Housing crisis noticed: convenient scapegoats named

The Age finally notices that there might be a massive downside to inflated house prices:

In the case of the Melbourne greenfield market, which accounts for 42 per cent of annual lot sales for all five markets, the percentage of affordable lots has fallen from nine lots in every 10 to three lots in every 10 over the past 30 months.

Based on independent qualitative research, first home buyers in new estates have, in the past, represented from 50 per cent to 80 per cent of total demand. With the purchasing capacity of the average first home buyer being limited to about $400,000 for a house and land, it is critical that land prices are kept at or below the $200,000 price point to remain affordable.

The median lot price in Melbourne has increased by 22 per cent over the past 12 months with the current median being $219,000 for a 448 square metre lot.

Thank you for noticing! And acknowledging that this might be a bad thing!

But the relief is short-lived. As usual, they completely ignore the major factor that’s keeping the prices high: the vicious circle of high prices meaning investors (with equity in at least one other property by definition) have more money to spend, outbidding first home buyers and pushing prices up, leading to investors having more money to spend and so on. No, it’s immigration and planning:

The dramatic reduction in the ability of Melbourne’s new developments to deliver affordable housing has been due to unprecedented demand driven by net overseas migration, delays associated with legislating new supply and the time taken to secure, plan and develop land holdings. In short, the procurement and planning process has been unable to keep up with demand.

Note that they don’t here mean the building of new infrastructure so that the young people forced out to Deer Park can actually get to jobs in the city. They just mean making life easier for developers, and creating an easy scape-goat for young people’s anger.

And at least some readers are buying it:

Here’s how you fix the property market in Australia. Just need a government brave enough to do it.

1. Stop ALL foreign investors from buying ANY residential property in Australia – PERIOD !
2. Have to be a resident in Australia for at least 5 years before you can buy property here

Bottom line, is you cannot outbid cashed up Asian investors (foreign or domestic) at an auction.

Posted by JohnS | Melbourne – March 28, 2011, 11:41AM

Sorry, JohnS – you cannot outbid cashed up investors of any race. Because they’ve got a hell of a lot more equity in their existing properties than you have savings.

I no longer expect commercial media to actually tackle the real causes – negative gearing, inflationary grants like the FHOG, ridiculously low capital gains tax, insufficient protections for young people forced into long-term renting. That’s hardly what advertisers want. But it would be nice if occasionally the independent media had a go.

Until they do, the problem is only going to get uglier.

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12 responses to “Housing crisis noticed: convenient scapegoats named

  1. C’mon Melbourne … let’s get that urban sprawl happening now so that in five years time we can be uglier than Sydney!

  2. “Housing crisis noticed: convenient scapegoats named”

    I blame Teh Left..

    Not disagreeing with the gist of what you are saying, but population growth IS probably compounding the problem Jeremy.

    We have a birth rate that is not much more than replacement, and most of our population growth comes from immigration.

    Higher population leads to higher demand for housing, so the suggestion that immigration is a contributing factor to the housing bubble is not necessarily as ‘one nationy’ as it sounds.

  3. Investors buying negatively geared rental properties are pushing up the price of vacant land in the new estates? I don’t think so – it’s not the type of property they invest in.

  4. No, they’re pushing up the price of all land by buying up the entry-level properties and forcing home-buyers further and further out.

    Duncan – I’d have to see a graph of immigration vs house prices, but it’s not like there was a sudden immigration boom when the house prices went bananas.

  5. Sub-division and unit-heavy development are pushing the price of all types of land up. Land in new estates is priced comparatively with the Market at large, and more and more land is being sub divided for unit development. That increases the price of all land, including land in housing estates.

    Not sure why you’d think land in a new development would be priced in isolation to land in the rest of the Market, Ray, but it isn’t.

  6. I’m just suggesting that rapid population growth (in this case, through immigration) is probably contributing to the problem of housing affordability Jeremy.

  7. In W.A. the mining resource boom drove up the price of properties from Pt Hedland to South Perth. The money that can be earned in these places compared to equivalent major city jobs any where else in Australia, beggars belief. Hence, our sparkies plumbers, fitters boiler makers etc, have all become land lords. My eldest son owns two houses, both rented out. A shortage of properties in most of the communities in the N.W. of W.A. is seeing shacks you wouldn’t let a pig live in, sky rocket. This phenomena has seen the price of property market dictated by the mining companies in conjunction with, a state government that has a mining at all cost mentality.

    As an aside what we are going to do with the thousands of immigrants when it all ends is anyones guess.

  8. “Duncan – I’d have to see a graph of immigration vs house prices, but it’s not like there was a sudden immigration boom when the house prices went bananas.”

    I can’t find a specific graph that plots these two side by side, but the links and graphs below would probably be able to be able to be turned into such a graph.

    http://en.wikipedia.org/w/index.php?title=File:Established_House_Prices_1989-90_to_2010.pdf&page=1

    http://www.immi.gov.au/media/fact-sheets/02key.htm
    (scan down to ‘population’ section for graph)

    We have very rapid population growth by international standards, and we have very rapid growth in house prices by international standards.

    According to the ABS, our over all rate of population growth is 2.1%, almost double the world average of 1.17%, and 66% of that growth is due to immigration.

    Over the 15 years between 1995-2010, housing prices tripled in Australia. During that same period immigration rates almost doubled.

    Wherever population growth comes from, its going to put pressure on housing affordability, at least in the short to medium term.

    I think we need to be careful not to shy away from discussing the role our high rate of immigration plays in the housing affordability problem.

  9. jordanrastrick

    Clearly planning, infrastructure, population growth, and tax incentives all play a role in house prices.

    I’m going to repost here my last comment in the old “COAG abandons housing affordability issue” thread. Because I think no one saw it (I was trying to resurrect the discussion out of nowhere), and its still relevant to the issue:

    ==================================

    Don’t know if you saw it Jeremy, but I thought you might be interested to know that Michael Pascoe, who’s not exactly, uh, renowned for his left wing views, wants to solve housing affordability by adopting a plank of Green’s policy:

    http://www.smh.com.au/business/housing-affordability-solved–by-levitation-20110310-1boh1.html?skin=text-only

    Personally, I think State Governments in NSW are likely to be too cash strapped and pissweak for the forseeable future to cough up for that kind of thing (not sure how things are looking in Victoria). So I’m pinning my hopes on robot cars.

    Robin Hanson makes some interesting points on this from a mildly-crazy-futurist-economist point of view (note that while he talks of transport costs, housing affordability is really the same thing if you accept Pascoe’s argument.)

    http://www.overcomingbias.com/2010/11/who-will-pioneer-auto-autos.html

    I think his argument about the difficulties of very good public transport glaringly overlooks Tokyo (at the least), which didn’t get its system in the same way New York did. Still, it’d certainly be incredibly hard, politically, to get public transport in any existing Australian city to that level.

  10. Keri, the land in new estates is priced in accordance with the costs of development and the demand for it. And there’s no demand for it from negatively geared investors. Yes, the price of a new lot in a new housing estate out at Wallan or Officer is definitley priced in isolation to a two lot subdivision in, say, East Burwood.

  11. Higher population leads to higher demand for housing, so the suggestion that immigration is a contributing factor to the housing bubble is not necessarily as ‘one nationy’ as it sounds.

    This site is one of many making the argument that not only is there no shortage of housing in Australia, but it’s highly likely there’s a significant oversupply:
    http://popping-bubble.blogspot.com/

  12. Developer groups are warning that limiting population growth will lead to a 15-18% reduction in house prices over 10 years.

    According to the report, a population cap imposed across Australia’s five biggest cities could reduce national income by $5,000 per person within 10 years.

    http://www.startupsmart.com.au/management/2011-03-30/changing-population-a-threat-to-small-business.html

    http://www.heraldsun.com.au/money/growth-freeze-to-hit-house-prices/story-e6frfh5f-1226029816978

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