Housing market 2021

[BobbyMorri]

I really really dislike the comments by certain pollies attacking the RBA. Especially encouraging personal attacks on the governor. Before this year, no one would know who the RBA governor was.

There is a reason why they are independent and that they need to be. Look at Turkey. They didnt raise interest rates, they actually cut them. Now everyone is hurting with an inflation rate of 80%.

Interest rates dont just raise the cost of borrowing. It increases the incentive to save. It is the key cornerstone of monetary policy for the last 50 years. This is the RBA job. Inflation hurts everyone and getting that back under control needs to happen. It sucks that people are struggling but sometimes hard choices need to be made. Unpopular choices.

Covid was a once in a 100-year shock and all roads still lead to that. Economics is always learning and growing. Perhaps there are lessons for this in the future, about our response to that and what actions the government took socially and economically. Russia hasn't helped. We are now in an era of high inflation but low growth. sucks and not normal.

Dont get me wrong, the RBA needs to make sure they can keep within an inflation range of 2-3%, while taking into account the economic health as a whole. The interest rate is its main button and they will try to make sure too many people don't default. That would be bad economics.

The government also has a button. They can cut their spending, help the people in need with policies and heck, even raise taxes(though they will make any potential recession a lot worse.) It is their job to make sure income distribution is fair. Honestly, the fact that the media went off about cutting back the super of the people over $1 million was a joke.

 

[Hamingja]

My question is how the * are people able to spend money? Are they going further into debt with credit cards and personal loans because I cannot work out how people can be paying $700 a week on a mortgage for a $500k loan

The RBA is being absolutely reckless.

I think people are living off credit and savings at the moment. The messaging around the interest rates is the worst thing IMO. First it was rates won't rise until 2024, then when they were pumping out 0.50% rate increases they were like we need to go hard now but there will be rate cuts the back end of 2023 etc etc. People just aren't changing their spending habits at all, they are just looking to weather the short term and worry about the long term later.

The biggest issue with the RBA going hard IMO is if they push it too far they won't be able to correct it at all. The banks all pass on the 0.25% rate rise when they are going up but if they need to drop them again the banks will only pass on 0.15% each time and hundreds of thousands of people, if not millions, will be stuck with a high rate. At the high interest rates people won't be able to service with the banks 3% buffer on top and anyone that has bought in the last 18 months at 80% or higher is not going to have the LVR to be able to refinance due to the dip in property prices.

 

[Lyyynnnchy]

I really really dislike the comments by certain pollies attacking the RBA. Especially encouraging personal attacks on the governor. Before this year, no one would know who the RBA governor was.

There is a reason why they are independent and that they need to be. Look at Turkey. They didnt raise interest rates, they actually cut them. Now everyone is hurting with an inflation rate of 80%.

Interest rates dont just raise the cost of borrowing. It increases the incentive to save. It is the key cornerstone of monetary policy for the last 50 years. This is the RBA job. Inflation hurts everyone and getting that back under control needs to happen. It sucks that people are struggling but sometimes hard choices need to be made. Unpopular choices.

Covid was a once in a 100-year shock and all roads still lead to that. Economics is always learning and growing. Perhaps there are lessons for this in the future, about our response to that and what actions the government took socially and economically. Russia hasn't helped. We are now in an era of high inflation but low growth. sucks and not normal.

Dont get me wrong, the RBA needs to make sure they can keep within an inflation range of 2-3%, while taking into account the economic health as a whole. The interest rate is its main button and they will try to make sure too many people don't default. That would be bad economics.

The government also has a button. They can cut their spending, help the people in need with policies and heck, even raise taxes(though they will make any potential recession a lot worse.) It is their job to make sure income distribution is fair. Honestly, the fact that the media went off about cutting back the super of the people over $1 million was a joke.

Agreed. The government has to be held to account for the rate rises more than what it is and has been

I think the RBA has currently got the balance right so far, subject to no more than 1 or 2 more rate rises. I do think, despite agreeing with what they have done thus far, is that the commentary from the RBA is too backward thinking. I get that they have to show a level of pessimism as this also impacts consumer confidence and therefore spending, but it worries me that they're going to take it too far if they genuinely believe what they are saying.

 

[Harro59]

The problem with the housing market us the lack of supply out there at the moment and because of that, the interest rate increase just aren't kicking floor out as the RBA was hoping.

Drops of 10 - 20% were expected when the rates started to rise, but really only saw up to 9.6%. Now it's possible that 2023 will see 2 - 5% growth and then 2024 possibly up to 10% growth again. That wa son the back of record growth as much as 20% through 2021 and 2022.

It's just all over the shop at the moment.

It will be interesting to see what happens with a recession coming or at least the chance of one.

Also one item to add is that I'm building at the moment and while we had some delays getting going, the shift in labour over the last few months has been noticeable.

 

[Jordie_tackles]

Only about 35-40% of people have a mortgage, of that I’m sure half (my guess) probably only have a minor mortgage as it’s paid off. So these interest rates are only affecting a small number of people.

 

[theouthouse]

The problem with the housing market is not the number of properties around, it is the number of investment properties as a percentage of overall dwellings added to a lower housing density.

This creates the "supply and demand" issue that has caused inflated housing for a number of decades stepping back to the introduction of negative gearing.

Successive governments have failed to act on this as it creates a wealth effect by people feeling richer as they now have higher asset wealth in higher house prices, majority of voters don't feel its an important issue.

How to reduce the artificial demand for housing though? Removing or limiting the investment element would be a start. We have a new RBA boss who has 4 investment properties, why the need for 4 properties I do not know, but there are many more out there with the same or higher number of investment properties.

Is it worth governments winding down negative gearing and taxing 50% of rental incomes to free up housing supply for a more affordable market so higher interest rates do not affect buyers going forward.

It makes economic sense to have sound interest rate levels of 3-7% while households maintain the ability to save and have access to spend disposable income to flow on through the economy.

Bumpy ride. Will be interesting to see which way the RBA and governments go in future.

 

[Sqotty from office works]

The problem with the housing market is not the number of properties around, it is the number of investment properties as a percentage of overall dwellings added to a lower housing density.

This creates the "supply and demand" issue that has caused inflated housing for a number of decades stepping back to the introduction of negative gearing.

Successive governments have failed to act on this as it creates a wealth effect by people feeling richer as they now have higher asset wealth in higher house prices, majority of voters don't feel its an important issue.

How to reduce the artificial demand for housing though? Removing or limiting the investment element would be a start. We have a new RBA boss who has 4 investment properties, why the need for 4 properties I do not know, but there are many more out there with the same or higher number of investment properties.

Is it worth governments winding down negative gearing and taxing 50% of rental incomes to free up housing supply for a more affordable market so higher interest rates do not affect buyers going forward.

It makes economic sense to have sound interest rate levels of 3-7% while households maintain the ability to save and have access to spend disposable income to flow on through the economy.

Bumpy ride. Will be interesting to see which way the RBA and governments go in future.

Lowe will be under a promise to raise them as he walks out the gate.
My preference 2%, but that won't happen.

 

[Harro59]

The problem with the housing market is not the number of properties around, it is the number of investment properties as a percentage of overall dwellings added to a lower housing density.

This creates the "supply and demand" issue that has caused inflated housing for a number of decades stepping back to the introduction of negative gearing.

Successive governments have failed to act on this as it creates a wealth effect by people feeling richer as they now have higher asset wealth in higher house prices, majority of voters don't feel its an important issue.

How to reduce the artificial demand for housing though? Removing or limiting the investment element would be a start. We have a new RBA boss who has 4 investment properties, why the need for 4 properties I do not know, but there are many more out there with the same or higher number of investment properties.

Is it worth governments winding down negative gearing and taxing 50% of rental incomes to free up housing supply for a more affordable market so higher interest rates do not affect buyers going forward.

It makes economic sense to have sound interest rate levels of 3-7% while households maintain the ability to save and have access to spend disposable income to flow on through the economy.

Bumpy ride. Will be interesting to see which way the RBA and governments go in future.

The only way to undo this is to change negative gearing. Perhaps taxing up to 50% is a start but it's the place to start if you want to reduce the pressure on housing.

 

[Jack Richards]

Random pondering.

I live in the SE suburbs in the Shire of Cardinia (40min from Melb CBD) 1 street across from a very popular school that is heavily zoned) 10min walk to the shops and train station. My house is a 4 bedroom, 2 bathrooms and 2 living rooms on a 525m2 block.

Houses around us are selling for about $600K

We want to move to Drouin or Neerim which is further away from Melbourne and houses are like $700k+ for similar size...

Thought it would be cheaper considering the distance out from the city.

 

[Jordie_tackles]

Random pondering.

I live in the SE suburbs in the Shire of Cardinia (40min from Melb CBD) 1 street across from a very popular school that is heavily zoned) 10min walk to the shops and train station. My house is a 4 bedroom, 2 bathrooms and 2 living rooms on a 525m2 block.

Houses around us are selling for about $600K

We want to move to Drouin or Neerim which is further away from Melbourne and houses are like $700k+ for similar size...

Thought it would be cheaper considering the distance out from the city.

Maybe supply more houses in Cardinia than Drouin?

 

[Kwality]

The only way to undo this is to change negative gearing. Perhaps taxing up to 50% is a start but it's the place to start if you want to reduce the pressure on housing.

'Treasurer Jim Chalmers says a shortage of rental properties has pushed rent inflation to its quickest pace in more than a decade.

ABS data released today shows rents have increased 6.7 per cent over the year – the fastest pace of rent inflation since 2009.'

Rental shortage fuels inflation: Chalmers​

Australia, New Zealand agree to decade-long bilateral road map

Australia and New Zealand agree to cooperate on issues such as regional stability and climate change; a high-profile Sydney lawyer has been shot outside his home in a targeted attack. Here’s how the day unfolded.

www.afr.com

More tax equals more housing ..... hello, hello.

 

[sabre_ac]

There is a couple of issues at play with property prices.

1. Government intervention: Enough property-specific policies that treat home ownership differently from any other capital asset. Including special financial vehicles to save for a house, and rules around who can purchase.

2. Capital gains exemption: Somewhat related to the above, why are homes special for capital allocation? It drives people to value home ownership significantly more than funding retirement, resulting in generations being asset-rich and cashflow-poor. Furthermore, it just sets the scene for those reverse mortgage vultures to capitalize.

3. Immigration: Immigration is a good thing, but a downside is most immigrants flock to major cities and major cities have limited serviceable land. There needs to be an acceptance that as cities grow, more of us will have to live in housing other than detached houses with backyards.

4. Privilege: Growing up in a detached house with a backyard perfect for cricket does not entitle the next generation to the same thing. See above for why it's not attainable.

5. Global mobility: This is tied to points 3 and 4. As the world becomes richer and more mobile, why wouldn't people abroad want to move to Australia? Healthcare (check), employment prospects (check), year-round weather you can be outside (check), low crime (check), abundance of fresh food (check).

6. Nimbyism: Somewhat related to privilege, too many prime location suburbs have restrictions on medium-rise or multi-residence developments, enough, you don't get to say what your neighbor does with their property or deny others access to your neighborhood.

I don't think the solution is blaming investors, kicking them out of the market reduces the rental supply, which should be a viable alternative to buying if you pump the excess into super.

 

[Seeds]

Only about 35-40% of people have a mortgage, of that I’m sure half (my guess) probably only have a minor mortgage as it’s paid off. So these interest rates are only affecting a small number of people.

Interest rates dont just impact mortgages.

business investment and therefore jobs is just as influenced by interest rates as mortages.

likewise car loans and credit card debt is also influenced by rates.


interest rates havent impacted the economy as much as we thought because of the unwinding of pent up savings and collapse in inventories during the pandemic. And as already pointed out, the supply issue in the housing market.

 

[Seeds]

There is a couple of issues at play with property prices.

1. Government intervention: Enough property-specific policies that treat home ownership differently from any other capital asset. Including special financial vehicles to save for a house, and rules around who can purchase.

2. Capital gains exemption: Somewhat related to the above, why are homes special for capital allocation? It drives people to value home ownership significantly more than funding retirement, resulting in generations being asset-rich and cashflow-poor. Furthermore, it just sets the scene for those reverse mortgage vultures to capitalize.

3. Immigration: Immigration is a good thing, but a downside is most immigrants flock to major cities and major cities have limited serviceable land. There needs to be an acceptance that as cities grow, more of us will have to live in housing other than detached houses with backyards.

4. Privilege: Growing up in a detached house with a backyard perfect for cricket does not entitle the next generation to the same thing. See above for why it's not attainable.

5. Global mobility: This is tied to points 3 and 4. As the world becomes richer and more mobile, why wouldn't people abroad want to move to Australia? Healthcare (check), employment prospects (check), year-round weather you can be outside (check), low crime (check), abundance of fresh food (check).

6. Nimbyism: Somewhat related to privilege, too many prime location suburbs have restrictions on medium-rise or multi-residence developments, enough, you don't get to say what your neighbor does with their property or deny others access to your neighborhood.

I don't think the solution is blaming investors, kicking them out of the market reduces the rental supply, which should be a viable alternative to buying if you pump the excess into super.

you capture a lot of the points but you are missing a few.


the lack of release of sufficient land supply which is largely due to a lack of willingness to invest in infrastructure (power/water/sewage).

A lack of willingness to unwind regulation regarding housing due to legal fears which has dramatically increased construction costs.

you are also ignoring the positive benefits of immigration on reducing construction costs because immigrants provide a high supply of construction workers and tradies.

you are also missing the prevalence of stamp duty and exclusion of home ownership from the pension asset test. Both of these rules discourage empty nesters from moving out of large homes in the city with empty bedrooms to smaller homes in the country/outer suburbs.

 

[Off Tap]

With immigration getting close to 2m over the next 3 years, coupled with the lowering of interest rates, it's setting our market up to have another massive boom over the coming years. As soon as the 1st rate cut is announced, watch the market go crazy.

Where we live, houses are taking 1 home open to sell. Minimum 20 groups through. Buyers galore. Interstate investors buying sight unseen as they are chasing the return.

Just spoke to an agent who's cold calling for listings and they are getting 7% rents. Absolute nuts.

Kids won't have a chance unless mum and dad put up the security.

 

[Taylor]

I think if you have a spare $50m you could get that matched from the government to build genuine budget housing, blocks of squares with two bedrooms and barely a distinction between living/kitchen/dining. Chucking up 1000 apartments near a train station and capped rent.

 

[Off Tap]

I think if you have a spare $50m you could get that matched from the government to build genuine budget housing, blocks of squares with two bedrooms and barely a distinction between living/kitchen/dining. Chucking up 1000 apartments near a train station and capped rent.

I was reading an article yesterday on the topic (think it was through HotCopper) where the author was saying that red tape is making those sorts of developments cost prohibitive.

It was in relation to housing the migrants coming into the country over the next 5 years and the strain that they are putting on the current families that are already looking for a place to live.

In a nutshell, developers afraid that they'll get burnt hence they are staying away.

 

[Taylor]

I was reading an article yesterday on the topic (think it was through HotCopper) where the author was saying that red tape is making those sorts of developments cost prohibitive.

It was in relation to housing the migrants coming into the country over the next 5 years and the strain that they are putting on the current families that are already looking for a place to live.

In a nutshell, developers afraid that they'll get burnt hence they are staying away.

A lot of developers don't carry the money to build their big projects, they finance them using the buyer's deposits for, well, deposit. With interest rates up and potentially up for a while they'll definitely be vulnerable to having their buyers backing out when the time comes to pay because they've gone broke.

I don't think they can afford to hold let's say $75,000,000 worth of debt costing even 5% if the rents aren't matching the cost.

That's why I think the government will want to jump in, they love being the heroes and saying how they are getting a great deal for people by making other people's businesses really profitable.

 

[Off Tap]

That's why I think the government will want to jump in

That was the main reason why the developers don't want to get involved. Too much bureaucratic red tape causing extended holding and building periods.

 

[Taylor]

That was the main reason why the developers don't want to get involved. Too much bureaucratic red tape causing extended holding and building periods.

Exactly, so if you have a political connection now is a great time for them to buy you security by kicking off a joint venture with them in which they take all the glory and you get to sign onto twenty years of 75% of the average rate of rent for the suburb for <50% of the cost and none of the upkeep costs.

I was thinking of doing this near Rockingham in a JV with the DHA to house the extra personnel they wanted in built to spec secured apartment blocks. Rent locked in, upkeep locked in, used by people who face personal consequences for damages anyway.

 

[Off Tap]

Exactly, so if you have a political connection now is a great time for them to buy you security by kicking off a joint venture with them in which they take all the glory and you get to sign onto twenty years of 75% of the average rate of rent for the suburb for <50% of the cost and none of the upkeep costs.

I was thinking of doing this near Rockingham in a JV with the DHA to house the extra personnel they wanted in built to spec secured apartment blocks. Rent locked in, upkeep locked in, used by people who face personal consequences for damages anyway.

Good luck to you if you decide to go through with it.

I worked with a number of developers 15 years ago where we were selling off the plan (3,000 odd apartments over about 30 projects) and the hoops that they had to jump through to get something out of the ground was time consuming and exhausting.

 

[Sqotty from office works]

Companies in country Victoria are buying motels and shipping in workers from other centres.
Win win

 

[Madas]

The cost to build anything at the moment is ridiculous. No wonder the developers have gone quiet

 

[Off Tap]

The cost to build anything at the moment is ridiculous. No wonder the developers have gone quiet

You have to feel for the poor owners as well who enter into their building contracts and get burnt before completion due to the builder going under. It's hard enough saving up for your deposit only to get it flushed down the toilet when the builder goes broke.

When we were selling off the plan apartments in Perth from 2005 to 2007, we were putting up the contract prices by up to 10% before completion to cover the rise in building costs. Minimum $50k for a 1 bed apartment and up to $400k for some of the penthouses.

Those conversations with the owners weren't pleasant. Especially when they were thinking that they were sitting on decent capital growth only to get it taken away just prior to settlement.

 

[Punt Road Feral]

My biggest issue with builders going under is they aren’t taking out the insurance which is supposed to form part of the deposit clients are paying for upfront.

Case in point is when Porter Davis (I’m fairly certain it was them) went under, they immorally didn’t take out the relevant insurances and the state government had to bundle out the poor homeowners and investors which were stitched up from it.
On a seperate note it sets a bad precedent for other builders to do the same thing and expect the government to bundle out others and it paved the way for others to cut corners and redirect funds elsewhere.

Surely there’s some way they can make directors of companies accountable for this?