Some scary numbers here, for sure.

The concept of "overvaluation" needs to be examined a little more closely, I feel.

My suggestion to those who believe the market is overvalued - including the Economist magazine - is to analyze more rigorously the impact of factors other than those they presently use. The Economist, for example, posits undervaluation of 45% against rental values, and 23% when measured against "disposable income per person".

http://www.economist.com/news/finance-and-economics/21569396-our-latest-round-up-shows-many-housing-markets-are-still-dumps-home

Only when you dig deeper do you find the vestiges of other possible measures:

"Spain’s bust reflects a massive oversupply of housing built in the construction boom..."

As, indeed, does the Irish market, where according to their population forecasts, there will be no need to build a single new dwelling for an entire generation.

So where, I wonder quietly, does supply and demand fit into this equation? We all know that as well as Ireland and Spain, the US also built thousands of new houses to cater for the demand created by the profligate mortgage industry and its predatory sales folk. We also know what happened to them.

As far as I am aware - and I am always open to correction on these matters - we do not currently have an oversupply of housing. We also have a growing population, as Ludwig keeps telling us. So exactly when, I wonder, will the equation that says that the combination of increasing demand and restricted supply cause higher prices, be repealed?

An answer, of course, will be "when the GFC bites us in the backside, unemployment goes through the roof, and the streets are filled with homeless people unable to afford a roof". I'd humbly suggest that this will not occur any time soon, thanks to our robust economic situation.

My own view, for what it is worth, is that we do not have a bubble. But on the other hand it is likely that the market will become far more sober and predictable for the next five-to-ten or so years, until the world emerges from its recession.

After that, all bets are once again off.

Talking of scary numbers...

>>Government taxes account for 44% of the cost of a median priced home.<<

Thanks you onthebeach for providing the link, which is itself a fascinating insight into the way statistics in a report are massaged in line with the author's desired conclusion.

The obvious direct taxes, GST, Stamp Duty, Land Tax and Council rates ($75,422) make up only 12% of the "Total Dwelling Cost", ($639,533), so where does the remaining 32% come from?

Well, there's 13.5% more ($86,180) in taxation on "indirect inputs", that is to say, capital, labour etc. While there is a kinda-sorta argument to be made that these costs are captured in the price, it is not at all unique to housing. It is an inevitable cost of doing business.

On this basis, I would suggest that a screaming headline that "Government Taxes account for 70% of the cost of your restaurant meal" would not be out of order. Dumb, of course, and entirely meaningless. But entirely valid.

So, I hear you ask, how is the remaining 16.5% ($106,276) calculated?

(You're gonna love this)

Under the heading "Hidden and Ambiguous" (I kid you not) there are two entries, "Excessive Infrastructure Charge", and ... wait for it... "Zoning Restrictions". These items are, it would appear, "Government taxes". Who'd 'a thunk it?

It comes as no surprise to anyone, therefore that the report was prepared for the Housing Industry Association.

p.s. I know that these numbers only add up to 42%. But that is the example they used for illustration purposes.

Pericles
"Government taxes account for 44% of the cost of a median priced home."

Thank you for highlighting that piece of nonsense.. I also looked at the report. To get to the conclusion they did, the authors had to add in all taxes at every point in the house production process they could think of, and then added in another $100,000 or so in "hidden" taxes.. And its wild-eyed nonsense.. the bulk of housing price in Australia is due to the land, not the building ..

Rhrosty, if you would return to Soos' previous article on negative gearing and the forum comments I go to some effort to explain that removing negative gearing does nothing for gov't coffers because if interest can't be written off against income then it is written off against the capital gain when the house is sold, which is entirely fair and reasonable.

Soos doesn't seem to want to get this either, starting from the view that NG is simply a perk connived by the rich to rob the poor. His whole argument is built on the straw men and falsities well described by Pericles.

I can understand that the author would get so caught up in his academic theory that he would lose sight of reality, but to suggest that the Australian housing market is in bubble conditions is absurd.
Curmadgeon,
This is one of those rare situations where an academic actually makes sense and, yes he is right about the bubble.

Housing can not go up much further because it is governed by affordability. For affordability to continue wages must continue to keep pace & if wage rises keep going up so will the un-affordability of employers to employ people. That's when the bubble will burst. It has already gone beyond working pressure & is nearing maximum testing pressure.
Investors need to came back to earth & Government needs to have the nonsense shaken out of it. The problem is how to shake them when an equal force is holding them down to prevent shaking. There are obviously people out there to whom common sense is utterly abhorrent why else would they keep voting in such incompetent politicians ?
Going back to housing, another problem is that "owning" a home has become utopian. Between mortgages & rates home ownership is for banks, councils & power companies only now.