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The Forum > Article Comments > Popping a housing bubble fantasy > Comments

Popping a housing bubble fantasy : Comments

By Christopher Joye, published 7/7/2011

Australian house prices have arrived at the 'new normal'.

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Individual; I don,t know where you got your opinion of speculating. In my day speculating was something you done while you never had a job, to go on with. You built a spec house, and sold it as a means of creating an income.
Posted by a597, Sunday, 10 July 2011 3:58:20 PM
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Wrong conclusion, Fester.

>>By your logic, "affordable" applies to all things, so becomes a meaningless epithet. "more affordable" and "more unaffordable" are simply relative measures of cost.<<

Why should the fact that a word applies to all things turn it into a "meaningless epithet?"

It means precisely what it says. Only by applying it to housing (or anything else) without regard to the varying abilities of people to pay, does it become meaningless. A property that is affordable to John Symonds might be - indeed, most probably is - unaffordable to me. The property itself is still affordable, by definition, if John buys it.

Changing the concept to "more affordable" and "less affordable" doesn't help, since you are just dealing with different levels of the same commodity. One ounce of gold is by definition more affordable than two, independent of who might be buying. In the same way, a large house in Vaucluse is less affordable than a 3-bedroom brick-veneer on the outskirts of Mt Isa.

>>For starters, you are comparing different commodities.<<

Well, duh. That's because I was responding to your own assertion that "cars, computers and televisions are now more affordable, whereas housing is now more unaffordable.<<

>>Applied to housing, "affordable" refers to the proportion of the population able to buy a house.<<

If you say so. But the absolute same logic applies, in terms of whether the price goes up or down. If more houses become "unaffordable", fewer people will be able to buy. And in order to be sold, prices need to come down. So "unaffordability", even in your tainted definition, will result in falling prices.

So, surely, unaffordability is to be welcomed, is it not?

The reason it doesn't happen is because a sufficiently large proportion of the population is able to buy.

Semantics, antiseptic?

>>In any case, it seems to me that you're getting your knickers in a twist over semantics. 'twere ever thus...<<

Not at all. Just applying straightforward logic, as opposed to blind emotion.
Posted by Pericles, Sunday, 10 July 2011 6:00:10 PM
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Pericles:"If more houses become "unaffordable", fewer people will be able to buy. And in order to be sold, prices need to come down. So "unaffordability", even in your tainted definition, will result in falling prices."

This is assuming that there is one house per person/family, but as we know there are many speculators (investors for the semantically prissy) who own many homes and who may well be able to maintain the price of housing stock at levels above what your idealistic view would tend to predict. Therefore, the "affordability" of a house may be reduced for an ordinary person wishing to live in it, because it is still "affordable" at the higher price for someone with spare resources .

A confounding factor, it seems to me is the move away from one form of housing to another. Thus houses may be less attractive to the likely tenants due to price, so they choose to live in a flat or townhouse instead. At the moment, I suspect with little hard data that this is a big factor, in Brisbane anyway.
Posted by Antiseptic, Monday, 11 July 2011 5:42:16 AM
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Not at all, Antiseptic.

>>This is assuming that there is one house per person/family<<

The laws of supply and demand are operate perfectly here, as they have identified the disparity in the distribution of commodity and purchaser. When there are fewer houses than people who want to buy, then naturally the price will tend to go up. But that has nothing to do with speculation, and everything to do with the availability of housing stock.

>>...as we know there are many speculators (investors for the semantically prissy) who own many homes and who may well be able to maintain the price of housing stock at levels above what your idealistic view would tend to predict.<<

I don't have an "idealistic view". In fact, yours might more easily fit that description, I suspect. Nor do I make predictions.

But you seem to be suggesting that these "speculators" have deliberately removed properties from the housing stock in order to drive up prices. Are these properties empty, do you think. Or are they available to rent?

I suspect the latter - it would be unusual for a "speculator" to hope that the house price rises faster than the amount to be earned in rent. In which case, that rental price is also subject to the laws of supply and demand. And along with it, the underlying price of the property.

Unless of course you believe that every single one of these "speculators" is in deep collusion, deciding between them to lift the prices. But that's conspiracy theory territory, is it not.
Posted by Pericles, Monday, 11 July 2011 9:13:19 AM
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Dear me, Pericles, no need to invoke conspiracy theories, no matter how smelly a red herring they may be. Yes, housing stock is available for rental, at higher rates because the house price is higher. This acts to keep low-income earners out of the mortgage market, because higher rents impinge on their capacity to amass capital. The accommodation is still needed, because the people exist, so it still attracts rental tenants who put up with the quarterly inspections by the letting agent and the barely-supportable cost because they have to, but home ownership becomes less of a reasonable aspiration for ordinary people.

You're right, I do see that in terms that are less than completely dispassionate. I think it is highly desirable for people to own the roof over their head, for all sorts of reasons that are not economically-based in the first instance. I think it is part of the basic functioning of a decent society to make possible home ownership for ordinary people without forcing them into penury to achieve it. The regulatory environment that has grown up to "protect" investment in housing is only making it more difficult to achieve for ordinary people and I regard that as a great shame.

It's also a bugger for my business, so I'm not entirely disinterested.
Posted by Antiseptic, Monday, 11 July 2011 9:37:31 AM
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It's encouraging that you reject the hypothesis, Antiseptic.

>>Dear me, Pericles, no need to invoke conspiracy theories, no matter how smelly a red herring they may be.<<

So you agree with me, that landlords are in competition with each other in the property rental business, and do not collude on pricing. This means that the rental market is also "affordable", in that the vacancy rate in most capital cities is quite low, therefore the occupancy rate quite high, therefore there are people willing and able to pay the asked amount.

It all comes back to the same thing: disposable income. Property prices keep pace with increasing earnings, being quite simply the result of where people allocate their spending priorities.

>>...home ownership becomes less of a reasonable aspiration for ordinary people... I think it is part of the basic functioning of a decent society to make possible home ownership for ordinary people without forcing them into penury to achieve it. <<

According to the ABS, as well as most market observers, "Home ownership rates have been fairly stable at around 70% for many decades".

At the same time, Australians have become more affluent, and less prone to "penury", so it would seem that our society is in fact functioning quite decently, wouldn't you think?
Posted by Pericles, Monday, 11 July 2011 12:57:42 PM
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