Everything's Affordable!

This week, I had an interesting discussion with several members of an Australian property investment forum.

Foolishly, I made the newbie's mistake of mentioning that Australian house prices had become less affordable over the past couple of decades.

What a faux pas!

Immediately, I was pounced upon by the more senior members of the forum, keen to set me right and correct my silly mistake.

Courtesy of those wise property investors, I thought I'd share their thoughts on where I was going wrong.


Let's begin with my simple statement that preceded the storm.

Different Here: "The house price to single income ratio used to be 2-3x. Now it's 6-7x. People on single incomes are priced out of homes they could previously afford."

-- "Really? What if that income is $180,000 or more?"
-- "Sure you can buy a home for a 2-3x income ratio. Stop whinging" 
-- "Buying your first home is never easy. It wasn't easy 20 years ago, and it is not easy now."
-- "Yet there are still those on single incomes doing it. Funny that!"
-- "Instead of waisting time rubbishing property on a property forum. Sit back, save and wait for things to improve."
-- "You can continue renting my properties while you wait for the crash. Even if it crashed I wouldn't sell it to you"
-- "This kind of comment/allegation is false without qualification."
-- "Where do you want to buy? What is unaffordable? Good suburbs 20 years ago were 'unaffordable' for most people."
-- "I can show you where to buy affordable housing, but you don't want that. What you want to do is rant and rave about how hard it is nowadays. Well you know what? Bleating about it here, to a bunch of investors is not going to change anything."

Most of those comments were accompanied by much 'eye rolling', if I'm reading those emoticons correctly. You could just feel the collective sigh among the property investors -- 'here's another nutter who thinks house prices are too high, get a load of the crazy guy'.

And then someone (who had been a member of the forum since 2005) kindly posted this image for me.

-- "Different Here, are you a student by any chance? We see a number of kids here come and go; mostly in shock at their own seemingly-distant ownership prospects, and the discussion always takes the same route: disbelief, incomprehension, emerging comprehension, half-baked hope, deepening personal reflection, explicit commitment to study harder and get into a career, too much time wasted on SS talking about piffle instead of studying, bad grades, silence."

 

Let's set the record straight. I'm not a student. I'm a middle aged father of two. I'm not renting. I already own my home, fully paid off. I'm not 'rubbishing' property. I wasn't 'bleating', in fact I only mentioned the affordability decline in passing, I wasn't even making a big deal about it.

What are these property investors so scared of, that they must attack a new member for mentioning the fact that Australian homes are less affordable then they used to be? A new member is labelled a troll for daring to mention Australia's affordability crisis?

Ironically, just today the Sydney Morning Herald published this article.

Capitals face at least a decade of Unaffordable Houses.

AUSTRALIAN house prices have moved from being affordable to severely unaffordable in the past 10 years - and Sydney is still the least affordable capital city, a new study shows.

The study, by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra, and AMP, says it will take at least another 10 years of flat house prices, coupled with income growth, for houses to regain an affordable status.

The study found median house prices in Australia grew 147 per cent between 2001 and 2011 to $417,000, while median after-tax incomes only increased 50 per cent to $57,000.

This pushed the price-to-income ratio - the number of years' worth of income needed to buy a typical dwelling outright - from an affordable 4.7 to a severely unaffordable 7.3.

In the last decade alone, Australia's house price to income ratio has escalated from 4.7x to 7.3x. That's up from approximately 3x two decades ago. House prices are almost twice as unaffordable as they used to be despite the property investor claims to the contrary.

You see, according to the property investors, nothing can ever be considered 'unaffordable' because there's always some rich family who can afford it. Nothing can ever be unaffordable, because if you make enough sacrifices anyone can buy a small run down unit. So what's the problem?

The problem is two decades ago, single income families could easily afford a certain standard of dwelling. Now it requires dual incomes to afford that same standard of dwelling. Houses are less affordable then they used to be, it really is that simple.

Of course, if you make enough sacrifices, scrimp and save, and take on a massive soul destroying mortgage, then anyone can 'afford' to buy. But does that make it affordable? I don't think so. Housing is not affordable if we're forced to trade housing for quality of life. If we're forced to take no holidays, never treat ourselves to any luxury, delay having children, put our children in daycare all week, just so both parents can work 80 hours a week to 'get on the housing ladder', then housing is categorically not affordable.

Yes, property investors, 'good suburbs' were always more expensive, cheap housing can always be found in the less desirable suburbs, people on single incomes are always able to afford something if they make enough sacrifices. But this doesn't change the fact that affordability has declined.

It used to be hard for young families to afford a home, but now it's twice as hard.

The APM NATSEM Report is here.

The Neverending Shortage Story

If you spend much time reading mainstream media news, you'd be forgiven for thinking Australian streets were teeming with homeless people. Wall to wall struggling families, living on street corners, exposed to the elements and begging for their next meal.

Well, I haven't seen them myself, but I'm assured on a daily basis that Australia has a never-ending critical shortage of housing (despite this, the same media outlets also tell me we need to import hundreds of thousands more workers, but that's a never ending story for another day).

Back to the critical shortage. In short, it's bunkum.

A recent report by Earthsharing Australia has shown the Speculative Vacancy Rate in Melbourne to be almost 5% or 46,220 homes. This is more than double the REIV’s Rental Vacancy rate of 2.4%. Earthsharing have shown that a large volume of housing is being inefficiently allocated to the population, inflating house prices and contributing to urban sprawl. The owners of these vacant homes, property speculators, are investing purely for capital gain, hoping that a greater fool will purchase the dwelling from them later, for a higher price. This type of investment structure is often referred to as a Ponzi scheme.

In 'Real Estate 4 Ransom', Earthsharing's soon to be released documentary, the group will discuss this glut of misallocated dwellings and the impact on Melbourne society. Watch the trailer for 'Real Estate 4 Ransom' below.


Real Estate 4 Ransom Official Trailer from Real Estate 4 Ransom on Vimeo.

In related news this week, the Sydney Morning Herald ran with a sensational article titled 'Tenants run for cover as vacancy rates plummet'. Designed to strike panic into the hearts of tenants everywhere, what followed was a thinly veiled infomercial for the real estate industry. It's going to get worse! Stop renting! Buy now! That was the hidden subtext. But look closer at the statistics (statistics the article manages to brush over quickly before warning us that the 'standard of living for the middle working classes is likely to deteriorate'.

The statistics show that far from vacancy rates plummeting, they're actually relatively flat. In some places, the vacancy rate is rising. In fact, the national rental vacancy rate according to SQM Research is 1.9%, which (apart from a brief rise in 2009) is roughly where it has been since 2005! Furthermore, these figures are likely to underestimate the true vacancy rate, because they only include rental properties advertised for three weeks or more.

Back to those homeless people. According to Homelessness Australia, 105,000 Australians are homeless
on any given night.This is an appalling statistic, given that almost 50,000 homes are vacant in Melbourne alone, and each of those homes could probably comfortably house several homeless people.

Why does the Australian government support the misallocation of housing to speculators, many of whom own multiple dwellings, when over one hundred thousand Australians are homeless? Why do we support those speculators with grants and tax incentives like negative gearing and capital gains tax discounts?

The answer is simple. Our governments are terrified of the economic impact of a property crash. If they don't artificially prop up house prices using these means, then prices are likely to fall, resulting in a decline in GDP, rising unemployment, and ultimately an election loss for that government. That's why every government, regardless of their pre-election commitment to affordable housing, will always encourage higher house prices once they gain office.

Always.

Lower house prices would offer dramatic benefits to Australian society. Speculators would be forced to sell the excess dwellings they currently hoard, single income families could once again afford decent housing, and the homeless people could be offered that shelter from the elements they badly need. And those lower house prices would free up disposable income, eventually reduce national debt levels, and enable capital to be allocated to more productive sectors of the economy.

That's my dream. My fear is this won't happen in my lifetime, and it certainly won't happen in sufficient time to benefit my own children, or any children growing up in Australia today. Not while our inept governments are in charge.

Second Post

I changed the colour scheme, added my logo, and added a media sharing bar. It's all coming along nicely.

The kangaroo image is one I've been using on other social media sites for a while. It represents the old Australian adage, well known in property discussion circles -- 'it's different here, we've got kangaroos!'.

Hello. My First Blog Post!

Hello! This is my first blog post. I'm not quite sure what to say, so I'll just keep typing and see what happens. My name is Tony, and I decided to establish this blog so I can rant and rave about the inadequacies of the Australian property market to people who might care. God knows I drive my friends and family crazy listening to me, so perhaps this new outlet will give them some peace and quiet!

What did I want to talk about on this blog? For a start, I expect I'll be blogging about the housing affordability crisis, the inefficient and wasteful allocation of shelter to the population, a system that sees disadvantaged people on the streets while others are fortunate enough to own multiple homes. I hope to take one or two major property news items each week and give you my thoughts and analysis, for what it's worth (probably not a lot).

Do I expect this blog to make a difference? Probably not. The real estate industry and their mainstream media backers pervade every aspect of our society. They have a stranglehold on the news and 'data' presented to the public. And the government will always do their best to keep house prices high at all costs. But if my little blog helps just one or two people see the light, then it will, in my opinion, have been worthwhile.

It's Different Here! Helping ordinary people understand why Australia is the only country in the world where housing bubbles never burst!