Sadly, I think Wendell is right. Australian households now have debt at 182 per cent of annual income. This is worse than the debt level of Americam households at 134 per cent. While the Prime Minister's largesse will have some positive impact in the short term, Australian households will be forced to reduce their debt to historically normal levels. This will mean lower levels of retail spending, higher levels of unemployment and a drop in real house prices.

Wendell is right to suggest that Australian house prices have been driven higher by policies designed to reduce urban sprawl, which have had the perverse effect of reducing supply at a time of increasing demand, driven in turn by the easy availability of credit. Australians have spent their increased wealth rather than saving a reasonable proportion of it. We are all now about to pay the price.

'...The International Monetary Fund, predict the worst of the mortgage crisis is yet to come in the United States.'

Fact, try 10 times worse, and my sources hasn't included the IMF.

Kevin Rudd should learn how to say g'day to Paul Krugman the winner of the 2008 economics Nobel Prize with the same gusto he showed Al Gore and his global warming assumptions, before our rental accommodation and home ownership landscape is scorched.

The question is how long can "highly restrictive land use policies" (for most, at least) and high immigration keep the bubble going? Of course, there would be no housing affordability problem were people given greater rights as to how they use their land. As an example, an elderly couple recently found themselves homeless after a fire. Were they restricted solely by health and safety requirements, they would have many options available that would see them remain on their land, or at least part of it. With severe, opaque, and at times highly inconsistent restrictions, it is unlikely that they will be able to rebuild.

Yes Fester,"The question is how long can "highly restrictive land use policies" (for most, at least) and high immigration keep the bubble going?" Alas, this is not the only problem that sheltered state green/labor government workshops fail to admit, as their answer to the equation is un-australian higher density accommodation to fulfill their ideal utopia, as they remould families to fit the old European style housing enclaves.It certainly is not a measure of confidence that the elite have in our ability to solve problems without draconian regulation and puts to the lie any suggestion that public service is a service but an "authority only" staging post.

The Economist has said for years, that Australian house prices are
not sustainable.

Ok, so let them drop 30%. That would make them affordable to
young couples once again. Why should that be a problem?

I find myself agreeing with Yabby that house prices need to come down quite significantly.

On the article itself though, I have long been unconvinced that there is a real physical shortage of dwellings in this country. I think it is more a matter that there is a shortage of AFFORDABLE dwellings. Wasn't so long ago that Costello was bribing us to go forth and reproduce because our population growth had stalled. OK, so we know that he was handing out pork but as far as I'm aware, he was correct about stalling population growth. Housing was booming before than and has continued booming since, yet somehow there is supposed to be a critical shortage?

I spent a few months travelling around NSW,VIC and SA last year (I am from QLD) and saw no shortage of new housing developments wherever I went. What I have noticed is the stark difference between homes built in the last decade and homes built earlier. Compare the two and you will appreciate the term "Mcmansion".

I think a sense of affluence and easy credit has combined to motivate Australians (in general, certainly not all) to demand ever larger, flasher and therefore more expensive houses. This had had the effect of bidding up prices all round.

Howard's slashing of capital gains tax encouraged a boom in investment housing as greater numbers of people than previous bought cheap houses, rennovated them and on sold them for profit, pushing up prices. Many people got in on the craze to do likewise with their own house. Remember every channel being swamped with lifestyle shows like "Rennovation rescue"?

So until I see plenty of hard evidence from multiple sources, I will be more inclined to think that rapidly expanding material desires and the tendancy to regard houses as a mere commodity to profit from combined with an era of easy credit to produce what we have today.

I too agree with Yabby’s reflections on housing and house prices

Fozz “Howard's slashing of capital gains tax”

No Howard did not slash CGT, he simplified CGT.

He halved the rate BUT he countered the impact of that by removing the index linked inflation adjustment from the calculation.

As to “affordable” dwellings, I find all discussion to “affordability” almost silly.

Banks ‘conforming’ lending is conditioned, among other things on the basis of an earnings multiplier, which translates to earnings equating to at least 30% the sum borrowed.

That standard has prevailed for years. Non-conforming loans “Lo-Doc” loans can vary to this but they are much the minority and still require sound alternate credentials.

And Australian housing prices are “constrained” by peoples ability to afford them.

So, something else must be changing in peoples expenditure mix / discretionary expenditure priorities.

Australia has always had a significant “investment housing stock” available for rent so I doubt the attraction of negative gearing is making a difference.

GST has changed the composition of taxes but was offset by other taxes being removed.

Things like TVs and electronic gadgets have multiplied in their range and use but their unit prices have fallen greatly over the past 3 decades.

The only material change which springs to mind is the demand of successive recent governments for people to save through superfunds, which has the effect of diverting / reducing disposable income.

Maybe some people are just not prepared to do the “hard yards” and budget, which previous generations always endured when trying to buy their first house?

So if anyone can show me how housing is less ‘affordable’ these days, compared to say, 3 decades ago I open to being persuaded.

Yabby,

Because it would wipe-out thousands of thirty-something YUPPIES with $600K mortgages.

O.

Yabby

Once the current calamity fully hits the fall is likely to be closer to 55% and it'll affect all those negatively geared properties most.

*Because it would wipe-out thousands of thirty-something YUPPIES with $600K mortgages.*

Oliver, but surely they can still live in their yuppy houses and
pay the mortgage from their yuppy salaries. The way I see it, its
only the heavily negatively geared ones with short term loans, where
banks might hold back future finance and they could be forced to
sell.

Its a bit the same in the share market, where people with margin
calls have had to sell, as well as hedge funds, as many people
are pulling their money out, so they have no choice but to sell.

Anyway, I pinned my ears back today and bought some BHP shares
for my super fund. They might go down lower and they might not,
but to me at around the 25$ mark, they are pretty good value at
that sort of price. Now to sit back and expect a dividend cheque
twice a year, and no pesky tenants to deal with :)

Yabby when they fall again why wouldn't you simply buy some more and average them.

Col, why do you go on endlessly arguing that black is white? What purpose does it serve to argue against the glaringly obvious?

I bought my house just prior (thank God) to the start of the housing boom. As of late last year, it was valued at almost 300% more than what I paid. Simply put, we would struggle to afford the exact same house today.

The decade just gone has clearly demonstrated that house prices are not at all constrained by people's ability to service the debt without mortgage overload, they are constrained only by the willingness of the lender to lend. We have just come through an age of easy credit in which people found they had the means to "have it all now" and without this, people would not have ended up with the debt levels they carry today. Make no mistake, as our percieved means expand, our desires expand as well and I have no doubt that this can carry on ad infinitum.

The ordinary house (by today's standards) next to my parents has an asking price of more than half-a-million. Even in this resource town full of well paid resource sector jobs, what average John and Jane can really afford to service such a debt without a lot of pain at least?

Fozz I corrected your misrepresentation on the matter of changes to CGT.

It was you who painted the white black in the first place.

To the rest of my post

“So if anyone can show me how housing is less ‘affordable’ these days, compared to say, 3 decades ago I open to being persuaded.”

I have made a request, not painted anything.

When I compare between now and three decades ago, I earn now, annually, about what 6 times what I earned then and my present house is worth about 6 times what would have been then

I see no change!

What I have observed is that income increases do not align, year by year, with the house values,
This is understandable, house prices are more subject to supply and demand and fashion issues than incomes.

If I go back another 30 years again, my father paid a lot less for a house than I did but he also earned a hell of a lot less.

In the coming 5 years I fully expect average incomes to fall. I expect house values will, likewise fall.

“they are constrained only by the willingness of the lender to lend.:”

Not me, I have a house loan which was 80% the house value 2 years ago but only 30% of it is drawn. The mortgage on which I pay interest is, therefore, about 20% the house value and I have a huge amount of financial reserve available to deploy on income generating opportunities.

A lenders willingness to offer me money does not motivate my willingness to spend it.

I suspect if you are experiencing financial difficulties with meeting your loan obligations, l it has more to do with your lack of financial responsibility than the largesse of any lender.

“John and Jane can really afford to service such a debt without a lot of pain at least?”

The first year of mortgage borrowing is always the hardest, everyone knows that.

But it is only the woosies who find it insurmountable.

Wanna try again?

“So if anyone can show me how housing is less ‘affordable’ these days, compared to say, 3 decades ago I open to being persuaded.”

I've noted over a 400% increase in one area in less than 10 years. Does this count, Col?

Nice try Col, but it's you who are misrepresenting. Howard slashed (if halving is not called slashing, what portion would you prefer is? 99%?) CGT to encourage an investment property boom. People subsequently bought up cheaper houses, rennovated them and flogged them for a profit, adding sometimes many tens of thousands of dollars to the resale value, rendering largely irrelivent the factor you mentioned. When a relatively small handfull of people and properties are involved in this, it is not a problem. But too many people were encouraged to dabble in investment capitalism, gobbling up cheap houses and turning them into expensive ones, pushing up the price all round. Nice one Howard.

"When I compare between now and three decades ago, I earn annualy, about 6 times what I earned then and my present house is worth about 6 times as much now". Gee whiz Col - no wonder YOU see no change. Could you spare a thought here for the average Aussie whose income has risen by half that rate in the past five-and-a-half decades?

I do like the cheap shot you fired as well but I'm afraid I'll have to dissapoint you. My finances are sound and a little over a years repayments in advance. As I said, I got in before the boom started and have always been perfectly happy with my little weatherboard shoebox.

I will ahve to continue this later but feel free to try again.

Col when I started working the median house price in melbourne was 3 times the graduate starting wage. Lets say a graduate starting wage is $52000 and the median house price is $320,000, that is 6 times the annual wage. Yes I know some graduates start earning more than this but many earn less and the majority of Victorians in their 20s have post secondary school qualifications [I know your daughters don't] New houses are generally larger than older houses.

Wendell Cox says that if there were no land restrictions then house prices would be lower. In Melbourne the middle and outer suburban dwellers are penalised by having no public transport, long commutes to the railhead to catch overcrowded trains, if they can find space in the car park. Their childrens' schools are new, large and tough and most services remain in the inner suburbs. Meanwhile their new housing development has taken productive non-irrigated farmland out of production.

"Wendell Cox says that if there were no land restrictions then house prices would be lower"

Yes, this is the main point of Cox's article. Listening to the declining housing affordability denialists is a bit like listening to David Irving. I'd also point out that affordability used to be measured against a single income. Now it is measured against household income. And as many would know, it is very hard to find information on house prices ten years ago, let alone thirty, so there is a fair reliance on memory.

As for the "blame the victim" blather about McMansions, it is a fact that building costs have halved and income has risen. But land costs have risen far more, and the restrictions are great. Instead of anger at profligate McMansion owners, I question why I dont see fitted out shipping containers with electricity, water and sewage services connected. Where have all the tightwad's gone these days? Of course, severe regulation prevents such choices.

I'm not attempting to blame the victim fester.
Plenty of people truly are the victims of this bubble and have little choice but to either take out a cripplingly high mortgage or keep paying cripplingly high rent, or live with the social difficulties of existing under the same roof with a bunch of other people and thefore having no space of their own.

But I do also agree with Clive Hamilton that there is a significant "affluenza" factor in all of this. An article in the Courier Mail showed a young couple who were over the moon that the FHOG being doubled now meant that they could afford to take out a mortgage. Couldn't afford one before apparently. The photo shows them smiling broadly while standing in front of a house that was the very epitome of the term "Mcmansion". This childless couple were buying a truly huge house with a grand, two-story entrance reminiscent of a Roman temple. How widespread is the desire for ever bigger and flasher? Not all that rare, I think. So while this is certainly not the whole story, it is a part of the problem.

Are you certain building costs have halved? You might possibly be correct over the longer term but I think that in more recent times, the huge volumes of money poured into the industry can only have inflated them by a fairly hefty margin. Tradies have at least doubled their income in a relatively short space of time and this must be factored into building costs.

Col, in response to one of your queries: the property industry paid about $2.5Bn pa in wholesale sales tax prior to the introduction of the GST; it now pays about $30Bn in GST. That's one of the reasons why housing is now much less affordable than a decade ago: government taxes and charges now make up 20-30% of the cost of a new dwelling. That increase in the cost base of new homes (detached houses and apartments) has affected the affordability of all dwellings as the increased price of new dwellings has been capitalised into the whole stock of housing. Whatever measure you choose to use: median multiples, housing mortgage and rent stress, public housing waiting lists, or homelessness, we have a housing crisis in Australia, and Wendell is correct in identifying government planning failure as a prime cause.

Where are all the McMansions you speak of? I see plenty of apartments and housing being constructed, but very few would befit the McMansion epithet. Perhaps you could direct me to a google map where I can view street upon street of these constructions?

"Are you certain building costs have halved?"

I read an article a few years ago comparing the cost of building a house in the early 1950s and fifty years later. The building cost had more than halved. Yes, costs have increased since the article, but I doubt that they have doubled. I'm finding it very difficult to access historical information on house prices and costs on the internet, so I will look to other information sources as time permits, then post the information on another thread.

I look forward to discussing this topic further in future.

To finish, here is a link claiming that the price of a basic house and land package has traditionally been about three times the median wage.

http://www.greataustraliandream.net.au/home%20truths.pdf