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Why are house prices so unaffordable in Australia?
* Globally strong economy here means that many people's employment situation is strong enough to cover such 'unaffordable' prices and it also spurs interest from foreign investors - this creates a speculative environment.
* A tax structure that promotes investment (earnings spent on repayment of interest on borrowings for your investment can be tax free). This means that you can invest in a property on borrowed money and the rental return can be tax free if it goes towards your interest repayments. This is not the case for your owner-occupied home. So yes, in this country, there is a disincentive to buy your first and potentially only home, but there is a big incentive (if you can afford it) to borrow money to invest in other homes. This creates a speculative environment.
* Large immigration relative to existing population centres have and are continuing to see the need for development of land (a simple supply and demand situation)
The runaway escalation in pricing can only continue up to a point - when housing is simply to expensive for a large percentage of the population to afford. We have yet to reach that point, but we are very close.
Well we must be doing something right with improving home affordability here in Australia? New Zealand's National party have just borrowed one of the Fed's ideas.
Why are house prices so unaffordable in Australia?
* Globally strong economy here means that many people's employment situation is strong enough to cover such 'unaffordable' prices and it also spurs interest from foreign investors - this creates a speculative environment.
* A tax structure that promotes investment (earnings spent on repayment of interest on borrowings for your investment can be tax free). This means that you can invest in a property on borrowed money and the rental return can be tax free if it goes towards your interest repayments. This is not the case for your owner-occupied home. So yes, in this country, there is a disincentive to buy your first and potentially only home, but there is a big incentive (if you can afford it) to borrow money to invest in other homes. This creates a speculative environment.
* Large immigration relative to existing population centres have and are continuing to see the need for development of land (a simple supply and demand situation)
The runaway escalation in pricing can only continue up to a point - when housing is simply to expensive for a large percentage of the population to afford. We have yet to reach that point, but we are very close.
The main driver behind price rises in Aus is much the same that has played out in many countries, and that is MUCH looser lending criteria from banks in the last decade or so that has caused a speculative housing market. Aus banks get most of their capital from off shore markets and yep you guessed it the US and the UK have been running the printing presses hard, well actually changing numbers in computers :P. Money is cheap to borrow, punters obtain easy loans and go gambling!
Secondary reason such as population gain and Chinese investment are media explanations who get a lot of advertising revenue from banks and the real estate industry.
Certainly negative gearing is another key factor after bank lending behaviour.
The main driver behind price rises in Aus is much the same that has played out in many countries, and that is MUCH looser lending criteria from banks in the last decade or so that has caused a speculative housing market.
Economy doing well
Unemployment trending down
Highest immigration for over a decade
Media bleeting on abut Chinese buying up, and the usual housing shortage drivel.
House prices and sales must be booming right?. Actually price growth has been sliding along with sales due to NZ reserve bank imposing 20% loan to value ratios and increasing interest rates.
Its the easy money that causes these bubbles, its a lesson not learned from the 1929 stock market crash when banks were lending hand over fist for gambling purposes.
Not sure if you have noticed Aus Bank profits recently :P
Economy doing well
Unemployment trending down
Highest immigration for over a decade
Media bleeting on abut Chinese buying up, and the usual housing shortage drivel.
House prices and sales must be booming right?. Actually price growth has been sliding along with sales due to NZ reserve bank imposing 20% loan to value ratios and increasing interest rates.
Its the easy money that causes these bubbles, its a lesson not learned from the 1929 stock market crash when banks were lending hand over fist for gambling purposes.
Not sure if you have noticed Aus Bank profits recently :P
I meant evidence that Australian banks have allowed lending standards to deteriorate.
I meant evidence that Australian banks have allowed lending standards to deteriorate.
The evidence in that context is you can often buy a house with 5% deposit in Australia and as you are likely aware sometimes less, try and do that in the 80's!, that fact the bank may insure the loan is a joke as many of the facilities used are tied to banks :P
In addition the banks are calculating on insanely low interest rates over longer term interest rates which allows more punters to obtain loans. The banks don't care what happens to those home owners when interest rates return to 9%.
Its not difficult to believe if you increased loan to value ratio's back to a more sensible 10%+ and interest rates back to 8-9% "tomorrow" house prices would likely slump.
The evidence in that context is you can often buy a house with 5% deposit in Australia and as you are likely aware sometimes less, try and do that in the 80's!, that fact the bank may insure the loan is a joke as many of the facilities used are tied to banks :P
It's funny you cite the 1980's for conservative bank lending when it was the decade in which the Australian banks blew themselves up. The current bank lending standards were created in the early 1990's after the failure of Pyramid (ironic name for a building society), the failure of almost every state bank and the near collapse of Westpac and ANZ in the 1980's.
The two biggest LMI's are Genworth and QBE. Neither is tied to the banks.
Quote:
Originally Posted by Battleneter
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Its not difficult to believe if you increased loan to value ratio's back to a more sensible 10%+ and interest rates back to 8-9% "tomorrow" house prices would likely slump.
Sure, prices would fall. The price of every asset would fall if interest rates went back to 9%. 5% deposits have been around for at least two decades. It's nothing new, 10 years ago NBL's were doing 110% LVR loans with zero proof of income. I'll was worried then, and I'd be worried again if that sort of lending kicked off again.
I find the whole property debate pretty boring and this will be my last post in this thread. There's two groups, the haves and the have nots. One will tell you property will rise exponentially for the next 100 years the other will tell you that anyone who owns a house will be broke in the six months (they've been saying that for five years now).
Don't get me wrong, houses are expensive, I'd never even consider one as an investment. But I don't see them as being like the US in 2006, yet.
It's funny you cite the 1980's for conservative bank lending when it was the decade in which the Australian banks blew themselves up. The current bank lending standards were created in the early 1990's after the failure of Pyramid (ironic name for a building society), the failure of almost every state bank and the near collapse of Westpac and ANZ in the 1980's.
The two biggest LMI's are Genworth and QBE. Neither is tied to the banks.
Sure, prices would fall. The price of every asset would fall if interest rates went back to 9%. 5% deposits have been around for at least two decades. It's nothing new, 10 years ago NBL's were doing 110% LVR loans with zero proof of income. I'll was worried then, and I'd be worried again if that sort of lending kicked off again.
I find the whole property debate pretty boring and this will be my last post in this thread. There's two groups, the haves and the have nots. One will tell you property will rise exponentially for the next 100 years the other will tell you that anyone who owns a house will be broke in the six months (they've been saying that for five years now).
Don't get me wrong, houses are expensive, I'd never even consider one as an investment. But I don't see them as being like the US in 2006, yet.
Sure the 1980's is a easy example, in many respects nearly opposite to what is occurring now hardly a great decade for the world economy, but in the 1980's AND decades prior houses were around 2.5X average income over the 5.5+ we have now. Its true it was about 1995 prices started to accelerate well beyond long term trend and between 2000 and 2005 went ballistic thanks to those banking changes, perhaps a little to far!.
It may be boring for some but I am a have, and feel sorry for young couples starting life 400K+ loans that are maybe closer to the median salary not the headline average salary, and once again this is not just a Aus problem.
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Oh my lord. There are far worse places to live 
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