Day after day, there's this concern about the Property Bubble. Looked through the hosing affordability prism, the bubble looks enormous, but looked through the prism of investments, housing-as- asset still looks safe to the majority of investors piling into the market. If you're hoping to get you quarter acre block and raise your kids in the manner that your parents did, in a neighbour that resembles the one in which you grew up, the likelihood has diminished to unlikely to zero chance doing it on your own.
If you're in the real estate racket, then it's in your interest to talk it down like it's not big deal.
This made me laugh:
Australia's banking regulator says the country's housing market is in an environment of "heightened risk", but he won't say there's a housing bubble.
Australian Prudential Regulatory Authority chairman Wayne Byres told a Sydney conference that he wouldn't use "the B-word" to describe the housing market.
"I don't use the B-word. I refuse to use the B-word. It implies a binary, that's too simplistic," Mr Byres said speaking at the Australian Securities and Investments Commission annual forum.
"We are in an environment of heightened risk. House prices are high and particularly in this one (Sydney) they're rapidly rising," Mr Byres said.
"If everyone is not careful the risks are going to rise," Mr Byres said.
Mr Byres said APRA was watching the housing market, but he stopped short of saying the authority would bring in new curbs on investment lending.
I guess it's not a Bubble if you don't call it that. That's a bit like saying Tony Abbott isn't a dickhead because he's not called Dick Head, but Tony Abbott.
"What Bubble?" They Asked
Outside of Sydney and Melbourne, real estate pricing has not risen at the same dizzying rates. Of course, Australia's a very big place but GDP growth is concentrated in pockets. That is to say, there are only a few places in Australia worth being. You can go live in Tenterfield Queensland in a shack priced at 20k, which is the middle of nowhere, for instance, but it is days from amenities one expects of civilisation and if you didn't get your NBN connection out there, why, living conditions could approximate the 19th century more than the 21st.
Something like 8% worth of Australia's GDP's economic activity takes place in the precinct surrounding Wynyard and Town Hall stations. Think about that: 1/12.5ths of Australia's economy converges on 2 railway stations (I happen to know this because I talk to people at the UTS TRC). The whole point of Sydney is to service the 2 stations, and to that end, the public transport system has grown into radial spokes around the surrounding land all the way out to the hinterlands. It grew that way through a combination of factors, some of which included lack of vision by the NSW government; the small-ness of scope given to a precinct known as The City of Sydney which covers these two stations, but nowhere near far out enough to urban coordinate planning or transport planning; the fact that the Sydney basin as a whole had no urban planning for a good two decades in the middle of the 20th century; and general class sniping which has persisted from English Colonial times.
Unfortunately the physical need for participants in the economy to converge on the two stations is so immense it has absolutely warped the perception of value in Sydney. The CBDs of Melbourne and Brisbane also present similar problems. Combined, the central districts of the three cities would contribute to a quarter of Australia' GDP, perhaps a third -all of it sitting in a clutch of about 5-6 train stations. That's a lot of economic activity that needs to be serviced by public transport.
In a sense, it is like light. For every doubling of distance away from these hot cores of the Australian economy, the value of the land would lose by a square root. While this is common sense, the way the property prices have been growing is anything but. If Sydney's economic output as a whole is not growing by 18%, it's hard to justify 18% rises in the property - and that's just comparing like with like. If you compare the GDP output of Sydney with world cities, it is hardly worth the prices its property is fetching. I mean, Sydney's a nice-ish place to live, but it's not that nice. People are having themselves on if they're putting it up higher than NYC, London or even Santa Barbara, California.
Except perspective is very hard to come by when you've decided where you are so damn wonderful, and the market is full of these people. Do you wonder why some people think it's all going to end in tears?
Bad Ideas Still Get To Run
There's this argument going around that maybe first time home owners should be able to access their superannuation in order to put a deposit down for a house. Paul Keating thinks this is a terrible idea. Others are in favour.
The succinct summation of why it's a bad idea is here (take it away, Mr. Keating!):
It's kind of crazy to pull your money out of diversified funds and stick it into one asset. Not one asset class, but one asset. And then you assume that one asset will keep going up enough that you could liquidate it at the time of your retirement to fund your retirement. If you believe that, I have a bridge I want to sell you.
"What Bubble?" They Asked
Outside of Sydney and Melbourne, real estate pricing has not risen at the same dizzying rates. Of course, Australia's a very big place but GDP growth is concentrated in pockets. That is to say, there are only a few places in Australia worth being. You can go live in Tenterfield Queensland in a shack priced at 20k, which is the middle of nowhere, for instance, but it is days from amenities one expects of civilisation and if you didn't get your NBN connection out there, why, living conditions could approximate the 19th century more than the 21st.
Something like 8% worth of Australia's GDP's economic activity takes place in the precinct surrounding Wynyard and Town Hall stations. Think about that: 1/12.5ths of Australia's economy converges on 2 railway stations (I happen to know this because I talk to people at the UTS TRC). The whole point of Sydney is to service the 2 stations, and to that end, the public transport system has grown into radial spokes around the surrounding land all the way out to the hinterlands. It grew that way through a combination of factors, some of which included lack of vision by the NSW government; the small-ness of scope given to a precinct known as The City of Sydney which covers these two stations, but nowhere near far out enough to urban coordinate planning or transport planning; the fact that the Sydney basin as a whole had no urban planning for a good two decades in the middle of the 20th century; and general class sniping which has persisted from English Colonial times.
Unfortunately the physical need for participants in the economy to converge on the two stations is so immense it has absolutely warped the perception of value in Sydney. The CBDs of Melbourne and Brisbane also present similar problems. Combined, the central districts of the three cities would contribute to a quarter of Australia' GDP, perhaps a third -all of it sitting in a clutch of about 5-6 train stations. That's a lot of economic activity that needs to be serviced by public transport.
In a sense, it is like light. For every doubling of distance away from these hot cores of the Australian economy, the value of the land would lose by a square root. While this is common sense, the way the property prices have been growing is anything but. If Sydney's economic output as a whole is not growing by 18%, it's hard to justify 18% rises in the property - and that's just comparing like with like. If you compare the GDP output of Sydney with world cities, it is hardly worth the prices its property is fetching. I mean, Sydney's a nice-ish place to live, but it's not that nice. People are having themselves on if they're putting it up higher than NYC, London or even Santa Barbara, California.
Except perspective is very hard to come by when you've decided where you are so damn wonderful, and the market is full of these people. Do you wonder why some people think it's all going to end in tears?
Bad Ideas Still Get To Run
There's this argument going around that maybe first time home owners should be able to access their superannuation in order to put a deposit down for a house. Paul Keating thinks this is a terrible idea. Others are in favour.
The succinct summation of why it's a bad idea is here (take it away, Mr. Keating!):
The average superannuation balance of those aged between 25 and 40 hovers around $45,000. Were this to be taken from a saver's account to be employed as a housing deposit, it would effectively destroy that person's ability to compound any future sum into a meaningful retirement supplement.
More than that, once the preservation rule has been breached, the whole investment system would be compromised as superannuation trustees were required to make provision for short-term withdrawals from an otherwise, fully preserved system. This would be completely disruptive to professional funds management.If you look at it from a longer time frame, you'd have to say property prices will not keep going up, or even stay above their historic trend forever. it's doubtful it would stay that way over a working life. The insane price rises we're seeing are based on the delusion that these markets never go down. People are forgetting what an economic contraction looks like, what a recession looks like, and how it impacts prices of things.
It's kind of crazy to pull your money out of diversified funds and stick it into one asset. Not one asset class, but one asset. And then you assume that one asset will keep going up enough that you could liquidate it at the time of your retirement to fund your retirement. If you believe that, I have a bridge I want to sell you.
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