A simpler explanation is that the reason that property has become so unaffordable in Australia is that we are one of the last western nations with a rapidly growing population. If you stopped population growth and abolished negative gearing you would see prices fall rapidly and the housing crisis would be solved. Now that world energy supplies are falling total real economic activity is falling in line with that. All those extra dollars that are being borrowed (in Australia) or printed (in the USA, UK etc.) need to find a "safe" home - they are pushing up nominal values in stock markets and property prices here from investment in what looks like a property market still giving returns. But it is really only inflation since there is little added real physical value/activity going on - just added price. Once the Australian property market turns south it will crash big-time. That is why the government is desperate to keep record population growth going since it keeps its developer mates (election campaign donors) happy and our main remaining manufacturing activity (house building) in employment. But at what future cost to our children?

michael in adelaide well done. Nobody in the op-eds or so-called column writers would dare to touch the truth because there are so many rich and powerful players. To start with, the papers make millions through in-print property advertising and supplements, as well as through property websites such as D0main dot com and real estate dot com (fairfax and news sites).

Extreme unaffordability will also undermine work incentives if it hasn't done so already (which may be why immigration is so high). What I mean in this is that I see people opting out of work altogether if they realise that they will never have any hope of owning their own home.....traditionally people found they once could work and own a home this is now something many workers will never realise. Why would a person work if they can never get ahead financially and achieve work-life balance as well as dignity and comfort both for now and in their elder years? Immigration keeps the labor supply in overflow so that labor costs are kept down, half of the greens supporters and boosters also are people who have a financial interest in high immigration and growth, the environment is a token ruse to keep our eyes off the ball as far as they're concerned.

michael_in_adelaide.... well said.
It is the only answer to the housing problem and of course also to the water, food, transport, oil and electricity problems as well.

I agree with the others. Michael is right on the ball with his comments about our politiicans' maniacal drive for a bigger population. Big business supported by big government to the detriment of Australia.

Just so know all know where this guy is coming from the "Georgist movement" promotes the idea that the root of all evil is the way land is parceled out. Their answer to this problem (and hence the creation of utopia) is to replace all existing taxes with a single land tax. Ie you are taxed based on the price of the land (only - not buildings) you own. So for example, an Australian Internet bank that put it operations overseas would not be taxed.

http://www.stampmania-australia.com.au/~johnm/wallst.htm

This article just re-casts that mantra in terms of housing prices.

"international surveys leave little doubt that housing in Australia is unaffordable."
Well if housing is unaffordable how come houses(and land) are being bought? The home buyers and the banks who lend them the money are complete dills?
Yes in the capital cities and provincial towns, the value of the land swamps the value of the house. In the bush the reverse is the case. Why? Because the supply of housing land in our cities has lagged well behind the demand for land, a demand fuelled by rising incomes, double household incomes and increases in population. In the bush the supply of housing and land for housing is ample to meet any demands, hence the relatively low prices.
We will see the swing in the inner city to high density units and town houses continue with the percentage of people living in units and town houses, as opposed to houses, increasing over time.

Inner-Sydney based transsexual, indigent outcast progeny of merchant family and michael_in_adelaide, i agree 100%.

I am a gen y with no wealthy parents and personally i already question "why am i turning the cogs for some rich money counter to go on a holiday when i cannot?" scarily i hear very similiar perceptions amongst the under middle class Australians (the majority). I never understodd why an individual needed more than 3 investment properties.

And to Sibba, the reason why you see people buying homes is because they are the specific minority in this country who can afford to splash their cash around helping to keep the market climbing or who are very very stupid and bought in a point where the words " Australia's property market severely unaffordable" has been used many many times by all. Even Glenn Stevens spat it out on a microphone. (alarm bells.

Overall i believe the biggest cost will not be property itself but of social dysfunction and unrest.

Housing is NOT unaffordable, otherwise no houses would be bought or sold. People without a roof over their head just have to afford. Housing is BECOMING unaffordable. There are two fairly obvious major reasons for this: (1) Artificial shortage of building land/blocks at an affordable/reasonable price. (2) Due to uncontrolled wage escalation/skilled labour shortage building costs are becoming unaffordable/unreasonable.
If governments had the will these major reasons could be overcome:
(1)By governments entering the land development business, developing large tracts of crown land for housing and sale at development cost price, by forced take over of vacant building land and again developing for housing purposes and sale at prices to cover development costs. Adequate public transport to be also developed to provide reasonable access to these land developments.
(2) Factories be established(privately run or government) to manufacture on a production line basis steel framed houses of various designs and sizes. These prefabricated steel frames could then be easily be erected upon concrete raft foundations complete with CI roofs. This mass production of the steel frame and roof covering must reduce considerably present housing costs, also enabling the erection by semi-skilled labour easily trained.
Present day Australian housing is light years behind other countries in modern building methods, is extremely labour intensive and as a consequence extremely costly.
Australian governments are obsessed by employment figures, obviously favouring labour intensive industries such as the present outdated building industry and, for exactly the same reason, supporting migration with its incessant demand for housing and services.
With increased affordable housing must come affordable sufficient public transport preferably light electric railway sytems. Only progressive governments with a will can provide affordable housing in the numbers required. It is possible, it is achieveable, but will it happen?

Are all the people you see at restaurants and pubs milking the public trough? Surely that many people can't be public servants. It seems strange that people can drink, eat like kings and gamble and yet can't afford housing. Maybe if everyone did not have to have a 4 by 2 with aircon then housing might be a little more affordable. I lived in a bus in a caravan park and did something called save in order to purchase my first modest house on a modest income. Today expectations are to high because parents spoil their children from day one. For most housing is affordable if you are prepared to work hard and save. Look at how the Italians did it when they came here. Unfortunately credit cards, mobile phones and lack of self control put home ownership out of reach to many would be home buyers.

michael_in_adelaide, ; If you stopped population growth and abolished negative gearing you would see prices fall rapidly and the housing crisis would be solved.

Truth is, if you take away the incentives to invest, investors will simply invest elswhere, not the property market and the 'renters' will have nowhere to live.

BTW, a large majority of rental properties are 'posatively geared' as they were purchased a few years back. NG has little effect here.

Now if you can't afford a house with below 5% interest and $21K gifted to you, I doubt you ever will so your best bet is to hope that the government doesn't drive investors out of the market hey!

Mind you, you had best brace yourselves as rents will skyrocket if owners get lumped with huge bills for services. Renters may even have to pay for services themselves hey!

elroy,
Do you have any of the following. Modern mobile phone, by that I mean one which you use to cheack emails and brose on the net, LCD or plasma, anything on an interest free period, a nice neat car on hock, etc etc.

Now if you answer yes to any of these then you may well be able to afford a house, but you can't have it all.

We also have what I call a 'spending crisis'. Many gen-Y's take home $800+ a week and blow the lot!

Change your spending habbits and you may well be amassed by what you can achieve.

I have two gen-y's myself.
runner
Well said, sorry I wrote my piece before I saw yours.

This article is, not to put too fine a point on it, a crock.

Its baseline is a survey - the 5th Annual Demographia International Housing Affordability Survey.

This document is flawed, in so many different ways, it is difficult to know where to start.

As a "survey", it has about as much value as the guy next to you on the train burbling on about how much more affordable his glass of beer was, back in 1955.

Starting with the very first table - the "Affordabilty" index.

Nowhere - absolutely nowhere - in the "survey" is there a clue how the authors arrive at their gradations of affordability, which they make so much of in the rest of the document.

It is a nonsense descriptor.

Affordability is measured by whether people are able to buy. Which they clearly are.

All the "survey" data shows is the percentage of income people are happy to allocate to a home of their choice. And - amazingly - they appear to be prepared to sacrifice a larger percentage in order to live in a place that they, for whatever reason, value more highly than another.

What a truly revolutionary concept. People choosing where to spend their hard-earned money.

This "survey" (I'm sorry, I can't seriously leave out the quotation marks) is absolutely worthless. As is the article based upon it.

People buy and sell houses every day. Which should be enough to end all discussion on affordability, right there. Because, patently, the houses in question are affordable.

It really doesn't get much simpler than that.

Affordability is measured by whether people are able to buy. Which they clearly are.
Yeah, Pericles the more they have the more they can buy, but at whose cost ?
Investment property is one of the major problems impacting on our society. It simply needs to be abolished. No-one needs more than one house to live in. If anyone wants to make money don't do it by depriving the next generation from affording a place to live.
An aquaintant proudly proclaims that he has three properties & yet he lives in employer provided accommodation & whinces at the cost of paying another tradesperson to work on his properties. Great patriotic australian citizens indeed such people.

The add on costs don't help either. A retired couple I know are in the process of moving to meet family circumstances and without paying for removalists they are spending $20k in fee's and tax's. The biggest component is the agent's fees and from memory the place was on the market for just over a week. Next up is the state government with a tax which should have been abolished after the GST came in. Lawyers fee's are not trivial.

A couple of those costs can be reduced but for most the alternatives are not good. The most unfair is the stamp duty, at least the other players provide something for their efforts.

R0bert

Some posters seem to think that houses are affordable because people are buying and selling them. Could I suggest to these budding Marie Antoinettes that housing affordability relates to the percentage of the population able to buy their own dwelling. The trend over the past several decades would seem to be a negative one.

Other posters seem to think that negative gearing is making the price of housing higher. I am curious to know what they think would happen to the price of television sets were they subject to negative gearing?

Dear Fester
"housing affordability relates to the percentage of the population able to buy their own dwelling."
You obviously didn't study the article very closely. That is not how the author defined affordabilty; his discussion was based on an article where total household income and house and land prices were used to derive an "affordability" index. It had nothing to do with the percentage of the population able to buy their own dwelling.

"The trend (in the percentage of the population able to buy their own dwelling) over the past several decades would seem to be a negative one"
It would either be negative, positive or no change depending where you did the study. And of course it would also depend on how you defined "able to buy their own dwelling" and your definition of a dwelling!

Well, do you think affordability of housing with a reasonably comfortable lifestyle is getting better or worse. I think it has gotten worse.

For a start, why is it our parents (ie in their prime with growing families in the 1960's to 70's) only paid something like twice the amount of their annual income/salary for their mortgage - and only a sole income needed at that! This was when salaries/incomes were much more balanced throughout the populice, before extreme Capitalism crept in. Today, it is 4 to 8 times the annual wage/salary/income (plus longer working hours) involved needed to pay for a never ending mortgage. Plus, making double household incomes more or less a necessity - no choice anymore! Also, I have read of several statistics from differing sources that say Australia is working the longest hours second to North Korea. I believe this is true.

Runner, yes I agree, consumerism/hedonism is playing along with paying the mortgages. But I believe there are also people that are not particularly taking part in that much and are plainly just struggling. Rents are also becoming increasingly over the top particularly for the average and below average income earner.

Constance,try replacing "before extreme Capitalism crept in" with nimbyism.

The problem is context, Constance.

>>Well, do you think affordability of housing with a reasonably comfortable lifestyle is getting better or worse. I think it has gotten worse. For a start, why is it our parents (ie in their prime with growing families in the 1960's to 70's) only paid something like twice the amount of their annual income/salary for their mortgage<<

By looking at housing as a separate expense, you are ignoring all the other factors. For example, try the same basis of calculation for, say, a television set. Or the weekly grocery bill, on a like-for-like basis.

There is also a point to be made here about cause and effect.

You are looking at the effect...

>>making double household incomes more or less a necessity...<<

Consider for a moment that folk might have elected to create double-income households, thanks to the freedom from domestic drudgery made possible by labour-saving devices in the home, increasing availability of support services such as dry cleaners, grocery home delivery etc.

The increase in household earnings makes it possible to elect to spend more on the acquisition of a good home, but in competition with others who have made the same choice.

So "double incomes" may have been the cause, rather than the effect, of more expensive property.

Just saying.

But underneath it all is the greater ability to choose how to spend our income. And - not entirely surprisingly - it appears that we choose to allocate a greater proportion of it to the home we live in.

What's so bad about that?

Your all talking silly, if you want to get to the heart of the matter it's all down to those evil money lenders. If you were not able to burrow money how much would houses cost?

The truth is Government should stay well away from this sort of thing. We would all be better off if Governments suck to the basics. The idea that private investment would cease is total crap. There will always be a demand for housing so there will also be people to make them. Government at all levels including highly corrupt councils are feeding the flames.

It is all hype. Hype is what drives speculation. If you understand human emotion you can too be a millionaire. It is very hard if you have ethics bred into you though as you understand it is wrong, so blame my parents yes I do.

Why do we pay extra for European appliance? Some still made same factory as Asian brand, some made in Turkey. No difference in quality. Hype.

Same with land. Hype. Water view. Waterviews are actually free, take a picnic to the shoreline, free. If you work 40 hours in a lower stress work environment you have lots of time to enjoy the waterview. However those that pay millions for one often have little time to actually enjoy thier view. Just hype.

The government keeps giving some incentive to keep house prices high. They use FHOG which just inflates price, migration then the foreign investment last year so now Chinese nationals are buying 30% housing stock. Whenever it looks like collapsing enter new scheme. Then talk up how we are doing so well. Ponzi scheme economic policy. Hope they never take the eye off the ball, then collapse for sure. The thing is many vacant building, also some tourist accommodations at quite low vacancy rates so easily converted to housing. There is no real shortage of housing and there is no real shortage of many skills, just ask a cab driver. Just a shortage of skilled workers willing to work for peanut. Hype.

One threat I see is debt at retirement. Once you are 45 income options reduce so many will borrow against their house to pay rates, repairs, even "buy" a job so I think more and more will have debt at retirement and will need super to pay out debt rather than self fund retirement. At the end of the day the only real wealth is equity, not home values. There is a decline in outright ownership. The skills shortage that is over stated is really a push for lower paid workers. One does not add up to the other being sustainable.

*So "double incomes" may have been the cause, rather than the effect, of more expensive property.*

Ah very true! I seem to recall some Reserve Bank statistics
which showed that some of the highest real estate debts were
carried by double income professionals, uptrading their inner
city homes. So if you want to live close to the city, that
is who you are competing with.

You can still buy a house in the outer suburbs of Brisbane for under $300K. Sure, it's not the flash modern, rendered home, but it's a house.

Lower your standards a little, prioretise your spending and you may well be able to afford a house.

Now on the other hand, if you want to be close to the cities and keep up with the jones, then yes, afforabillity may well be an issue.

But! Don't get your 'wants and needs' mixed up!

If you can afford to rent at say $400 a week and, you have a steady income and, you don't have a mark against your 'credit history', then you should be able to afford around $300K. That's about $300 per week for the interest. Still leaves $100 for other expenses associated with owning a home.

Save, save, save is the best option. Nobody said there was no pain attached!

Oh, where to start on this one!
Michael of Adelaide wants to stop population growth so we don't have to provide housing. Huh? Why not allow people to build what they need. There is no shortage of labour or building materials. Bring 'em together. Let the economy work, and the market will provide what we need. It is the interferences in the market that is forcing house prices up. I agree that Negative Gearing is a problem, and should be abolished. It is simply an interference, aimed at baby boomer and yuppie investors, but costing Gen X and Y heavily.
Inner-city-trans warns of people opting out of work altogether. That is the result of gov'ment interference. Of course people should keep what they earn, without that same gov'ment that has pushed house prices out of their reach, picking their pockets and taking away the earnings of their sweat or brain.
So, Jack from Bilton, you will understand that your suggestion to have guv'ment develop the land and to manufacture pre-fab houses doesn't sit well with me. Let them show they can run a chook raffle first.
rehctub: Oh dear, your generosity in providing a roof over our heads is overwhelming! Thanks, but, we'd prefer if you'd just vacate the market and give us a chance to buy our own home. Especially as the tax deductions claimed in expenses in Oz exceed the total rents received. So, do you do it for the tax relief, perhaps, or the capital gains? Either way, you are asking future generations to fund your current lifestyle. Some of us choose not to live like that; we prefer to invest our time and money in productive enterprise, but go for it, you civic-minded philanthropist, you. But, puhleeease!, don't expect us to take you seriously.
(to be continued)

Runner, well done for saving. You would have saved a deposit for a (average) property that was 2 or 3 times your (average) wage. Try that now, and you're facing a mortgage 8 times average earnings. The game has changed, and the players might just have to live in that bus forever. House prices (land price, really) have escalated faster than either earnings or savings can keep up with. That's the treadmill we've put Gen X and Y onto.
Pericles takes an academic approach to discredit the report on which the article is based. Could be right, for all I know, but really, who cares? Its beside the point. As Pericles says in a later post, its about cause and effect.
The article is about land price escalating beyond our capacity to pay, and laments the pseudo remedies of regulating greed and speculation by force. It suggests the cause is 'privatisation of land value'.
Compared to all other posts, it makes the greatest sense to me. In fact, nothing else comes close, so I'm prepared to accept the primary proposition, unless I read a plausible critique.

M in A:” If you stopped population growth and abolished negative gearing you would see prices fall rapidly and the housing crisis would be solved.”
True. Govt technique is to increase debt (and thereby GST revenues) by adding extra consumers to equation.
If long term infrastructure costs were considered, immigration numbers would be reduced to more sustainable level.

Runner: my mobile phone cost under $100, plus a $20 yearly pre-paid.
How can anyone reasonably relate an annual cost of $20 pre-paid phone deal to a 25-30 yr mortgage debt of over $300,000?

Rehctub: “Truth is, if you take away the incentives to invest, investors will simply invest elswhere, not the property market and the 'renters' will have nowhere to live.”
Rehctub, What, do you think renters are not capable of buying a home if the tax system were fair? It is the current lop-sided system that sheets home massive advantage to investors. Until this is addressed, I expect to see more RE speculation by govt ministers (amongst others).

TheMissus: “The government keeps giving some incentive to keep house prices high.” True, there are at least 2 reasons: 1. govt is protecting their own RE portfolios, and, 2. they want to walk through shopping malls without getting lynched.

Foleo: “you are asking future generations to fund your current lifestyle”. True, this seems to be the motto of free-loaders.

This is at the centre of the problem. Policy makers in Treasury rubber-stamping tax rules that exclusively benefit investors out of all proportion to their input. I use the word ‘input’, but really watching the antics of amateur investors (out to make as much of a loss as possible by negative gearing) is so ridiculous it is almost funny.

Question: Why is negative gearing allowed on second hand homes in the first place?
No employment is created through this form of subsidised debt, just greater amounts of debt. It is a joke.

My hope is that enough people tackle this waste of our collective energy head on. Future generations deserve better.

"Not Capitalism Not Communism

Distributism is the third way, and it is proven to work.

Capitalism and Communism put property and the means of production into the hands of the 1%. Capitalism by monopoly and Communism by state ownership.

Distributism puts both property and the means of production into the hands of the majority.

If a distributist government was in power, human needs would be regarded as human rights. Food water shelter, the basic needs of life would be supplied by manditory property ownership.

An 18 year old leaving home would be allotted a piece of land as first home builders grant. Thats right, a direct land grant with no greedy corrupt developers involved. He would then apply for a no interest loan or at cost loan from the government bank, to build an independant off the grid eco house. Once this 18 year old has built his house he has freehold title that can never be taken from him, thats his home for life if he so wishes.

Foreign ownership of Australian domestic dwellings would be banned, as this artifially inflates house prices.

Ownership of more than two domestic dwellings would invite massive taxation on rental incomes. This will stop hoarding of domestic property, and artificial inflation of house prices.

There would be no limitations on commercial property ownership, just domestic property won't be a means of investment. Housing is a human need, not a means investment.

People should be able to pay off there homes within 10 years, not spend a lifetime paying off the shelter above their heads. A distributist government would encourage maximum housing ownership, and energy independant housing. Solar subsidy, rainwater tank subsidy.

The major cost of living is just the shelter over ones head, which is disgraceful in this day and age.

Cont....

...Cont'd

Housing should be an easily and naturally realised thing, not something to be slave to the commercial banks for the rest of your life."

This piece is not my creation but I found this comment on some other forum, which I agree with.

Pericles, I'm sorry Australia is losing the plot (even more than USA) with working longer hours. I even further heard it confirmed this morning while listening to Radio National and the mentioning of unpaid overtime that many workers here do (too much work and keeping up appearances). I've been to Europe recently and they don't seem to live for work like we do. And a parent having become forced to work - I don't see much difference to the Russian women working like slaves in the factories "having no choice". Really.

We need more time for ourselves for outside work productivity, and live the broader picture that life has to offer, don't we?

*and the mentioning of unpaid overtime that many workers here do*

I heard that too, Constance. So how much time do you think,
your average office worker would spend, surfing the net, answering private
emails, chatting with others in the office about just about anything,
sneaking out for a smoke, checking out OLO, posting tweets or
keeping up with Myspace etc?

Foleo; So, do you do it for the tax relief, perhaps, or the capital gains?

Well, both in fact and, as the likes of you are so kind enough to continue renting and pay higher and higher rents, simply because you winge about everything rather than concerntrating your efforts on buying your own house, my rental house gains equity, becomes 'positively geared' and I buy another one. Cheers! I'll think of you when having a beer tonight.

Now I am of the 'baby boomer' era and, one thing we do differently to you 'gen y's' is that we build an assett base so that our own kids will at least have something left to them when we pass on. Pitty help your kids, if you have some!

They will most likely say something like, 'wow, what a swell guy he was. He left us this 'plasma' on an interest free deal', what a legend!

Now that I've had my fun, it's time for some facts.

Developers 'at large' work on 'margins', that's it!

The esculated costs in land is all due to external charges. Council fees, government fees, head works fees, over the top wages paid to many contractors, company complience costs, etc, etc. Don't blame the developers as they simply buy and sell land.

Leela; Question: Why is negative gearing allowed on second hand homes in the first place?

Because capital gains tax is piad when the assett is sold. Take away this tax and you can take away NG. Then you will see a huge increase is house prices.

You gen-y's have forgotten one thing. You have to work for what you want!

Yabby, never let the truth get in the way of a good story mate!

Housing “affordability” is a function of

A house price
and
Since the vast majority of houses are debt financed – the interest rate paid on the borrowings

I would note that the graph, which accompanied the article omits any reference to interest rate and in that way is a deception, either incompetence or cynical.

No one can debate housing affordability or its unaffordability without reference to the primary cost of purchased (or investment) housing, being the interest paid on the borrowings taken out to support its purchase.

So what is the difference and what supports the gap between house values versus building costs in the 1970/1980’s and today… simple

Prevailing borrowing rates were 12%+ in the 1970/1980’s and half that today.

Thus halve the interest rate and all other things remaining equal, like supply or available stock for sale, the affordability is half what it was and the demand/supply price can double to bring affordability back to the 30% (=/- 3%) of gross income.

Since house prices are determined by the influences of supply and demand
Some factors affecting supply and demand:
1 population (immigration)
higher immigration increases demand and thus house prices
2 planning / building regulations
Policies like “Melbourne Green Wedges” limit the number of available building blocks, constricting supply and thus the pent up demand (caused by the restriction) increases prices.
3 buyers grants – directly increase prices by sponsoring “demand”
4 negative gearing, without it, house prices will, in the short term, reduce but so will rental housing (as investment is removed) or the rental rates will increase to cover the tax benefit shortfall. In the longer term, negative gearing benefits the tenant not the investor (Michael_in_adelaide)

Blairbar “Well if housing is unaffordable how come houses(and land) are being bought?”
Absolutely right.
One should ask “affordable” relative to what: house prices in USA, Bulgaria or France?

Pericles “This article is, not to put too fine a point on it, a crock…. This document is flawed”
Agree

Constance you are as wrong as the article “extreme capitalism” what a crock your observation is due to interest rates.

Sometimes, the honesty displayed here is breathtaking.

Today's example, courtesy of foleo:

>>Could be right, for all I know, but really, who cares? Its beside the point.<<

Yup. When you have a point of view that you desperately want to believe, whether an opposing view is right or wrong is totally beside the point.

Such clarity. Such honesty. It's a shame that more people don't preface their views with the same open declaration.

But sometimes these conversations get very confusing.

>>Pericles, I'm sorry Australia is losing the plot (even more than USA) with working longer hours.<<

Eh Constance?

Why choose me as the target of your apology? I don't recall suggesting that Australia has lost the plot on anything. But perhaps I talk in my sleep. (oops. Our little secret is out...)

Incidentally, I find your proposals far-fetched in the extreme. Bordering on fantasy, even.

>>An 18 year old leaving home would be allotted a piece of land as first home builders grant. Thats right, a direct land grant with no greedy corrupt developers involved. He would then apply for a no interest loan or at cost loan from the government bank, to build an independant off the grid eco house. Once this 18 year old has built his house he has freehold title that can never be taken from him, thats his home for life if he so wishes.<<

"He" Constance?

Only blokes? Surely not?

And out of interest, where would these houses be built? Close to "his" workplace, I trust.

And your financing proposal needs a little work. There are no interest payments, you mentioned that. But what about the principal - does that have to be repaid? What if "he" can't. since "his" house is so far from "his" work that "he" can't afford the repayments? Will you repossess the house? If so, what happens to "his" "freehold title that can never be taken from him"?

I know, I know, these are trivial little details that someone somewhere will iron out, and I'm just nitpicking.

What is it about housing that brings out all these fantasies?

Constance "Not Capitalism Not Communism

Distributism is the third way, and it is proven to work.
Distributism puts both property and the means of production into the hands of the majority.”

Ah ownership by the proletariat!

who appoints the representatives committee?

What you promote is “Communism” and “Collectivism” , repackaged under another name.

Proving, once again what dearest Margaret observed

"Socialists have always spent much of their time seeking new titles for their beliefs, because the old versions so quickly become outdated and discredited."

Even the Kibbutz system in Israel is being abandoned .

So, not to dwell on names, I have some practical questions for Constance:

How does this land bank acquire the land to distribute? What happens to land already owned by private individuals?

How does the land-bank get administered – by public servants appointed by government (communistic) or private appointed staff (capitalistic)

What happens when the beneficiary of the land parcel wants to relocate?

Does he:

Sell the land (capitalistic), lose the land (communistic) apply to swap?

If he applies to “swap”, what happens if his original land was in say Tasmania and he wants to swap with one in say the Gold Coast… more demand for Gold Coast and none for Tassie…. How does the “perceived value differential” get resolved?

What happens if the beneficiary of the land parcel dies?
Do the children he has brought into the world inherit the land?

Do they surrender it and if they do – where do they live until they qualify for their own little parcels?

“We need more time for ourselves for outside work productivity, and live the broader picture that life has to offer, don't we?”

I suggest you read Maslow

Some of us have made that choice progressively through our lives, without the intervention of government or regulation..
I am quite happy with mine and I doubt government could do better … because I know what is best for myself.

Pericles “What is it about housing that brings out all these fantasies?”

Too much pot and too many pills?

Now I'm not a capitalist by any means, a satirist perhaps, but not a capitlalist, however one thing is clear to me.

It is only relatively recently that the idea of owning a house has been thought of as a right. In many countries renting is considered normal.

The idea that we all have to be able to afford a house is what is driving people to get mortgages they can't afford. This is not reality, it is a wish.

If you can't afford it, don't try. Rent instead, or live further out from the city. If enough people can't afford houses there will be a drop in the price. Our own insistence on a house 'right now' is what pushes up prices.

I find myself agreeing woth Runner on this one. Perhaps people need to start off renting in small flats instead of trying to jump straight into a nice house in the suburbs. Also, parents who help out with their kids first house are only making the worse as they hide the true cost and effort needed to achieve your own home.

Interestingly, Phil Matimein, your point is well supported by the graph provided in the article itself.

>>If you can't afford it, don't try. Rent instead<<

The image "Real House Prices and Fundamentals", shows that whereas the index for "Real House Prices" now stands at 250 (100 = Average 1972-75), "Real Rents" are way down there at 112.

"Real Income", meanwhile, is around the 140 mark.

So your real income has risen three times as fast as the real cost of your rent. How's that for a good deal?

It is also clear that house prices have risen twelve times faster than the rental return, so nobody in their right minds would possibly consider buying a house and renting it out.

Aren't we lucky that there are still some people so unselfish, that they are still prepared to make that sacrifice?

Either that, or the graph is as big a crock as the rest of the article. I really can't be arsed to find out which it is.

Pericles, well said, they all think landlords make a killing.

Fact is, there is down time. Each time a tenent vacates another is sought. This can take days, weeks, even months at times. Lost income!

Then there is the agents letting fee. = to one weeks rent.

The checks that have to be done, fire safety, floor coverings, hazzards. All cost money.

Rates, in Brisbane outer about $2400 a year.

Agents fees.

Insurance.

Landlord insurance.

Excess water rates

So, of your $300 per week, we net just over $200 a week and, that's assumming we have a tenant for 52 weeks of the year.

So, if you think this is for you, then buy a peoperty and rent it out. Otherwise, just keep spending your savings and paying your rent.

Remember. Nobody, other than yourself, decides what you spend your money on. It is all about the sacrafices you are prepared to make and the choices you make, and that's it!

NOT OUR GRAPH

The graph at the end of the article can be found at http://www.rba.gov.au/Speeches/2008/_Images/270308_so_graph1.gif and was presented in a speech (http://www.rba.gov.au/Speeches/2008/sp_so_270308.html) by Anthony Richards, Head of Economic Analysis at the RBA. On Sep.15, I posted a link to the graph (not the graph itself) on an email list. I'm the director of the LVRG (http://www.lvrg.org.au/). My immediate predecessor in that role is Bryan Kavanagh. As the email from me was passed around, someone may have jumped to the conclusion that the graph had something to do with the LVRG. This may explain why the article attributes the graph to "Kavanagh (2009)" with a link to the LVRG website. Sorry - it wasn't us; it was the RBA!

grputland "As the email from me was passed around, someone may have jumped to the conclusion that the graph had something to do with the LVRG. This may explain why the article attributes the graph to "Kavanagh (2009)" with a link to the LVRG website. Sorry - it wasn't us; it was the RBA!"

Thankyou for the clarification but

that in no way instills me with any sense of confidence.

When anyone can publish a graph which,

by it ignoring the effect of interest rate fluctuations on "housing affordability", the graph has demonstrated complete ignorance of the largest single cost factor involved in property holding

to make it absolutely clear .... I mean the "interest cost" aka "the cost of borrowing".

to Illustrate..

in the 1980's interest rates were around 12% (+/-)

in the 2000's the interest rates have been around 6% (+/-)

in 1980's the borrowing cost on a $100,000 house would have been

$12,000 pa

in 2000's the borrowing costs on a $200,000 house would be $12,000

if interest rates had remained at the same level as 1980's, around 12%-ish, the house prices would not have increased, as illustrated in the graph line "Real house prices"

"Real House Prices" would have been closer to all the other lines running along the bottom of the graph and basically in line with "real average household income", as anyone with any insight what so ever, would expect.

Whoever produced that graph has less of a secure grasp on matters monetary than a grade three primary school student and if that was the RBA, they should hang their head in shame and look to review the minimum entry qualifications for their research staff.

So for anyone still in doubt (RBA included) lets make it clear, "Housing affordability" is driven by the mortgages income calculators and for full doc loans (the majority) they remain at around 30% of post tax income (adjusted for dependents and other borrowing costs).

Thus should interest rates go up, an individuals calculated borrowing capacity falls and house prices fall accordingly.

As col says, banks will allow you about 30% of your wage for servicing a mortgage. Now it's what you do with the remaining 70% that will determine whether or not you can afford a house.

Also, many my age bought their first home having to have at least a third deposit and with interest rates around 15% or higher.

However, we did not have mobiles, we did not eat out as much, in fact, socialising was more a case of a back yard barbie and a video or two.

We didn't buy 'ready prepared meals' and we saved.

So, in essence, we did it tougher than you do now, as you don't even have to save a deposit. Let alone 30% + we are also taxpayers who contributed to the 7, 14 or even 21K that was gifted to you yet you still didn't take the plunge.

SO STOP WHINGING!

Col Rouge: I'm not sure it's my job to defend the RBA's work except to give it due attribution, but...

There's also the small problem that if you want to own a home, you have to pay off not only the interest but also the principal. The same speech (http://www.rba.gov.au/Speeches/2008/sp_so_270308.html) indeed discusses some measures of affordability involving interest + principal.

Grputland “There's also the small problem that if you want to own a home, you have to pay off not only the interest but also the principal”

I would have thought someone of your apparent education would have realized that whilst the major component of a mortgage payment is, particularly in the early years, the interest, another component is the repayment of principle.

I did not, for reasons of word limits, explain that detail in my earlier post because I thought that most people contributing to this post would realize that fact.

So to expand on what I previously said, the 30% (or so) a bank will lend you, after allowing a 2% margin for interest rates fluctuation, also includes the repayment of principle.

Like I said previously, had the graph been adjusted for the shift in interest rates, the price of housing line would have followed closer the "real average household income" line,

"real average household income" (capacity to pay), is the second major driver of house prices (after interest rate) because it is a denominator of the affordability calculators. The higher the "real average household income", the more upward price pressure is applied to all house prices.

When a recession hits, incomes fall, house prices fall…

Krudds problem now is he has artificially fuelled house prices with a spending spree but the economy is not really “bursting at the seams” therefore people will defer taking on additional debt

But the “double whammy”

following the inept decision to have a “dimulous package”, interest rates are doomed to rise, depressing the property market still further.

Not good for getting re-elected

So if you have a secure job and want a house, I suggest you hold back and grab yourself a mortgagee “snatch-back”. That is what my daughter is waiting for.. she has one house (bought it aged 21) but is looking for more.

Myself, I just plunged in and bought a second one recently and then got married so now we (wife & I) have 3 houses. Long term we will do ok and time selling them to avoid CGT

"Sometimes, the honesty displayed here is breathtaking."

How true, Pericles, and here is an example:

"So your real income has risen three times as fast as the real cost of your rent. How's that for a good deal?"

Hmmm, but have rents risen or fallen in real terms? Could you provide links to data showing how rents have changed in real terms since say 1950? There is evidence that rents have been rising of late:

http://www.brisbanetimes.com.au/national/housing-rental-balloon-leaves-more-in-need-20091117-ikew.html

"The Australian Institute of Health and Welfare says house prices have increased at twice the rate of inflation since 1996 and rentals are almost $100 a week higher than if they had gone up in step with inflation since 1996."

Some posters also seem to think people waste far too much on gadgets these days. It is hardly surprising though, when you consider the huge improvements in quality and reductions in price.

http://gizmodo.com/5313690/why-you-cant-complain-about-the-price-of-todays-gadgets

"So your MacBook cost $1500—boo hoo. Thirty years ago, when the average salary was under $18,000, you'd have paid $2638 for an Apple II with 48K of RAM ($7770 in today's dollars)."