There has been a lot of media (social and otherwise) attention on Sydney housing prices lately. There is speculation on whether there is a property bubble, meaning that prices have already risen above the market value and must soon come crashing down. Or is it just that the recent growth in housing prices was unsustainable (almost certainly in my personal opinion), and prices may just plateau for some time? The one thing that has really been brought to the forefront however, is housing affordability. Certainly for younger Sydneysiders, it is an issue. The question I raise is, what exactly is that issue?

I grew up in Sydney, on the Northern Beaches (Please do not even mention the Sea Eagles performance this year). I remember my mother telling me the story of when my parents bought their first home when they married. When they bought their first home, they bought a rather small unappealing property. Not because they had seen one too many episodes of the block and fancied making money of a renovators delight, but because it was what they could afford. An esky apparently doubled as the kitchen table and I am sure other contents were not glamorous, and served dual purposes.

Now while part of me wants to dispense with this as the baby boomer ramblings somewhat in the ballpark of “In my day we walked 25 miles barefoot in the snow to school!” I find there might be some horrible kernel of truth to it. The majority of Gen Y and those who come after want to have it all (gadgets, houses and holidays). The truth is we can still have all this, but unless we are fortunate enough to be in an incredibly high paid job, it is not going to be in Sydney. Probably not in Melbourne, and you’d have to not be too picky about suburbs to get it in Brisbane or Perth. Adelaide is probably a sound bet.

"Now while part of me wants to dispense with this as the baby boomer ramblings somewhat in the ballpark of “In my day we walked 25 miles barefoot in the snow to school!” I find there might be some horrible kernel of truth to it"

Many did walk to school, over broken ground and without shoe wear of any description. Thongs were a necessary invention.

Fibro allowed hard workers, usually semi-skilled or skilled, to be able to afford homes. The homes were small and without built-in robes, or serveries or extended benches in the kitchen. In fact the stainless steel sink was a feature to be boasted about and double bowl or double drainer (wow!) sinks were only in expensive homes. An electric fridge was saved for.

Some years ago I considered buying the family home (early 60s vintage, SEQld) of one of Australia's mining giants, who was also into heavy earthmoving equipment. Mansions of that day may have had three extra bedrooms, with the parents' BR and probably two others having built-in robes as well. Two bathrooms, but very plain, kitchen larger than usual, but no walk-in pantry or other features. No pool.

If buying new, most low-income purchasers would find that home unacceptable today.

Any doubters might look at the celebrity mansions that are often featured in Hollywood's romantic comedies of the Fifties and Sixties. Every day I drive by hundreds of houses that are larger with more expensive must-have features, features, standard of finish and landscaping and that going through ordinary suburbs housing public bureaucrats, the common professions, tradesmen (ute out front) and semi-skilled (parked trucks in the street).

Very few of these home owners find it necessary to eke out the budget with even the slightest pretence of a veggie garden out back, let alone the practical, productive gardens that were found essential by their parents.

However housing prices in the major capitals, particularly Sydney are made more expensive by demand from large scale, over-enthusiastic, immigration. That is the elephant in the room and it has been the case for years.

Dear Hedgehog,

Sydneysiders have good reason to be upset by
sky-rocketing house prices. The Australian
Bureau of Statistics says that the cost of
entering an already expensive market has jumped
a further 30 per cent since the end of 2012.

However the real reasons are due to a variety of
problems such as limited - land releases, zoning
regulations, development changes, record low interest
rates, and tax breaks to peoperty investors.

The government could allow higher density development,
remove planning restrictions (increae supply), scrap
negative gearing (which only benefits a few) - how can
a home buyer compete with an investor - who raises
the price on a property? And finally restrict overseas
investment. This could all help level the playing field.

Dear Hedgehog,

The Age, Saturday 13th June 2015, had a great
cartoon (Spooner's View) on the subject.

It was a picture of our Treasurer - naked, except for
a towel and a cigar, basking on
a balcony of a mansion.

The heading was:

"What Joe should have said..."

"First you get a good Manufacturing job in
China that pays good money.
Then you buy a house in Sydney."

As long as young people willingly part with up,to $60 per lt for milk, In the form of late's, chances are they will never be in a position to buy a house.

Just walk past virtually any caffe in any capital city on any weekend day and see the number of young ones sipping on late's and munching on $10 eggs and you will soon see why so many can't afford a home.

While we may well have a housing crisis, we also have a spending crisis and this generation just doesn't seem to get the fact that they can't have their cake and eat it.

Today's generation have got it all back to front, they earn their wage, buy their goods and treats then try to buy a house with what's left, whereas the reality is, they should buy their house, then adjust their spending habits based on what's left to spend.

Anyone on a grand a week, which is no longer a huge wage, can afford a house, perhaps not 'the house' but at least 'A' house.

It takes sacrifices to buy a house and many today simply won't make them.

rehctub, "It takes sacrifices to buy a house and many today simply won't make them"

Some are willing.

Such as the many Asian graduates who put property second on the list of priorities and after gaining citizenship (first priority), they are not long in employment taking lunch and eating noodles at home, before they make their first investment in housing. They buy well located, solid property too. Good for them.

Or a neighbour working as a security guard, now supervisor, for a major store who slowly got into her first cbd unit off the plan, rented it and retained her modest lifestyle to buy more. For her as others, it has always been a hard grind with risks that few are prepared to take. In her forties she is well on the way towards the independence and world travel that were her goals. She is still working, has a positive outlook, is there for the early bus every day rain, hail or shine unlike some, and is now doing P/T study towards a Degree.

My experience is that many young people have what it takes. They have to be very careful with the credit card and discretionary expenditure.

However, it is incontrovertible that large scale immigration is ramping up demand and prices (and taxes and council rates!). That is the elephant in the room that is not being discussed. But why not?

Well they could afford 3 houses if they only did what the old wise one, Joe Hockey did...

You marry well, then get a high paid job as a politician, where you can ensure you get your 'living away from home allowance' while Parliament is in session in Canberra.

You simply pay your wife rent!
Isn't it lucky she bought a mansion in Canberra for them both to stay in?

They have to slum it in the Canberra mansion when I am sure they would rather be staying at either their NSW mansion, or the old Queensland farm they own.

http://www.dailytelegraph.com.au/news/nsw/treasurer-joe-hockey-is-paid-the-same-amount-as-newstart-1000-a-month-to-sleep-at-his-wifes-house/story-fni0cx12-1227396303489

It is true that houses cost more times annual wage today than pre the
1980s. The reason is quite simple, it is a matter of market forces.

Previously banks etc would only lend on the husbands income usually.
There was a push by the ladies mostly but probably their husbands as well
to have the government force the lending authorities to lend on both incomes.

Now economics 1.0 will tell you what happens when twice as much money
appears in a market ?
Surprise, surprise the prices GO UP to meet the money available !!

Next, the price reaches a level where both must work full time and
then eventually have to start paying child care. Another burden for
no, not the parents, the taxpayer, because all their income is taken
up paying for two cars and the house and the government has to step in.
Of course the parents income tax has to pay also for the child care.
Whacko, more money in the market !

Around and around we go adding on costs to meet both fashion and the
"need" for the latest whatsits right from the start.

No wonder we can't afford the houses unless you are in a VERY VERY good job !

notice how its mainly Greens/Labour supporters doing most of the whinging. Strangely enough many of them live in leafy Green suburbs thanks to cushy tax payer funded jobs. The 'sense of entitlement' mainly comes from unionist who sometimes uses cleaners money for prostitutes and Green rent seekers who suck the public purse by scaring kids with pseudo science.

Suseonline,

When she was PM, Julia Gillard voted herself higher pay that the US President, Barack Obama and the Prime Minister of the United Kingdom.

You thought that was quite OK, very reasonable and justified. If she can get it good for her you said as I recall (but correct me if you said otherwise). The going rate you would have imagined.

Julia retired to a $2million 'bungalow' in SA and on a handsome golden handshake and fully indexed super courtesy of the Aussie taxpayer. Deserved and her business you would snort. Leftist feminists of the previous Millenium are proudly distinguished by their snorting, among their other (ahem) ways.

Here is a man who legitimately applies for and receives the ordinary away from home allowance, the conditions and amount of which were not set by him, but you are scandalised and casting nasturtiums his and his wife's way.

Dear Suse,

There's an excellent article in the Sydney Morning Herald
that may just jog a few memories:

http://www.smh.com.au/federal-politics/political-news/tony-abbott-are-the-expenses-row-hands-out-of-the-cookie-jar-20131011-2vdvi.html

Yes, an interesting article indeed Foxy.:

"Reform is long overdue by any measure but Abbott is digging in. He was a young politician when the Howard government was rocked by the travel rorts scandal and saw close hand how it destablised the team.
Abbott wants to kill the issue and carry on. Both major parties have embarrassing entitlement breaches yet to be fully ventilated."

It seems that pollies from all sides of the political landscape are milking the system for all that it is worth.
But maybe that is just human nature, in that if they are 'entitled' to all those perks, then why not?

I agree that these perks need to be trimmed somewhat, in this current 'budget emergency' that is so bad that pensioners, disabled and the sick are told their previous 'benefits' are being cut back for the good of the country!

Dear Suse,

South Australia's Independent Senator Nick Xenophon
has begun a debate about whether the parliamentarisn's
perks should be abolished. It will be interesting to see
if this gets very far.

As I've cited on another discussion of the housing
affordability issue - collectively Australia's
parliamentarians belong to a class of wealthy landlords -
therefore it should not come as a surprise that they're
quite happy with the current housing prices designed to
drive up property prices, or that they seem to care so
little regarding the problems of renters.

Joe Hockey's living arrangements while in Canberra also reveals
a major public policy issue that according to many commentators
deserves far more scrutiny: the conflict of interest
Australian politicians face when it comes to housing policy.

Here's another interesting link:

http://www.smh.com.au/federal-politics/political-news/tony-abbott-are-the-expenses-now-hands-out-of-the-cookie-jar-20131011-2vdvi.html

Dear Suse,

My apologies - I gave you the wrong link.
Here's the right one:

http://newmatilda.com/2015/06/11/joe-hockey-belongs-class-wealthy-landlords-course-hes-untroubled-housing-affordability

Well foxy, I for one hope that Senator Xenophon is able to do something about getting rid of these expensive politician perks that the taxpayer provides.

No wonder these multiple property owning pollies are happy with high housing prices and rents!

I find it amusing how so many are so quick to jump all over the pollies, yet these same people think nothing of handing over cash to some market stall owner knowing full well that they are avoiding the GST.

People in glass houses shouldn't throw stones.

As for pollies renting their spous's houses, so long as it's an arms length trisection and it's within the price range of other houses then I see no problem, however I am surprised that pollies would be stupid enough to place themselves in such a position

Dear Suse,

It will be interesting to see how far the
Senator gets.

Dear Rec,

The Parliamentarians perks run into the hundreds of
thousands in addition to their well-paid jobs
and other benefits.
There's no comparison to what they're actually rorting.
The politicians are supposed to serve the people after
all - not rort the system. And it is very difficult to
stop - as the system is self-regulated.

http://www.smh.com.au/federal-politics/political-news/tony-abbott-are-the-expenses-row-hands-out-of-the-cookie-jar-20131011-2vdvi.html

rehctub,

You are right. With their usual 'shock, horror, shame' tripe the tabloids are catering for the dumbed-down peanut gallery's need to for something, anything to get jealous and angry over.

What some of the numerically-challenged greens-left partisans also do not understand is that rental property is like any other business. The ATO would rip the bloody arms off the owner of an investment property who let it for lower than market rent to a relative or acquaintance.

Dear rehctub,

You may find this article by the financial
wizard - Jamie McIntyre of interest:

http://www.australiannationalreview.com/solve-housing-affordability-problem-australia/

Isn't it amazing that many migrants were prepared to move thousands of kilometres to get a better life in Australia. Now we have people whingeing about having to go to the suburbs (maybe 40 kilometres) in order to get into the housing market. What a bunch of wouses we have become. Strangely enough my parents never owned a house (still don't), two of my three children now own their own unit/house. Being brought up without the sense of 'entitlement'has certainly worked in their favour.

Foxy, if someone on say $400K a year misuses say $40,000 that means for someone on $40,000 to miss use $4,000 is in fact also miss using 10% of their income and, considering the person on $400K is actually supporting the one on the $40 K job I guess the lower paid is actually better off given the tax break they received from the higher income earner.

After all, a crime is a crime and to suggest avoiding the GST, as many do is any less a crime is simply not true, especially given the few among us on $400K a year.

It's a twisted way of looking at it I guess.

The truth is anyone in a grand a week bring home can afford a house. Might nit be an $800 grand house, may not even be in Sydney, but hey, house prices and I guess rents have been skyrocketing there for years, it's not a new problem as every boom starts in Sydney.

Dear rehctub,

No it isn't a new problem - but what is new
is the current state of affairs and its growing,
due to a multitude of factors as shown
in the provided links by economic experts.
There's not just one issue involved. Hence the
provision of the links to help towards seeing
and understanding the full picture.

<‘Ridiculous’ immigration fires housing spike: Bob Carr
THE AUSTRALIAN JUNE 12, 2015

Any attempt to address soaring house prices in Sydney and Melbourne should focus on “ridiculously overambitious’’ immigration targets, says former NSW Labor premier Bob Carr.

Immigration was running far ahead of the ability of major cities to absorb new people, straining infrastructure and pushing up the price of dwellings that increasingly are seen as being beyond the reach of average Australians..>

“If you jam more people into Sydney, then they will get spikes in land and housing prices. We are stoking demand,’’ he said.

Federal government figures show Australia planned an immigration intake of 190,000, in 2014-15, about double the number in 2000. The additional humanitarian intake was raised from 12,000 to 20,000 in 2012-13, contributing to a population growth rate of 1.8 per cent that year — among the highest in the developed world and more than three times China’s 0.5 per cent rate.

As developers rush to take ­advantage of booming prices, total housing starts are forecast to hit a 20-year high of 54,680 this financial year, 18 per cent higher than last year, according to the Housing Industry Association.

“I think it is remarkable that people are running around like headless chickens without mentioning the most basic point of all; if you are running one of the highest rates of population growth in the developed world and the business city gets the highest share of that growth ... the result is housing prices going through the roof,’’ Mr Carr said.>

Dear rehctub,

Well by now - you can see that there's a very wide range
of opinions as to what's causing the housing price
problem in this country. All sorts of experts, including
former politicians, with
various points of view covering a very wide range of
dieas. Here's two more links - that even contradict
each other:

http://www.smh.com.au/comment/grey-money-from-china-helps-blow-our-property-bubble-20140928-10n7a8.html

And -

http://www.abc.net.au/news/2015-02-17/berg-you-cant-blame-foreigners-for-high-house-prices/6125500

Fox,

LOL, as OLO's Number One supporter of the endless 'diversity-that-Australia-has-to-have' you'd post anything to hide the evidence of negative consequences of over-ztalous immighration policy.

It is incontrovertible that large scale immigration is ramping up demand and prices (and taxes and council rates!). That is the elephant in the room that is not being discussed. But why not?

Like the body in Deliverance, the evidence keeps surfacing that young working Aussie couples are not being able to afford the children they wanted and planned for because they are being forced to shoulder the burden of infrastructure, welfare and Medicare for too many migrants.

That could explain why there is that unexpected large spike in abortions by women in the early twenties to early thirties. The goal of housing and family keeps hopping away from them and despite their best laid plans.

Well it does seem there are a variety of views on this issue.

Foxy, I wonder if you could clarify what reason Sydneysiders as a whole have to be upset by skyrocketing house prices? Not meaning to be offensive, just wanting to see good honest debate on the topic. As I mentioned in my post I am originally a Sydneysider. Having sold my last Sydney property only a few months ago, I was certainly happy with the price growth. I imagine anyone who owns in Sydney is quite happy with the prices growth, be they mortgaged or unencumbered.

As to a possible solution to the affordability would be policy related. The state government could put in place a specific planning provision that provided tax concessions and planning expediency for first home owner developments. Restrictions could include a price cap on final sales price (eg $500k) and restrictions that it can only be on sold for the purchase price + applicable CPI increases. Also a restriction on the properties having to be O/O by first home owners for the next 20 years. These provisions would be similar to the old SEPP 5 that addressed elderly and disabled housing issues.

Of course this solution would be at state government level (keep in mind it is the state government taking in all the money from stamp duty on the Sydney property prices) and therefore not as exciting to the media as the circus that is federal government (both government and opposition).

Negative gearing was last abolished or suspended during 1985-1989 I believe. During that time Sydney rent prices increased. This certainly doesn’t help those trying to save a deposit for a first home. Any reliance on abolishing negative gearing to ease housing affordability relies on one or both of two assumptions.

The first assumption is that demand will decrease, as investors choose to invest in areas other than property. However many Australians invest in property for reasons other than negative gearing. Rightly or wrongly, there is an inherent sense of safety that people find in property over say, shares. The second assumption is that supply will increase as existing investors divest their negatively geared properties in favour of other investments.
Is it more likely that investors will just slightly raise rents (as happened in 85-89) to cover the shortfall left by no negative gearing, thus making overall housing affordability worse for those still renting? Additionally, the last set of ABS data based on finance statistics (April 2015), showed that for overall lending for Sydney properties, showed that finding for O/O properties was 1.44 times that of funding for investors. So investors may contribute to raising prices, but are surely not the only cause.

As to foreign investment, the FIRB already restricts the amount of foreign investment. While a popular public sentiment in Australia is often to blame issues on foreigners or migrants, the few who do flout the FIRB rules and don’t get caught (those that do are forcibly divested – ie. The Government sells their property) are unlikely to contribute a significant amount to any price increases.

My personal view is the majority of the perceived housing affordability issue seems to stem from supply and demand. In that case the only real way to address it is to provide a separate market for those affected, hence my SEPP policy suggestion in the previous post.

I believe there is omething seriously wrong when the whole economy centers around buiding houses that must be pupurchased. They must have the biggest and the best regardless.

Dear Hedgehog,

There are many factors that may partially explain the
increase in house prices.
The following link I gave earlier:

http://www.globalpropertyguide.com/Pacific/Australia/Price-History

There are quite a few other links that I've given on this
discussion as well. If you haven't read them - you may also
find them of interest.

Foxy, I take little notice of economists simply because most come to their assertions from what has happened, not what's going to, or likely to happen.

One advantage of being a successful investor, and small business owner is that we make our descisons based on what's likely to happen. A kimd of crystal ball if you like and, those who don't usually fail as does government time and time again.

A prime example is when the likes of BHP announce a huge profit yet cut staff. It's because they don't care about what's happened, they care about what's likely to happen. A huge difference.

The problem we are facing at the moment is that while we are likely headed for big trouble, our interest rates are now less than Half what they were pre GFC so there's little room to move.

The banks are quietly sh1ting themselves and if they loose their credit card bonanza (huge rates and profits), which is the basis of Bills latest witch hunt, look out!

As said earlier, it is demand caused by over-enthusiastic immigration that is forcing up Sydney prices.

That is an inconvenient truth that the 'endless-diversity-that-Australia-has-to-have' set are in denial of. -The evidence of the negative consequences of over-zealous immigration policy.

It is incontrovertible that large scale immigration is ramping up demand and prices (and taxes and council rates!). That is the elephant in the room that is not being discussed.

More confirmation, from MarketWatch this time,

<Sydney drives Australian house prices higher
Published: June 22, 2015 9:52 p.m. ET

SYDNEY--Australian house prices continued rising in the first quarter of the year, driven almost exclusively by gains in the Sydney market.

The weighted average price of houses across Australia's capital cities rose by 1.6% from the fourth quarter of last year, the Australian Bureau of Statistics said on Tuesday, and by 6.9% from a year earlier.

In the country's commercial capital, Sydney, home prices surged by 3.1%, adding to strong gains over several years that have fanned concerns of an overheating market. The rate of house-price growth in Sydney in the first quarter, both on-year and on-quarter, was close to double that of the national pace.

House prices in Perth, meanwhile, fell both on-quarter and on-year as the resource-rich state is hammered by the recent collapse in the iron-ore price and falling investment in mining activity in Western Australia state.

Official warnings over the pace of house-price growth have escalated. Central bank Gov. Glenn Stevens recently told economists that prices in Sydney were "crazy."..>

The opening line like: there has been a lot of media coverage about Sydney housing market. A little less then 2 years ago, the media were stating Sydney house prices were rising. I'd say the media are driving the Sydney property boom. I speculate 18 months ago, anyone wanting to buy or sell property will be informed by real estate people "there's a property boom coming and or in progress".
Booms generally end in busts... I'd say short boom periods are intentional and not an act of god' "anything can happen". Past history has seen more ends to booms resulting in busts, compared to the last 2002 to 2004 property holding prices at 2004 values for at least 2 years after 2004 end of the property boom. During property low turnover periods property prices may be recommended to be held high by real estates entities. In the end market forces will be blamed as market forces are the new blame it on god entity.