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Why Australia really IS different

Discussion in 'Property Market Economics' started by keithj, 19th Feb, 2016.

  1. keithj

    keithj Moderator Staff Member

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    Australia is not America, nor Germany, nor Japan.
    • Australia has a popln growing at 1.6%+, the others range between -0.3% and 0.6%
    • Australia is guaranteed to continue it's growth rate for another 25 yrs, others are trying to remain stable or v. slightly +ve
    • Australia houses 40% of it's popln in 2 major cities - others have 5% in their 2 largest cities
    • Australia houses 70% of it's popln in urban areas - others have ~20%
    • Yields in Oz are less than the cost of funds, elsewhere they are (significantly) higher
    • Australia has v. restrictive planning laws, others not necessarily so.
    • Australia hasn't reached economically ideal popln mass yet, the others have.

    Any debate must consider the underlying facts, rather than a policy that was designed for a completely different set of circumstances.

    These differences are significant, and any policy outcomes can be expected to be significantly different.
     
  2. Perthguy

    Perthguy Well-Known Member

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    Also consider the rate of private home ownership. As of 2011, this was 67% in Australia, 64.5% in the USA (2014) and 53.3% in Germany (2012).

    It's interesting that the group that support the removal of negative gearing use Germany as an example with such a low private home ownership rate.
     
  3. Spanna

    Spanna Well-Known Member

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    Good points,
    Interesting to think of the role environment and climate play in this also. I.e. the majority of our landmass is virtually uninhabitable or extremely uncomfortable to live and difficult to survive. However is suitable to Agriculture.
     
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  4. radson

    radson Well-Known Member

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    @Spanna in the 1920s they were a lot more direct with their words:)

    [​IMG]
     
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  5. Omnidragon

    Omnidragon Well-Known Member

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    Can't say I agree with many points. As most here know, I'm a portfolio holder, so certainly not a perma-bear. That said, at this point in the market cycle, I'd rather have lower LVRs and take a wait and see approach. On each of your points, here's my thoughts

    • Australia has a popln growing at 1.6%+, the others range between -0.3% and 0.6%
    Population growth is driven by migration. Natural birth rates are actually declining. Migration occurs because there is:

    a) "better opportunities" than third world countries;
    b) Aus is perceived as a safe, lifestyle country for 'developed' third world countries eg (China)

    These perceptions can change very easily, eg with increased racial tension, recession etc.

    Lastly, Africa has 3%+ population growth. I haven't looked at Congo house prices but I'm guessing they don't rise very quickly.
    • Australia is guaranteed to continue it's growth rate for another 25 yrs, others are trying to remain stable or v. slightly +ve
    That's a blanket statement. But broadly, my comeback would be what makes you think some of these other countries are trying to remaining stable/slightly +ve and Australia is 'guaranteed' to grow?
    • Australia houses 40% of it's popln in 2 major cities - others have 5% in their 2 largest cities
    Again I'm not sure if that's true. The Tokyo metropolitan has 20-30 million people. Seoul has 25 million. If population was my measure, I'd buy in these cities then.

    Also while Australia may have 40% of its population in two cities, these populations as absolute numbers are still a lot smaller than the major cities of UK, US, Canada, China, Japan, Korea, France etc. It's a bit like asking, would you rather 40% of 10 million or 5% of 100 million?
    • Australia houses 70% of it's popln in urban areas - others have ~20%
    Again, not sure what the basis of this statistic is. Japan has 35 million people in Tokyo metro, not even including its other major cities like Osaka which have another 20 million across the Kansai metro areas.
    • Yields in Oz are less than the cost of funds, elsewhere they are (significantly) higher
    I think this is a reason that properties are actually bad in Aus.
    • Australia has v. restrictive planning laws, others not necessarily so.
    Again, I don't believe that's true. Some would argue Aus is not very restrictive. Melb has more 100m tall buildings than London or Shanghai, with not even half the population of the former and not even a quarter of the population of the latter. Brisbane's another one that makes me wonder.
    • Australia hasn't reached economically ideal popln mass yet, the others have.
    This ties back to the first point about immigration. Bob Carr just came out calling for Aus to halt immigration, and I'd suspect there's a lot of angst in society that would support that.


    If you asked me what the main difference between Aus and America/Japan/Germany are (since you used these examples), I would argue that the main difference is we have a lot of lazy capital. Frankly, we love our properties (fine with that, it's helped all of us here). But I think in those other 3 countries - especially the latter 2 - more capital and brainpower is spent towards taking entrepreneurial risk rather than speculation on something that doesn't reproduce. This is exacerbated I think by a rising giant in the world that also loves properties - and while this giant has made its money on working hard on previous generations, it now wants to get into this game, and Aus happens to be perceived as a safe harbour with lifestyle choices. Perception can change quickly. People forgot how quickly this giant's citizens left in the 2011/2012 property downturn.
     
  6. Tyler Durden

    Tyler Durden Well-Known Member

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    While our average rate of population growth outstrips the U.S we are definitely not guaranteed to increase our rate of growth at all, in fact it has been falling steadily from it's peak of 2.19% in 2008.

    Australia's population grew by 1.4% during the year ended 30 June 2015. I feel that we'll revert back to the longer term average as the resources boom continues to unwind.

    The completion of large construction projects like Curtis Island, Barrow Island, Wheatstone and Ichthys will continue to put downward pressure on NOM population growth as workers fail to secure new positions.

    Tied into all of this is the statistical decline of 457 visa's being granted, the weaker AUD making real wages lower than when the AUD was at parity with the USD and the tightening labour market (with unemployment currently reported as 6.0% but widely accepted as being closer to 8%).
     
    Last edited: 19th Feb, 2016
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  7. Omnidragon

    Omnidragon Well-Known Member

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    Yes but the limited point is, is home ownership even that important if, under the German system people still have permanent shelter that is more economical, and capital, labour and brainpower is perhaps allocated into more productive things?
     
  8. EN710

    EN710 Well-Known Member

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    @Omnidragon @Tyler Durden the title is about Australia being in different circumstances from other country. So per your points, does that argument still hold?
     
  9. Tyler Durden

    Tyler Durden Well-Known Member

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    huh? :p
     
  10. Perthguy

    Perthguy Well-Known Member

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    One of the fundamental arguments for scrapping negative gearing is to increase housing affordability and accordingly to increase the rate of private home ownership in Australia.

    Is this a valid argument for scrapping negative gearing when Australia already has a higher rate of private home ownership than all of the countries given as examples of countries that do not have negative gearing?

    Where is the evidence that scrapping negative gearing will increase the rate of private home ownership?

    If we want to increase the rate of private home ownership in Australia, should we compare our tax system to a country that has a much lower rate of private home ownership? This makes no sense to me.
     
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  11. EN710

    EN710 Well-Known Member

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    The topic in the title, you know :rolleyes:

    So do you think Australia is different? Or the same as other countries?
     
  12. Tyler Durden

    Tyler Durden Well-Known Member

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    My post is addressing the inaccuracy of the OP's second point.

    What is the point of your post, are you wishing to stifle debate? I genuinely thought you were joking, that's how absurd it is.

    Edit: Added the point I was addressing to make it to clear.
     
    Last edited: 19th Feb, 2016
  13. EN710

    EN710 Well-Known Member

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    I'm not joking. I am no economic expert. Genuinely trying understand the post and tie it to the initial argument.

    So you are mentioning the inaccuracies of the second point. Does that mean Australia is actually more in line to other countries mentioned?
     
  14. wogitalia

    wogitalia Well-Known Member

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    No idea what stats course you took but Japan's population overall is 127m, Tokyo is 37m on it's own and Osaka is another 19m, my math may be terrible but I get that as 44% on both those stats which isn't 5% or 20% or even remotely close.

    Doesn't change the general theme of the thread but use accurate stats at least!

    I do agree though, Australia is different, we have a property industry that is heavily protected by government policy, heavily ingrained as an investment product based on capital growth and not returns and that has been highly successful historically, all of these make it more likely to continue to operate in this regard than other markets that do not operate under similar conditions. That said, if any of those things were to change it could certainly reverse course. It's incredibly difficult though for any government to actually change that protection because so much of Australia's wealth gets poured into real estate and so many people are invested directly that targeting it is political suicide. You can flirt around the edges like the NG changes or APRA changes but to target the bigger parts of the system would be political suicide (like main residence exemptions, not counting property in means tests, land tax exemptions and the like).

    Basically it would take a rogue government hell bent on making change with total disregard towards being re-elected for changes like that to happen. Right now all that is happening is some light brake tapping to give the tyres a chance to cool down a bit.
     
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  15. Tyler Durden

    Tyler Durden Well-Known Member

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    The OP is using the second point to make an argument that Australia IS different. I am responding to that argument and expressing my own opinion that it is not a valid point.

    You weren't trying to understand, you were attempting (quite badly) to imply that @Omnidragon and I were taking the thread off-topic.
     
  16. Omnidragon

    Omnidragon Well-Known Member

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    Ha you're trying to confuse me aren't you
     
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  17. Omnidragon

    Omnidragon Well-Known Member

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    Absolutely. What the real debate is, is this the best way to run society?

    There're people like me, barely 30, 'retired' off properties. There're others I know - parents have properties - 'retired' at 26. None of these guys (myself included) are probably using our fullest potential. I look at countries like Germany, and wonder who's got it right.
     
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  18. Omnidragon

    Omnidragon Well-Known Member

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    My fundamental problem is, why is home ownership important? Misallocation of capital? You don't need to own the train to ride it, nor own the road to drive on it.
     
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  19. wogitalia

    wogitalia Well-Known Member

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    Yeah I've got a friend who was given a house for their 21st, intelligent guy could probably have been a doctor or something if he'd had to work but instead he just works part time in odd jobs for spending money and travels. Does nothing for Australia.

    On a flip side I guess all the millions who are heavily indebted to banks have to slave away to pay that mortgage so at least they're all chained to some productivity but at the same time they're also chained to that job and unable to go out and be entrepreneurial or take the risks that can lead to greater things.
     
  20. Perthguy

    Perthguy Well-Known Member

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    Apparently utopia is where everyone who wants to own a home can buy a home.

    Don't ask me to elaborate further. It is not my argument, so I can't defend it.

    What I don't understand is this line of reasoning: horrid investors have all the advantages in Australia due to NG and CGT concessions -> investors have pushed up the price of housing (due to the tax environment) and priced owner occupiers out of the market->oh, why aren't we more like Germany? they don't have NG, we should be like them! :)

    Ahem, Australia has a private rate of home ownership of 67% vs Germany at 53.3% :oops:

    Doesn't add up to me.

    Following your like of reasoning, that private home ownership is not important, who provides housing then, the government? At what cost? If the government allocates it's capital to providing housing, what is it not going to provide? Is this a misallocation of capital? Or do we just need to increase taxes so the government can pay for everything? Noting that it has been argued that a country does not tax its way to prosperity.