In 2001, John Howard coined the term "barbecue stopper" to
describe the work/life imbalance. On July 13, Kevin Rudd
declared: "Housing affordability is the barbecue stopper right
across Australia at present." What has changed?

For an acceptable work/life balance, two conditions are needed:

(1) The ratio of wages to property values is such that a family
can pay off a mortgage on a SINGLE full-time income; AND

(2) The ratio of job vacancies to job seekers is such that you
can keep your job while refusing to work unpaid overtime.

The connection between condition (1) and housing affordability
needs no explanation except to emphasize that the condition
concerns a RATIO: it does NOT mean property values fall; it
DOES mean that if property values rise, wages rise faster.

Condition (2) means a plentiful supply of jobs. But jobs
cannot be created unless:

(a) the employer can pay the rent or mortgage on the business
premises out of the proceeds of the business; AND

(b) the workers can pay the rent or mortgage on housing within
commuting distance of those jobs, out of wages that the
employer can pay out of the proceeds of the business.

Condition (b) is housing affordability! Condition (a) is its
extension to commercial/industrial accommodation.

Now consider the lesser barbecue stoppers that Mr Rudd named:

CHILDCARE: The higher the ratio of wages to property values,
the fewer the hours you need to work in order to pay for
housing, and the less your need for childcare.

PETROL PRICES: If housing were more affordable (or jobs more
plentiful), you could live closer to your place of work and
consequently drive less.

GROCERY PRICES: The grocery bill is one bill among many.
Reduce the housing bill as a fraction of income, and all other
bills become easier to pay.

Housing affordability is not the only BBQ stopper, and not
always the BBQ stopper du jour; but it is by far the greatest
of BBQ stoppers -- a perpetual BBQ stopper, and the mother of
all BBQ stoppers. [Apologies to Winston Churchill
(http://wealthandwant.com/docs/Churchill_TPL.html).]

reduce population, houses get cheaper.

the hard part is, no one wants to discover if the economy can survive declining, or even stable population.

business is clear: rising population raises their boat. their captive pollies are clear: making business happy extends their time in power. academics are clear: their career will be blighted if they don't support the above two social sections.

the only ones that aren't clear are the poor bastards that can't afford to live near their work, as there are too many other bodies in the way.

it's too bad ozzies are politically handless, and clueless, but you get the government you deserve.

Not convinced.

If people cannot afford to buy houses, the price will fall. Agreed?

Why is it then not possible to accept that when people can afford to buy houses, the price will increase?

The nonsense spoken and written about "housing affordability" totally ignores this fundamental reality.

Houses are affordable, right up until the time that they are not. At that time, they will become unaffordable and - hey presto! - the price will come down.

An increase in the price of housing is a good thing. It means that the population today is wealthier than it was yesterday, and can afford (that word again) to increase its spending on housing.

We will, I can assure you, hear weeping and wailing and gnashing of teeth when the price of property begins to fall consistently over a period, because it will mean the economy is in recession.

And that will hurt the general population a whole heap more than simply paying a few more bucks in rent.

Demos
nice to see your volunteering to make an early exit from this earth
that will give us one extra spot at least
arnt you an 'aussie'
not a good idea to live in a country and bag its inhabitants
what do you think of my idea/ build up our metro areas, especially Adelaide here where i live (still a big country ghost town) GO UP A LITTLE INSTEAD OF OUT /encourage people both young and old to make use of the infrastructure we already have in place-
and at the same time make continue to care for the rest of the planet_including our own part

In answer to Demos:

I don't deny that, all else being equal, higher population
means higher property values. Hence I don't deny that
population policy, including immigration policy, is about
property values. And I don't deny that the campaign
against the legalization of contraception in Australia a
century ago was funded by the property lobby. And I don't
deny that One Nation signed its own death warrant when it
adopted the immigration policy of Australians Against
Further Immigration, thereby abandoning a simple White
Australia policy (which was compatible with rapid
population growth) in favour of a zero-net-immigration
policy (which wasn't). And I don't deny that one purpose
of Howard's anti-refugee policy is to create a xenophobic
smokescreen behind which he can ramp up other forms of
immigration to levels that the voters would not otherwise
accept. Furthermore, I don't deny that builders and
developers PER SE thrive on population growth.

Nevertheless I don't think it's helpful to concentrate on
population, for the following reasons.

First, all else isn't equal. Rising population can coexist
with improving housing affordability provided that the
supply of housing grows faster than the demand.

Second, the comment on builders and developers refers to
them in their capacity as builders and developers (hence
the words PER SE). But the biggest builders and developers
are also land-bankers -- i.e. speculators.

Third, the capital gains of property investors/speculators
do not depend on demand for housing outstripping supply.
They can also come from:

(i) increasing wages, which in themselves are compatible
with, and indeed may follow from, improving affordability
of accommodation (see first post in thread); and/or

(ii) improving infrastructure, in which case increasing
property values reflect improving utility -- NOT higher
prices for given utility -- and are therefore neutral
in terms of affordability.

Indeed, causes (i) and (ii) yield capital gains even
WITHOUT POPULATION GROWTH.

In short, not only the economy, but also even property
investors, can survive stable population. But whether
property investors understand this is another matter.
Privilege reduces the need to think.

There are two problems with Pericles' analysis.

First, it ignores the supply side. If accommodation is
plentiful relative to need, buyers/renters will pay high
prices/rents relative to their spending power. If
accommodation is scarce relative to need, buyers/renters
will pay low prices/rents relative to their spending power.

Second, it ignores differences in spending power. To get
the house, you have to be the highest bidder. As
accommodation becomes scarcer, the number of bidders
increases, and you need more spending power to have a
reasonable chance of being the highest bidder.

Pericles asks: "If people cannot afford to buy houses, the
price will fall. Agreed?" Not if they can't afford it
because they're outbid!

So what is to be done in order to improve supply? Speeding
up development permits doesn't help by itself, because it
doesn't actually compel development -- let alone compel
anyone to build houses on the developed lots. The broad
principles are:

(1) All taxes on residential property should be on SITES
(unimproved land and airspace and attached building
rights) rather than buildings, because taxes on
buildings can deter construction, whereas taxes on sites
can't obliterate sites.

(2) All subsidies for residential property should be for
buildings rather than sites, because the production of
buildings can be increased by incentives, whereas sites
don't need to be produced.

(3) All taxes on sites should be holding taxes rather than
transaction taxes, because holding taxes encourage
income-earning activities to cover the taxes, whereas
transaction taxes are bottlenecks in supply.

(4) All taxes for the funding of infrastructure should be
based solely on unearned uplifts in site values caused
by (among other things) the infrastructure;
lump-sum taxes that are NOT related to uplifts in value
may force development to be delayed until prices rise
sufficiently to cover the taxes.

"If people cannot afford to buy houses, the price will fall. Agreed?"

Certainly not. Bangladesh has $1 a day wages and some of the highest land values in the world. The truth is that people will seek cheaper options such as multiple occupancy and homelessness.

The immigration driven affordability crisis (a policy enacted predominantly by white Anglo-Saxon males) has serious economic and social consequences. As an example, in a stable population situation, a couple saving $40 k per year would take just over 6 years to own a home, paying a combined $55 k in rent while saving for a deposit and interest payments. Currently, the odyssey would take 37 years and cost them $1 million more. So the status quo is a strong driver of inequality. The model could be further refined by noting that immigration increases the trade deficit, and so affects interest rates. But the result is a stark one, and minor refinement seems a trivial pursuit.

Just curious Fester.

>>Bangladesh has $1 a day wages and some of the highest land values in the world<<

Someone - it may have even been you - has mentioned this statistic before. What is your source for the "highest land values in the world" part?

One of the problems is that we in general will buy/rent the largest, prettiest house in the best area that we can afford. And we are willing to hurt ourselves in many other ways just to do that. I am buying a house (paying off a mortgage) on one income, whilst still paying for childcare. And whilst it still hurts and restricts an awful lot of social activities, I can afford to do so because the mortgage payments represent just 17% of my income (gross, or about 23% net). I would love a big house with a large yard, like anyone else, but I make do with a 2 bedroom cottage, because that's what I can afford without having to live on mince and potatoes. One day I hope to trade up, but for now I'll keep getting by.

We need to wind our expectations down a notch, instead of splurging on the best of everything.

They certainly dont have such grand allusions in Bangladesh. Yes Pericles, I saw it in a docco some years ago. But you might prefer this 1998 article:

http://housingfinance.wharton.upenn.edu/Documents/bareport.pdf

Allusions vary according to circumstances. Maybe the allusion bar could be substantially raised if there were a stable population?

Wear a hair shirt if you like, and beg to have the price of water, electricity, and petrol tripled. They are obscenely cheap. And why is my computer so cheap? They cost heaps in the early 1970's when people were far less affluent, so why dont they cost heaps more today? It's wrong.

Oh, the luxury. The luxury!

Fester, you need to update your statistics. Or watch more credible documentaries.

>>Bangladesh has... some of the highest land values in the world<<

According to the document you pointed me to, and my calculator, you can buy an acre of land within 30km of the CBD for US$15,000. This is a great distance from "some of the highest land values in the world".

When you are trying to make a point, it helps to check the information you present, rather than rely on "I saw it in a docco some years ago"

Now, what was your point again?

"Now, what was your point again?"

You might have also noted from the same document that the most expensive residential land in Bangladesh in 1998 sold in a range from 500 AUD to 1500 AUD per square metre.

You might also note this comment on wages and conditions:

http://www.amrc.org.hk/4906.htm

"The legal minimum wage is Tk930 (US$20.00) a month, but the wage actually paid is around Tk700 a month. Average wages (unskilled and semi-skilled) are about Tk2,000 a month.

Labour laws and union rights are ignored by employers. Most workers generally put in 14-16 hours a day, seven days a week; overtime is compulsory and underpaid; there is no job security, no provident fund, no bonus, and employers provide no housing or transport; safety and health conditions at work are poor - factory deaths are common."

My point, Pericles? And you think Australia needs more people?

How very amusing.

OK Fester, let me remind you of the context.

I offered:

"If people cannot afford to buy houses, the price will fall. Agreed?"

You responded:

"Certainly not. Bangladesh has $1 a day wages and some of the highest land values in the world"

So far, you have supported this with reference to a statistic that "the most expensive residential land in Bangladesh in 1998 sold in a range from 500 AUD to 1500 AUD per square metre"

I presume that you are suggesting that those who live on $1 a day are disadvantaged somehow by the fact that prime Dhaka CBD real estate is commanding these prices. Since these folk are among the 80% who live in rural areas, the connection might be a little tenuous. Certainly, land values where this 80% live cannot be described as "among the highest land values in the world"

So in order to make your point, you have conflated the concept of the existence of 100 million of rural poor, with the concept that land values in the centre of Dhaka are high.

Does not compute. Furthermore, it bears absolutely no relation to the point that I made, that the laws of supply and demand govern property prices just as firmly as they do everything else.

"If people cannot afford to buy houses, the price will fall. Agreed?"

Let me elaborate, Pericles. Let's say that you have 50 people each with a maximum of 200k to spend, and one house available for 500k. Does the price fall to 200k? I dont think so.

Your comments on land being cheaper for the rural poor also need to be put into perspective. 15k per acre I believe you said. Not much for an Aussie, but a Bangladeshi on a minimum wage gets 15 USD per month. So an acre of land 30km from the cbd would cost 1000 months or 83 years of wages. Lets now equate this to an Aussie on $5 an hour. Working 100 hour weeks he would earn 2k per month. So that would make an acre of land 30km from the cbd equate to $2 million.

>the laws of supply and demand govern property prices just as firmly as they do everything else<

Exactly Pericles. So let's put a stop to these blind men and the elephant farces and instead discuss the real causes.

>you can buy an acre of land within 30km of the CBD for US$15,000<

Thanks for reminding me not to take things on faith Pericles. The figure per acre amounts to nearly 34k in 1998 AUDs. So that would make the Aussie acre equivalent about 4.5 million AUD.

>>The figure per acre amounts to nearly 34k in 1998 AUDs. So that would make the Aussie acre equivalent about 4.5 million AUD.<<

¿Qué?

Interesting example

>>Let's say that you have 50 people each with a maximum of 200k to spend, and one house available for 500k. Does the price fall to 200k? I dont think so.<<

Well of course it won't. The price will actually settle at a point where a) the maximum number of people may be accommodated in the single dwelling and b) those people equate the amenity they will be receiving - given the number involved - with the expenditure.

So, if the house is really big, you might find all 50 willing to put in all $200k each, simply to have a corner of a house to themselves, in which case the builder will be able to charge $10m for it. Or if it is really small, you might find only ten of them willing to make the commitment, in which case the price will rise to a mere $2m.

Now, if you were instead to build 50 houses...

Are you getting the picture?

And all that nonsense about wage equivalence has absolutely nothing to do with the price of land, by the way. You can only buy land with money, whether you are an Australian on $100,000 a year or a Bangladeshi on $250 a year.

The only way your original statement "some of the highest land values in the world" can be remotely true is if you were to add "compared to the average wage". Which then requires a whole lot more statistics which neither you nor I have.

One more point.

You will also find that the average wage is heavily weighted to rural areas, where 80% of the population live. Why would they want to buy within 30km of the CBD anyway? The cost of rural land is, if you read the report, sufficiently low as to have no impact at all on the price of a home. One of the finance projects, I notice, is in fact building rural homes for between Tk.25,000 and Tk.85,000.

Here are the first, of many, articles explaining the challenges faced by a country with a declining population.

http://www.economist.co.uk/opinion/displaystory.cfm?story_id=9545933

http://www.economist.co.uk/world/displaystory.cfm?story_id=9539825

Now that is a barbecue-stopper.

Pericles,

The wage/land equivalence example provides a great insight into the huge inequality present in Bangladesh. Btw, the Aussie equivalent average high price for an acre of land is about 800 million AUD.

Thanks for the articles. The first makes the point that immigration will not solve the aging population problem. The pension fiasco in Japan I have heard of. One poor bugger was asked to provide receipts for superannuation payments he made as long ago as the early eighties.

Do you really see impending doom from an aging population? Substitute global warming for aging population and you are just another doomsayer to me. Whatever happened to technical solutions, or do they only count for solving the problems of a growing population?

Now you have totally confused me Fester. Not difficult, I know, but this does seem to me to be a total backdown on your part.

>>the Aussie equivalent average high price for an acre of land is about 800 million AUD<<

Is this in support of your original point that:

>>Bangladesh has... some of the highest land values in the world<<

But we appear to have strayed from the point, which was the affordability of housing in Australia. I proposed that:

"If people cannot afford to buy houses, the price will fall... [and] when people can afford to buy houses, the price will increase"

grputland offered this in response:

>>There are two problems with Pericles' analysis.

First, it ignores the supply side. If accommodation is plentiful relative to need, buyers/renters will pay high prices/rents relative to their spending power. If accommodation is scarce relative to need, buyers/renters will pay low prices/rents relative to their spending power.

Second, it ignores differences in spending power. To get the house, you have to be the highest bidder. As accommodation becomes scarcer, the number of bidders increases, and you need more spending power to have a reasonable chance of being the highest bidder.

Pericles asks: "If people cannot afford to buy houses, the price will fall. Agreed?" Not if they can't afford it because they're outbid!<<

I'll be charitable, and pretend the first argument is the other way round, which would be more logical. The second simply says that rich people can afford bigger houses than poor people, which is hardly illuminating. What it doesn't dispute, is that every time a house is bought, it is by definition affordable.

Now, if you were to suggest that “it is only affordable because the Banks lend so much money”, you would be closer to a valid proposition.

But your measure of affordability would then be “housing loan defaults”, which are still – by and large – within reasonable limits.

Property prices are, and will remain, subject to the laws of supply and demand.

A house is affordable if someone buys it.

Pericles

Yes, Bangladesh does have dollar a day labourers and some of the world's highest land values. It is supply and demand in action. The result is that people adjust their means and live in shanties of a few square metres.

In Australia we are seeing the effect of increasing demand via high immigration and restriction of supply. I know many people who would subdivide in a flash were it not for difficult local authorities. The sentiment is unanimous that the local authorities are more interested in preserving the easy money for their mates than they are in solving any housing affordability crisis.

You said it yourself when you pointed out that you could fit 6 1/2 billion people on good sized blocks in the state of Texas. The PM could rapidly end the affordability crisis by usurping local government's corrupt control of urban housing density. Cutting immigration would drop house prices fast also, but this would only happen soon if a capital city ran out of water. In the face of such catastrophe it would be hard to sell immigration as economically beneficial.

Perils of incomplete editing...

I wrote: "If accommodation is plentiful relative to need, buyers/renters will pay high prices/rents relative to their spending power. If accommodation is scarce relative to need, buyers/renters will pay low prices/rents relative to their spending power."

Uh, yes, that should have been the other way around.