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The Forum > Article Comments > No opportunities on the property ladder > Comments

No opportunities on the property ladder : Comments

By Alan Moran, published 23/8/2006

The blame for the high cost of housing in Australia rests squarely with government.

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PK, it's not a matter of wisdom or knowledge, simply of logic.

If a house is sold to someone, by definition it is affordable.

You have changed the argument a little by saying "there is definitely such a thing as housing unaffordability... It is taking an ever-increasing multiple of average income to buy a house in Sydney."

If you accept the general principles of supply and demand, you must also accept that where demand exceeds supply, prices tend to rise.

So what has happened here is that the populace has determined that it is a good thing to set aside an increasing percentage of their income for the purpose of buying a house. Over time, this voluntary activity, encouraged perhaps by a belief that property is a safe investment, will gradually ease up prices, and increase the income multiple you refer to.

Demand also has other faces than being purely volume-related. Increasing prosperity also plays a part. As people work their way up the ladder, they look for properties more in line with the image they begin to form about themselves - "better" suburbs, more swimming pools etc. - that put pressure on the upper end of the market. This end of the market also has some natural limits, like there are only a certain number of harbourside or bayside properties, which causes the prices to move even higher. This has a natural trickle-down effect.

All this happens without a skerrick of government intervention. So even if the government were to rescind all of its market manipulation, and simply leave it for "the market to decide", prices will continue to increase in line with the country's overall prosperity.

And all the while, every property that actually changes hands is, by definition and logic alone, affordable.
Posted by Pericles, Tuesday, 29 August 2006 11:16:49 PM
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"So let’s start thinking about reducing the primary driver of housing expansion - population growth"

I was under the impression that there are currently more dwellings per head of population than at any other time in the history of Australia... but I could be wrong. I'll just have to wait for the preliminary results of the latest census, so that I can see whether the population of the average household has begun to rise again after decades of decline.
Posted by foundation, Wednesday, 30 August 2006 10:12:21 AM
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Affordable for who? Those already in the game can borrow on the increasing equity of their homes. The passing the parcel mindset of property speculators sees most making such big capital gains that it dwarfs the possible rental income. This trend over the last 5 - 10 years has been such that they no longer need to rent investment properties out. Instead, holding these properties out of supply forces rents & thus land prices higher. What a win win situation for some! A holding charge in the form of a Land Tax would penalise such speculators, increasing the supply of land. Just look at Melbourne's Docklands, at least 50% held by speculators. It would also prove a more efficient way to raise revenue than a GST, leading to its gradual replacement. The poor would then win with cheaper housing & cheaper food. Would the Aussie battler like that?
Posted by Karl watches Rent Rackers, Wednesday, 30 August 2006 10:24:59 AM
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Pericles, I think I made the distinction between affordabability in the general sense and in the particular, but you do not seem to have done so. By your logic, the most expensive houses sold in Sydney, priced in the tens of millions, are still 'affordable'. While in the strict sense that may be true, it is not an example of what most of us would consider to be affordability. It's like saying Lear Jets are affordable. True perhaps, but irrelevant to most people who have to fly economy if they fly at all.

Of course I accept the general principles of supply and demand, but the drivers of price in the Sydney property market cannot be reduced just to that simple formula. My point is that Federal Government policy has induced demand, and that those policies are more important in the demand/supply equation and to housing affordability than state government policies about land releases are. That's the main thread of my response to Alan's article.

I don't accept your statement that 'all this happens without a skerrick of government intervention' etc. If the Federal Government rescinded negative gearing for residential property, reinstated a higher capital gains tax regime, removed the first home buyer's grant, kept cutting income tax and pursued other inflationary policies likely to cause interest rates to rise and severely restricted immigration, property prices would crash severely and stay low indefinitely. The scenario is highly unlikely to be tested anytime soon, however as a property investor myself, I am convinced of the truth of it
Posted by PK, Wednesday, 30 August 2006 5:17:20 PM
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Foundation

Let’s not get sidetracked. The simple fact is that a constant high demand requires a constant high supply, or else prices will skyrocket. If it follows that restricting the supply causes higher property prices, then it must also follow that reducing the demand would do the same.

Continuous population growth, that is very considerable in some places, is thus the primary driver of housing expansion.

But there are all sorts of other issues. It is a matter of putting them into perspective and not letting them sidetrack us or cause us to ignore the really big factors.
Posted by Ludwig, Wednesday, 30 August 2006 9:56:47 PM
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PK “housing is becoming less affordable when compared to average incomes over the same long term.”

The “price” of housing is driven by “affordability”.

That means, regardless of the changing rate of interest, a key driver to determining housing “price”, affordability will diminish in times of high interest rates and expand in times of low interest rate.

Far from misrepresenting anything, the long term trend will substantiate that if / as we more to a period of relatively higher interest rates, the price of houses will fall. This is driven partly by buyers "budget balancing" and fostered by prudential lending rules which, basically, cap borrowings repayments, for most "average income earners" at roughly 30% of gross income (+/- 5% depending on family circumstances / dependants).

If interest rates increase, borrowing capacity diminishes (subject to some timing slippage / drag). When borrowing capacity diminishes people cannot afford to buy at current prices and thus, with fewer viable buyers in the market, house prices fall.

When interest rates fall, the opposite occurs - I guarantee it.

Ludwig. “Yes. But stuff that!!”

With all markets, supply and demand are always balanced by price. Governments piddling around with either supply or demand simply distort the market in the short term and create a problem for the future.

No one can protect the imprudent from their imprudence just no one can advance self reliance better than the self-reliant.

Like everything else in this world, those with the cash or those prepared to borrow against “risk” are the ones who are best equipped to decide how they should spend it.

Pericles “PK, it's not a matter of wisdom or knowledge, simply of logic.

If a house is sold to someone, by definition it is affordable.”

Of Course, I cannot see how some just do not “Get It”.
Posted by Col Rouge, Wednesday, 30 August 2006 10:31:21 PM
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