprime loans were able to afford the purchase. History tells us that wasn't the case for many of them.

 

@Rolf Latham, that would contribute to how high prices are relative to other countries, but you could halve wages, halve prices and we'd still have a high price to income ratio