Global House Price CrashAustralian Property and Economic News

Homebuyers in Australia are finding it cheaper to purchase further away from central areas of cities, it has been revealed.

A study by Bankwest-Mortgage and the Finance Association of Australia (MFAA) found that buyers have been increasingly looking to acquire less expensive homes, even if it means a longer commute into city centres.

The survey discovered per cent of first-time buyers are looking to acquire a property for less than they originally intended in order to get on the housing ladder, with 31.3 per cent saying they were intending to do this by living further from central business districts.

Those planning on investing in Australia may find that areas in the outer suburbs of cities turn out to have the best value homes.

Senior project manager of residential property at BIS Shrapnel Angie Zigomanis told the Sydney Morning Herald earlier this month that he expects house price rises to be steady next year, with interest rate increases preventing runaway inflation in the market.

Australia is set for steady and stable property price increases in the next few years, it has been predicted.

Most experts in the industry believe the market will see values grow by around five to six per cent in 2010, the Sydney Morning Herald reports.

Senior project manager of residential property at BIS Shrapnel Angie Zigomanis told the paper he expected such a figure, with the Reserve Bank of Australia’s (RBA’s) monetary policy helping to avoid an unsustainable boom.

"I think you’ll find interest rates will keep slowly edging upwards and it’ll keep a lid on the massive double digit price growth we were seeing previously," Mr Zigomanis said.

Such a situation could help those investing in Australian property now to enjoy the fruits of their capital gains with less chance of a major downturn caused by a bursting property bubble.

On December 1st, the RBA revealed it was raising interest rates by 0.25 per cent to 3.75 per cent, with governor Glenn Stevens commenting that the board of the institution is seeking to "increase the sustainability" of the country’s economic growth.

Australian bailout of dodgy banks
(and I thought we were ‘decoupled’ from the international maelstrom in the US, UK and now Europe)

The Australian Federal government is doing its very own version of the US bank failure bailout with taxpayer’s money, so it can keep the Ponzi scheme going a bit longer and stop market prices for housing correcting somewhere back to where they should be.

Dan at bubblepedia.net.au has sent the following note:

There is a bailout happening right now under our noses for the gamblers. I object in the strongest possible terms to wasting my tax dollars to pay the gambling debts of our own sub prime lenders in an attempt to keep the bubble going for just one more electoral term.I’m trying to get people writing and shouting here: http://bubblepedia.net.au/tiki-view_blog.php?blogId=9

There is also a lot of treatment of the bailout at the Australian forum of the Global House Price Crash site.

Affordable housing competition

There’s a competition to produce a 3 minute film of anything to do with ‘busting the myths of the housing crisis’ from the incredibly busy and energetic team at Earthsharing Australia. I’m very late announcing this competition here, apologies, and I haven’t had time to put in a contribution either, unfortunately. However, any quality will do, down to a mobile phone camera…

We are working on a film competition right now called “I Want To Live Here”- it’s a call out to those feeling disenfranchised or ‘fenced-out’ of the housing market to bust the myths of the housing crisis. We want people to share their stories, explore the causes and effects of the housing crisis and speculation into a 3-minute film of any genre or style.

The winner will receive a $3000 cash prize.

The Top 3 film will be shown at an Official screening and the winner announced in early December. Entries are Open now until October 2nd.

Regards, Mia
–I Want To Live Here Film Competition — Bust the myths of our Housing Crisis–
Earthsharing Australia
HQ: 1/27 Hardware Lane, Melbourne 3000
Ph: (03) 9670 2754
http://www.iwanttolivehere.org.au/

With regard to watching the housing ‘boom’ unfold without oversight, disenfranchising the next generation, we can only accuse governments of callousness and indifference, if not rampant profiteering wherever possible.

Housing and the real estate industry has become a giant Ponzi scheme, and governments are happy to simply sit back and observe — when they’re not busy selling off Crown land to the highest bidder themselves and taking increasing stamp duties to plump up their coffers. With rising interest rates and property already hugely overvalued in Australia, we are about to witness a train wreck in slow motion as the Ponzi scheme comes off the rails.

Well paid but highly unimpressive ministers, advisers and public servants fail to see the economic chain of cause and effect caused by allowing speculation in housing and land to run rampant. Lowering interest rates to stimulate the economy (often after a stock market crash, also caused by speculation) only leads people to irrationally pour capital into housing instead, elevating prices well above sensible returns on investment, and denying affordability to many, causing a failure of the social settlement. High mortgage repayments lead price setters such as shopkeepers to elevate their prices to cover their living costs. (However, high mortgage repayments also cause consumers to draw back from making purchases.) The higher cost of everything eventually causes industrial unrest and disruption and wage inflation, and eventually sparks a spiral of general inflation. The response is to push interest rates up again, causing more damage to home budgets and businesses. Nobody’s quality of living has gone up except for real estate industry workers and the empty nesters who cashed out their homes. Meanwhile, governments keep taking things out of the CPI calculation to try to keep wages under control by hiding the real size of inflation. For some reason, you don’t seem to get this story anywhere, not from the Reserve Bank, not from Treasury.

CHIRS – Community Housing Online:

With regard to the politicians, with their 2 year longview on everything:

The main barrier to progress appears to be that housing continues to lie off-centre from the main economic, social and political concerns of governments at all levels. In part, this involves an inertial lag effect. For most of the post-War period, the vast majority of Australians have been well housed by historical and international standards. Housing, labour and financial markets worked together to ensure that housing standards were adequate or better for perhaps 85 per cent of the population. A similar proportion of the population became home owners at some time during their lives. The fact that this dominant housing career and expectation has broken down over the past 20 years appears to have eluded many policy makers, who still look to the housing market operating within conventional parameters to meet housing needs for all but a tiny residualised group in the population.

It is this dominant view—along with the tendency to uncritically celebrate house price inflation as a sign of a healthy economy and domestic world—that needs to be taken head on by people concerned with both Australia’s long term economic sustainability and the immediate social problems of declining housing affordability for an increasing number of Australians.

Show me the money: financing more affordable housing - Mike Berry

While it lasted, the boom added substantially to the wealth of existing home owners, but it has made home ownership more expensive for aspiring new buyers. In its aftermath, three questions arise. First, who financed the capital gains that home owners have enjoyed? Second, has home ownership become unaffordable for the younger generation? And third, what, if anything, should the government be doing to help young families get onto the home ownership ladder?

Rapid house price inflation also has wider economic costs, for it can distort the way we use capital. The Productivity Commission notes how, ‘Rising prices can create expectations of further price increases, unrelated to any change in market fundamentals. Young workers rush to take out huge mortgages before house prices spiral out of reach, and older buyers are seduced into investing in rental property while disregarding falling rental returns. Panic buying creates a housing ‘bubble’ which sucks money out of productive investments and eventually threatens the whole economy.’

Just as damaging in the long-term are the sociological effects of high house price inflation. The longer a housing boom goes on, the more it is likely to foster what Max Weber called a spirit of ‘booty capitalism’ emphasising pursuit of short-term windfall profits at the expense of hard work, thrift, enterprise and long-term planning. When passive ownership of a house delivers riches far beyond what most people could accumulate from many years of working and saving, traditional virtues emphasising hard work, saving, enterprise and deferred gratification are likely to get eroded, yet these are values on which capitalist liberal democracy ultimately depends. Savings, certainly, have been in free-fall. The household savings ratio, which was 10% in 1990, is now negative, and debt servicing is costing an average of 9% of personal incomes.

After the House Price Boom – Is this the end of the Australian dream? – Peter Saunders

There have been a number of secular trends in recent decades around household formation and income which have combined to drive up housing prices excessively, and, I hope, unsustainably. These include:

• greater female participation in the workplace, leading to many more double income families, coupled with free market bidding for housing based on what lenders will lend the individual, not what individuals need
• smaller family sizes, possibly partly due to greater workforce participation, individual preference, and so on – partly in order to guarantee a better quality of life for individual children

This has been combined with the continuation of rampant free market commodification of residential property for citizens, where government deliberately keeps out of residential real estate pricing, leaving it to a bidding process in the open market, but reaping enormous stamp duty dividends, land tax and Council rates as a result.

These free market conditions include:

• the sudden liberalisation of credit at a higher risk profile for the banks and other lenders; rise of the NBLs (non-bank lenders) and lo-docs/subprime loans; greater use of interest only loans; and the equalisation of interest rates on loans for investment properties and PPORs (principal places of residence)
• present low interest rates, which are now steadily increasing to fight ‘inflation’, a good percentage of which has been caused by overheated housing prices
• the advent of ’spruikers’ promoting get-rich-quick schemes based on speculative and exploitative behaviours in the property market, and maximising tax breaks, especially ‘negative gearing’ in the Australian case — see http://www.jenman.com.au/ for examples
• the capitalisation of high stamp duty, and other government levies and charges, into the cost of housing — the ‘ratchet’ effect
• increasing desperation of purchasers, leading to more inflation and a hysteria effect — à la the Dutch ‘tulip boom’
• irrational exuberance of speculative investors (yes, just like in the Great Depression, the dotcom ‘tech wreck’ and numerous other housing bubbles in the last century which have all ended badly); belief that future infinite capital gains will bail them out for high prices and ongoing losses now. See Steve Keen on ‘Minsky’s Financial Instability Hypothesis’ as a counter to the neo-classical ‘equilibrium theory’ of markets – http://www.debtdeflation.com/blogs/2008/03/10/time-to-read-some-minsky/
• plenty of developers, real estate agents and baby boomers highly prepared to cash in on this desperation and greed
• the permeability of the real estate market to other markets as an investment vehicle, and relatively low costs of purchase compared with other countries
• very few protections for owner-occupiers in terms of cost controls, except the limit of what the market will bear
• in Australia, very generous negative gearing rates for investors compared with other countries, where housing investment losses are offset against all income, not just income from the property, meaning that the Tax Office is happy to be an equal partner in any loss for top bracket income earners.

Unfortunately, every single spare cent in households then becomes ‘capitalised’ into purchasing real estate, in a bidding war between couples and investors, both long-term and speculative.

My policy suggestions designed to make housing more affordable in Australia and limit the effects of a rapacious, destructive boom include (and are by no means limited to):

• requirement of at least 33% of new development to be ‘affordable’ properties, rather than the current paltry 3% set by state governments — these higher rates are the norm in the UK and France
• PPP developments and partnerships sponsored by government on state, Crown and ex-Defence land – and involving more partnerships with SME construction firms than with big players, thus cutting out fat developer profits, and land speculation profiteering
• release of Defence, State and Crown lands for responsible, affordable, environmentally sustainable development, e.g. disused hospital sites, ADF bases, RTA land, empty land and so on, with price covenants on developments
• control and lowering of land costs where owned by the state or Federal governments, which have an arbitrary value anyhow, rather than selling off land willy-nilly to the highest bidder to plump up state and Federal coffers
• setting long-term price covenants on developed affordable properties under the above regimes, indexed only to CPI or median wage increases, and an at-cost-only allowance for any further renovation value added by owner-occupiers (as assessed by a valuer)
• boosting and improving the stock of both ‘public’ housing and ’social housing’, i.e. cost-controlled housing as described above. Labor Ministers such as Mark Latham and Cherie Burton benefited from this sort of housing growing up, but it has been abandoned more recently due to eco-rat market principles infecting government.
• creation of leasehold titles to be held in perpetuity by government, with the intention of controlling the selling prices of properties developed on them, and to ensure responsible control is retained over the land — this may be an inferior approach to the above approaches
• bypassing/removal of real estate agents and associated advertising charges and hefty commissions in selling these properties, given that they will shift without the need for an agent, and that agents’ fees contribute to the ‘ratchet effect’ in housing
• stamp duty and other transaction cost waivers on these properties, similar to NSW ‘HomePlus’ scheme for first home buyers
• levy a land tax on unused property in urban areas – this tax could be allocated at local government level, to be returned to cash-strapped Councils. The tax would serve as an inducement to sell up rather than hoard disused land and property, both on small and large scales — see the oligopoly of developers and use of land banking to control supply as yet another factor. Gough Whitlam showed courage and broke up this cartel in the 70s, today’s Labor are too compromised to address the issue.
• streamlining approval processes with local Councils for new construction (this is one of the more minimal suggestions currently put forward by state and Federal governments, so that they can blame someone else for the problem)
• lobby Federal Government to stop negative gearing breaks and capital gains tax concessions for investors and implement workable incentives towards home ownership which do not go on to further inflate housing prices; or else the implementation of policy and legislation to offset existing destructive arrangements by the Federal Government. For instance, negative gearing breaks could be quarantined to apply only to rental incomes, not total personal income, as in the UK and the US.
• resumption of land if necessary, e.g. to unite two blocks with a small title between them, or to reclaim an unused or underused site from an unwilling vendor in the public interest. The non-negotiable offer of discounted prices to large vendors such as at the CUB brewery site at Ultimo, Sydney. They have profited enough from the drinking habits of the working class over nearly two centuries – it’s time to put something back. It’s interesting that the land at Kurnell was going to be ‘resumed if necessary’ for the now shelved desalination plant – very tough-talking stuff when it comes to projects like that, but nothing in housing? The RTA is always resuming land to put through new freeways, using its extensive powers.
• the passing of legislation and creation of taxes to control land prices and prevent capitalist boom/bust waves and discourage speculative activity in property, to ‘nationalise’ the sale and pricing of property to some extent, to curb and keep real estate agents in check in any number of ways with stiff penalties (including making inflationary and misrepresentative claims of unlimited capital growth to gullible purchasers, encouraging the creation of endless ‘investment properties’, REI media announcements to this effect) and banning unethical practices to allow for decent affordable owner-occupied housing. Allowing the sale of rental properties only for the use of itinerant workers, visitors, and overseas students, etc. (More decent and affordable accommodation needs to be created for overseas and local students also to reduce current apartment overcrowding problems – currently there are 2 and 3 bedroom apartments all over the city containing up to 10 overseas students.) Better inclusionary zoning and affordability measures around the capital cities to allow ordinary workers to live in the vicinity of their work, thus solving some of the transportation problems of the city and improving social capital.
• stop bun-fighting and buck-passing across the tiers of government, and take ownership of the problem at all levels. It’s ludicrous to expect individual councils to manage housing affordability individually with limited powers and resources and with no holistic plan across the city and state, to say nothing of the pecuniary conflicts of interest which appear with monotonous regularity.

Note that I do not include suggestions such as: shared equity arrangements, developer levies, inappropriate grants to buyers which only serve to further inflate prices in an uncapped and uncontrolled market, 40/50 year mortgages, low or no docs mortgages, or other such free market attempts to maintain inflated prices for the main benefit of banks and real estate agents.

A price correction is needed, and governments must provide affordable places whether or not real estate prices in the open market crash in the next few months and coming years or not.

It appals me that governments instead are willing to attempt to profiteer from these inflated prices by selling prime land and taking excessive stamp duties at the top of an unsustainable capitalist price wave. And, as we know, the whole house of cards is now tumbling down starting with the collapse of mortgage derivatives in the US that fed credit into the rest of the OECD, with a credit freeze and the disappearance of billions in non-existent ‘value’ off assets and derivatives.

Even though home prices have stopped rising in most parts of the country, household debt continues to grow.

The ratio of household debt to income has reached a record 150 per cent – one of the highest in the world – and the ratio of house prices to disposable income is also very high by historical and international standards.

The share of households with debt secured on their home is rising, having jumped from less than 30 per cent in the mid-1990s to 36 per cent.

“The household sector remains vulnerable to a deterioration in the economic climate, and there remains a possibility that the adjustment could turn out to be much larger than currently anticipated,” the report said.

Is household debt getting worse?

Note how spiralling housing costs have fed into the national debt, creating an unproductive international debt to service.

Note also that many small retail businesses are going to the wall, as disposable income is at an all time low.

What does the NSW Labor government and Australian federal Government do about it? Nothing, of course… It’s far easier and politically correct to be laissez-faire and eco-rat (while still dashing off important-sounding polished speeches about nothing) and let new and prospective homebuyers (and the macro-economy) suffer.

Thanks, Steven Keen…

A lose-lose election for home buyers – Business – theage.com.au

Quelle surprise:

SYDNEY’S Bible belt is known for its McMansions, aspirational voters and enthusiastic church-goers. But the conservative, affluent Hills District is also in the grip of a crime wave – and mortgage stress may be behind it.

Over the past four years, Baulkham Hills Shire has experienced rising rates of violence and robbery. Domestic violence has risen by almost 20 per cent, assault is up by almost 10 per cent and harassment by 23 per cent.

There have been five murders in the past two years; there were none in the five years before that. They include the stabbing murder of Richard Carruthers, the 36-year-old redesigner of the Olympic cauldron, in his Castle Hill home. Three of the murders remain unsolved.

Many families in the area are also struggling financially, which can influence domestic violence statistics. “What you have in the Hills District is more people paying more off home loans than the rest of Sydney,” Dr Lee said.

“You’ve got 50 per cent of home owners paying more than $2000 a month off a home. That’s at least 10 per cent more than the average. I’m not saying it’s causal, but I think it’s an interesting figure.”

The Local Area Commander, Superintendent Sue Waites, also suggests a link between financial stress and domestic violence. Domestic violence problems could also be fuelling the 23.2 per cent rise in harassment, threatening behaviour and private nuisance charges. “[Incidents] include sending inappropriate text messages to persons via mobile phones,” she said.

Mortgage stress may be behind Bible belt crime – National – smh.com.au

SYDNEY’S two-speed property market could continue this year as mortgagee-in-possession sales drag down the lower end of the market.

An Australian Property Monitors rating of the growth of property values of about 700 suburbs in 2006 shows the city’s affluent enclaves surged ahead, while areas in the west and south-west languished.

Tale of two Sydneys as property divide widens – National – smh.com.au