Ric Battelino, RBA deputy governor:

"First, Australians are on average spending a lot more on each new dwelling. Real
expenditure on each new dwelling built is now 60 per cent higher than it was
around 15 years ago . This is due to improvements in quality and
increases in size.
Graph 5
• Second, a high proportion of dwelling investment is in the form of alterations and
additions – i.e. upgrading existing houses rather than building new ones. Almost
half of all dwelling investment has been accounted for by alterations and
additions in recent years.
• Third, a higher proportion of the new houses built are simply replacing existing
houses that have been demolished. We estimate that between 2001 and 2006,
around 15 per cent of new houses built replaced houses that had been demolished;
10–15 years earlier, that figure was less than 10 per cent.
• Fourth, a significant proportion of dwelling investment appears to have gone into
holiday homes or second homes. Census data show that the number of dwellings
built has exceeded the increase in the number of households by a large margin. As
a result, the ratio of the number of dwellings to the number of households has
been rising over time; as at 2006, there were 8 per cent more dwellings in
Australia than there were households. Presumably, most of this surplus reflects
holiday houses and second houses"

So the RBA thinks that we're spending a lot more making new houses bigger and flasher (prices go up).

That we are spending up on making existing houses bigger and flasher (prices go up).

That many new houses are simply being built to replace older houses that in many cases may simply have not been big and flash enough (prices go up as vast sums are pumped into the existing stock rather than increasing the stock).

And that more people are buying holiday homes.

The RBA sees fit to not simply ignore these powerful contributing factors - why do so many others seem determined to do so?

New Australian houses now the biggest in the world:

http://www.smh.com.au/national/home-truths-australia-trumps-us-when-it-comes-to-mcmansions-20091129-jyva.html

Perhaps Clive Hamilton (now the Greens candidate for Peter Costello's old seat) had some good points when he wrote "Affluenza" - Australians in greater numbers than ever before have become addicted to opulence.

It also seems to me that a much bigger portion of Australians have decided that they wanted to live the capitalist/investor dream and become rich through the vehicle of housing investment. When a relatively small number of people engage in this, it doesn't make much difference. But when large numbers of people pour huge sums into making houses bigger and more expensive because (a) they desire a palatial residence and/or (b) they buy cheaper houses with an eye to rennovating them (half of all the money invested in housing in this country of late has gone into rennovation) and flogging them at a profit, then there is only one direction that prices can go - UP.

Maybe we can split ourselves into two classes here - the "aspirationals" and those in the lower part of the income spectrum who can no longer afford to buy a house because the aspirationals have succeeded at pushing prices through the roof. After all, if you are into housing investment, you want to see prices go up.

So all the "clever individuals" - most of whom aren't really acting as individuals but are simply following a mass trend - are so focussed on their own desire to feel wealthy that they do not realise or perhaps do not care that their collective actions have harmed people in the income strata below them.

Some people would have us believe that if regulation and red tape were removed, prices would fall. The evidence suggests otherwise.

I think we should call a spade a spade and admit that Australians themselves must carry a lot of the blame for this situation.

I am not a banker, real estate agent or land developer, nor have any connections with such.

This article hits the nail on the head, and it's an easily provable - just compare the price of land (per metre) with and without the Urban Boundary. The rural land within 5km is HEAPS cheaper, metre for metre, even after development costs.

http://www.loosethenoose.net - how the state governments land zoning is strangling young familie

I get tired of reading and about this "Australia, land of the fair go". And how things have changed. It never has been. Read some history. When was a penal colony ever a fair go. The idea is touted by those bent on swindling you out of every last cent you earn. The convicts were slaves and nothing has changed, except that they let us out for 10 hours a day.

Stewart,

The points you raise are important factors, as I said previously.

But it does not assist our understanding of the situation to simply ignore other important factors. By simply ignoring the factors that the RBA, the ABS and others have highlighted, we get no closer to a solution and may even become part of the problem.

It is clear that a significant number of Australians have become more materially aspirational than previous. The fact that our new houses are now the largest in the world and that an ever-increasing portion of us own second houses (or rather in most cases, second mortgages) strongly indicates this. The extrordinary boom in finance for rennovation, the craze in investment housing, the fact that we are knocking down more older houses than ever before only to build something grander on the site - these all speak volumes about the driving forces behind this.

If there is a powerful drive for greater affluence, simply relaxing zoning laws is likely to be limited in effect - large numbers of people WANT grander housing which is naturally more expensive.

I was stunned when I recieved a valuation on my litte shoebox - if this ordinary working couple's household income had grown at the same rate as the market value of our house has increased over the same time, we would be bringing in something in the range of a quater of a million dollars a year by now.

It is NOT realistic for anyone to argue that the average income has grown at the same rate as house prices - unless they know something that the RBA, the ABS and economic commentators don't. Unless what I have personally experienced and witnessed is just a figment of my imagination.

If a significant portion of Australians are determined to simply keep pouring ever increasing finances into maker houses ever bigger and flasher and therefore more expensive, the bubble is unlikey to burst and bring prices down to realistic levels without a severe recession, as has occurred in the US.