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The Forum > Article Comments > A crisis in housing affordability > Comments

A crisis in housing affordability : Comments

By Andrew Bartlett, published 28/8/2006

Intellectually and morally bankrupt buck-passing has continued for years, while housing affordability has grown steadily worse.

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Foundation (http://forum.onlineopinion.com.au/thread.asp?article=4834#54331),

I am still waiting for you to 'report back' on the results of your 'correlation analysis' as you have promised (http://forum.onlineopinion.com.au/thread.asp?article=4834#54286).

Unless you somehow manage to prove to us that the housing hyper-inflation of recent years has been caused by factors other than the unprecedented immigration driven population increases, I think it would be prudent for us to assume that these are the cause, as common sense, the laws of supply and demand and the words of property speculators themselves strongly suggest.

I would further add that that the expected cramming of another 1.25 million into South East Queensland by 2026 would be the main reason why the REIQ anticipates, and welcomes, average house prices rocketing up from an already ridiculous $395,000 to $800,000 in ten years time (see above at http://forum.onlineopinion.com.au/thread.asp?article=4834#53620).

You wrote: "why is it that only house prices appear to be affected, not rents?"

What are you talking about? The Queensland papers are full of stories of a rental crisis which is caused by immigration into Queensland.

In May this year a neighbour, who lived in a unit next door, was forced to move out after investors had bought the units and jacked up her rent. In the months prior to the house being her life was turned into misery as real estate agents showed prospective buyer after prospective buyer through her home. As a consequence of her appalling treatment which I won't fully describe here, my already low opinion of real estate agents has plummeted further.

---

Pericles (http://forum.onlineopinion.com.au/thread.asp?article=4834#54158),

it should be obvious to anyone who cares to look that the city is overwhelmed with real estate agents and finance businesses geared to serving the property market. Why don't you take a look in your local shopping centre some time? It's impossible for me to walk the streets without tripping over real estate agents. My letterbox is overwhelmed with junk mail for real estate agents and I am constantly bothered by calls from real estate agents offering market opinions.

Where do you think that the money to pay for all this ultimately comes from?
Posted by daggett, Saturday, 9 September 2006 10:35:06 PM
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Daggett – your digression into my past post would have been wonderfully illuminating and educational experience. I would agree that “I am not a typical anything”, I do not believe anyone is, we are all individuals with individual rights, individual skills and individual choices in what and where we should invest our individual savings, that is why I do what I do and you do whatever it is that you do.

All of that has nothing to do with affordability or my experience of it. As for your the simplistic description of what you term “negative gearing” and who pays for it, Tell me – who lives and has benefit and use of the property - the tenant – what would you see them live there for free? So tell us - who pays the other 2/3?

“At least two incomes and longer working hours are now necessary to pay a typical mortgage.” – that depends on what “priorities” you place on your resources, whether you upgrade your car every year, take expensive holidays or do what folk did in the past, which included DIY home projects, accepting second and furniture with thanks and “Balancing their personal budgets”.

Your arguments are shallow and predictable, try to use some imagination in future, I know I do and find it most rewarding (in a commercial sense).

Oh btw “Negative gearing” is nothing special, it allows the application of all expenses to be offset against the income, in exactly the same way as any other form of investment or trade. “Removing Negative Gearing” would require the enactment of “Special Rules” for one class of investment. Such actions would merely make the investment different to other opportunities, destabilize the market, see a withdraw of funds from rental housing and thus reduce the supply of property for rent, this would, since their would be no reduction in demand, effectively “Up” the price of rents for tenants
Posted by Col Rouge, Sunday, 10 September 2006 11:20:51 AM
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Dagget, I'm still testing and measuring correlations. However, early indications confirm my previous beliefs. Over short terms, 1 and 2 years, the 3 measures of population growth I'm considering are not significantly (p<0.05) correlated to house price growth. Over longer periods, I'll concede there is a correlation between both rate of natural population growth (3ymPOPn), rate of total population growth (3ymPOPt) and rate of house price inflation (3ymHPI). However, the rate of population growth from immigration (3ymPOPi) is still not significant. Nor do the other measures rank highly compared to variables such as CPI growth, wage growth etc. I'll detail full results, perhaps in a more appropriate forum when complete. Remember, correlation does not prove causality (remember the cane-toads).

Your 'evidence' of rental pressure is nothing more than anecdote. Other sources of rental pressure hyperbole are frequently published, most commonly from vested interests such as real estate 'institutes', primarily to promote confidence in the investor market. Hard facts do not back up such claims. Refer to ABS figures for true increases in rent - minimal over the last 6 years, generally below inflation. Beware of vacancy rate statistics also - they are dubiously sourced and frequently understated.

To attack your message (correct me if I'm wrong) - that population growth is the PRIMARY DRIVER of youse prices, and that the solution to unnaffordable housing is lower immigration. Demand exceeds supply.

Please explain (slowly) how this is compatible with:
- Melbourne median prices below 2003 levels despite considerable population growth?
- HPs rising 380% in 5 years despite zero immigration and low (<4%) population growth in my home town?
- New dwelling construction rates nationally of one to every 1.2 to 1.5 new persons?
- The smallest household size (persons per dwelling) ever in the history of Australia?
- Rental yields falling from 8% 1986-89 to 5% 1996-99 then 3% 2003-06?

cont...
Posted by foundation, Monday, 11 September 2006 8:26:55 AM
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...cont

Does it not seem that even if population growth has SOME effect, that another driver is stronger?

I'm expecting further houseprice adjustment of -30% relative to wages over the coming decade. This will be a combination of falling and stagnant prices and HPI below wage inflation. If I'm correct and REAL falls are widespread, will this prove you wrong? Or will it simply prove that our population is declining?

And finally, with housing debt set to grow by >$100 billion this year, while aggregate wages grow around $25b (a long-term unsustainable imbalance), is there just a slight chance that unsustainable debt accumulation (due to unrealistic expectations of capital gains exceeding borrowing costs over the long-term) is the real PRIMARY DRIVER of HPI?

And finally, to “Where do you think that the money to pay for all this ultimately comes from?” One word – DEBT.
Posted by foundation, Monday, 11 September 2006 8:30:43 AM
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Foundation,

Your argument is convolluted and unconvincing. You concede that there is a 'long term' correlation between population increases and housing inflation, but then engage in an exercise in hair-splitting, by attempting to distinguish between natural population increases and immigration derived population increases, on a basis which is unclear to me.

(If you want to spell out the argument in greater depth you could start your own free blog at http://www.blogspot.com, but, unfortunately, http://foundation.blogspot.com has been taken. Alternatively, you (and anyone else, for that matter) could post your thoughts here : http://www.candobetter.org/node/1, although, as a necessary precaution against spam, for example, I have to moderate contributions.)

Clearly other factors can serve to exacerbate or retard housing inflation, but the fact remains that higher demand will drive up the price of a commodity. This has clearly happened in Sydney, Perth and South East Queensland where population has increased by 1,000,000 in the last 15 years and is expected to increase by another 1.25 million by 2026.

Countries such as France, which have controlled population levels have not experienced the ravages of housing hyper-inflation as we are now in Australia. That is why developers and property speculators have formed lobby groups such as http://www.apop.com.au to lobby for high immigration.

If anyone wishes to look at the graphs I have referred to, without downloading the whole 1.58M submission (http://www.candobetter.org/sheila/spaVicAffordableHousingEnquirySub153.pdf), they can be found here:

http://www.candobetter.org/sheila/housingPriceRisesInCapitalCities.jpg
http://www.candobetter.org/sheila/housingPriceRisesInRegionalAreas.jpg
http://www.candobetter.org/sheila/housingPriceRisesInFrance.jpg

I also note that you have not addressed the question of environmental degaradation and the decline in quality of life that I raised in my earlier post. In theory, if we build enough houses and keep the property speculators from appropriating too much of the profits, we could, in theory make housing affordable, for a growing population, but in Sout East Queensland, we would probably still lose Morton Bay which is being flooded with silt which has run off from property developments.
Posted by daggett, Tuesday, 12 September 2006 10:19:18 AM
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Col Rouge(http://forum.onlineopinion.com.au/thread.asp?article=4834#54617),

It seems that we can predict that we you will resort to personal attacks when you sense that you are losing the argument.

Regarding negative gearing: to me it seems unfair that people paying off their own homes are not allowed to negatively gear whilst people, who buy homes that other people need to live in, are.

I think an easy distinction can be made between property investment and other forms of investment. The former is completely unproductive and achieves nothing other than to exploitatively facilitate the transfer of wealth from one section of society to another. If this form of investment were discouraged, it seems likely that more more would be invested in enterprises that are likely to be more beneficial to the economy and to the community as a whole.

It seems inituitive that abolishing negative gearing would make the purchase of houses cheaper for people intending to actually live in them. If it turns out, as you predict, that abolishing negative gearing were to cause a shortage of rental property, then we should simply expand the stock of public housing.

As I have already demonstrated above, public housing is far cheaper than private housing, partly because the enormous costs of supporting many tens of thousands of real estate agents, landlords, conveyancers, mortgage brokers, bankers, property speculators, advertisers, etc, are not required. The most striking example was the Housing Trust of South Australia which provided good quality housing for South Australians for many decades without costing taxpayers a cent.
Posted by daggett, Tuesday, 12 September 2006 10:26:23 AM
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