Signup Passcode
itsnotdifferenthere
Search
Online users
35 online users
herbie90 points 
Last Images
Last changes
Last blog posts
Last forum posts
Last forum topics
Last articles
Random Pages
Recently visited pages
your support is appreciated

Forum: Australian Bubble Forum

Forums->Australian Bubble Forum->... a couple of questions and comments.

dan
dan12959 points 
Australia
... a couple of questions and comments.


Hi all. I got an email with a specific question on an item in the news feed.

Dan,



Congratulations on the site.



I have a couple of questions and comments. One of the links you have provided ( see below) links to an article regarding the slowdown in construction activity and the eight year low in commencements.



The boost, NRAS and social housing all FAIL to result in more building and jobs - why? - because it was really aimed at soaking up the overhang of ALREADY BUILT new houses!!!



You’re claim is that the fiscal stimulus measures are really just an attempt to clear the overhang. This may be true but I would like to see a more developed case to support this view.



Specifically:



1. What evidence do you have that the social housing being built under stimulus will involve the acquisition of existing properties rather than tendering out contracts for new builds?
2. Have you taken into account the fact that, as I understand it, State governments are offering tenders to builders right now. If no construction workers have been employed yet its merely because the projects have yet to start.
3. What evidence can you provide that NRAS funding is being used to purchase preexisting properties rather than contributing toward the construction of new ones?





I thought you might also be interested in this site, www.thepropertypin.comexternal link, it’s a property bear website started in 2006 from Ireland which, as you are probably aware, had the daddy of all bubbles.



Thanks,

(a correspondent from an NGO interested in social services )


Two important questions and a valid point. The delay in job creations may be because projects are yet to start. The other two I think I need help with.

I have to say I have been feeling pretty relaxed about the bubble lately (after years of wondering what was going on it all seems so obvious now), and pretty unrelaxed about work (urelated problems), so I have been going about my business being only a very part time blogger.

I know you have taken a big interest in this issue Homes4aussiesexternal link. Can you point us straight to the answer. Or anyone else?

all the best all
 
on: Wed 01 of Jul, 2009 [11:34 UTC] reads: 3451

Posted messages

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Thu 02 of Jul, 2009 [00:26 UTC]
Avec plaisir.

Jobs and housing are very contentious at present, so you can be absolutely certain that Government and Public Servants will be careful with information regarding this issue.

But lets put the pieces together.

First piece - read my most recent email to all Senators. And then read Minister Plibersek's response to it wink

BUT notice in her press release that NOWHERE, in all of the figures she quotes, does she mention housing construction figures because they have not had a strong uptick.

And the most recent ABS release - yesterday - showed a very strong fall!

Notice also her only evidence about the affect of these policies on jobs was a reference to construction jobs overall -

"Analysis of recent ABS data on employment trends shows that employment in construction increased by 10,000 in seasonally adjusted terms in the three months to May 2009"

Now that's very tricky!

The sheer volume of infrastructure spending (firstly the shovel-ready projects - such as the council grants, and school grants, not to mention all of the State Government's public works) no doubt accounts for most of this, and little if any was due to housing contruction because the figures simply do not show a pickup.

In actual fact, it is quite possible that housing construction jobs have been lost. (Please see the link in my email to the Senators to one article discussing the quiet state of housing construction in Queensland.)

Now you say that a lot of the funds have yet to flow. Perhaps there is more to come (see below). But we know for certain that a lot of $$$s have already been committed. The Boost was inacted 8 MONTHS AGO!! (In October 2008)

And we all know that has been taken up with a gusto!

The Government has been spruiking that from the rooftop. In fact, the Minister's press release makes a song and dance about the numbers of FHOBs given out - even giving a table - clearly intended to give the impression that much of that has flowed through to housing construction and jobs, which it clearly has not.

Then the first phase of the NRAS commenced shortly afterwards at the end of 2008, with statements that families will be in new homes before Xmas (that was the first give away - they were going to have to build pretty quickly!)

As I said, this is not widely discussed in the community, but I did have a word with somebody from an NGO very heavily involved with the NRAS and they confirmed that first tranche was being used to purchase or involved already built new houses. (The proportion was not discussed.)

To paraphrase the words used "I wouldn't get too concerned about them helping out the development industry because there's some pretty big announcements to come" (I guess they were referring to the Social housing policy announced later)

Finally, it is now almost 5 months since the The Stimulus Package II, including the social housing program, was voted through parliament. You can find my emails to the Senators at that time on both Bubblepedia http://www.bubblepedia.net.au/tiki-view_forum_thread.php?comments_parentId=1357&topics_offset=110&topics_sort_mode=lastPost_desc&forumId=7 and my own website www.geocities.com/homes4aussies - that email has proved quite prophetic!

I would cite a Government Senator saying that some already commenced projects will be considered as fairly strong evidence. Now, whilst at face value Senator Moore's statement seems fair enough, why did the Government NOT include that a completed or very nearly completed property could NOT be considered?

(That's the point - in all of these programs - with all OUR $$$s being spent - if they stipulated that they could not go towards properties already built or near to completion, every $ would have gone to increasing housing construction and jobs!)

I think most Australians understand the potential for "flexibility", aka loopholes, to be used in ways that Taxpayers would not be entirely pleased with if they were to be informed (much like a certain KIA retailer being given some special attention by the Treasurer and his employees.)

I am sure that there is still spending to come - but we, the general public, could not know just how much has been spent and is left to spend.

But what is absolutely clear is that the ABS figures show that much has been spent on the FHB boost, and the first tranche of the NRAS has been committed, but we have seen no discernible "boost" in housing construction thus jobs.

THE MOST IMPORTANT QUESTION TO BE ANSWERED IS HOW MUCH OF WHAT HAS BEEN SPENT ALREADY WAS USED TO PURCHASE OR INVOLVED HOUSES THAT WERE ALREADY BUILT!

Just a final comment. I can understand how NGOs and their staff could get excited after a long time of being out in the cold suddenly having a Government giving some housing and it must feel great putting deserved families into new homes. I really understand that.

But I think, after fighting a long hard fight, there is a tendancy to concentrate on one's own immediate world - one's own "organisation" - rather than looking at the big picture.

And my view is that "helping out the developers", as my NGO acquantaince put it, is effectively bailing them out (and Senator Moore, whilst wanting to use different phrasing, agreed this could also be a consequence of the social housing program).

This prevents the market from undergoing the correction that is much needed. And that will keep the price of housing at these artificial highs for much longer.

Tony Richards of the RBA said it in his paper last year - but was careful not to repeat it this year - low income earners suffer when house prices increase, while high income earners benefit.

Our house prices have trippled in a short period, so that's a lot of suffering! And keeping prices high ensures that low income Aussies CONTINUE to suffer, with the exception of a lucky very few who win the lottery and get one of those houses.

I remain of the view that it would be much better for Australia, and especially low income Aussies, for the housing market to be allowed to find a fair price for a home, and attempts by the Government to prevent that from happening should be rejected, especially by those dealing with the most marginalised Aussies.

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Thu 02 of Jul, 2009 [04:24 UTC]
I should add that - if they had not hyped these programs as helping FHBs to buy a home, increasing the supply of housing, and boosting housing construction jobs - I would have had no concerns at the Government purchasing already built housing for the Social Housing Program and subsequent rounds of the NRAS if - and that's a really big IF - they had not already distorted the market propping up prices with the FHOB and the first round of the NRAS, and prices genuinely reflected market fundamentals and were thus at a significant discount to prices at the peak.

Actually, if they were picking up housing at around 50% discount to peak prices that would be a great outcome for struggling Aussies - perhaps doubling the number of people potentially helped by the programs. And our taxpayer $$$s would be getting much more bang.

Has anybody here gone into one of the many shops, closing down or otherwise, holding a massive discount sale due to the economic conditions and said "gee, I really feel sorry for you guys struggling with the economic conditions - forget about the discount, I'm going to pay full price!"

Or, who here thinks a businessman, knowing that another business is in trouble, says "look, I'll help you guys out - I will buy your business or a fair swag of your assets at peak bubble prices rather than the distressed prices I could get them for now."

Yeah, I can imagine Kerry Packer doing that rolleyes

Of course that doesn't happen. That's because we all know it to be the nature of the business cycle.

Now, it's true that I have no idea about what prices have been paid and will be paid for the Social Housing. But, looking at what has transpired thus far, Blind Freddy knows that they would not be playing hard ball in negotiating prices with developers.

So why does the Aussie taxpayer have to pay full price for this housing as a way of bailing out the developers?? And at the same time helping out far fewer Aussies that really need the help!

Well I'll leave it to readers to do the internet searches to pick up on all of the articles linking politicians to property developers and donations and other perks. But I'll include again what Mr Turnbull said in Parliament the other day about why the opposition voted down yet another Property Development Industry Bailout-

"And they wonder why we opposed Ruddbank? They wonder why we were concerned about the Treasurer leaping up and identifying a property development in Brisbane—presumably a developer he knew well, who needed support."

author message
zaph305 points 
Re: ... a couple of questions and comments.
on: Thu 02 of Jul, 2009 [08:45 UTC]
H4A - was it the first 1/4 results released by the ABS a couple of days ago? -2.2%? (crappy govt site is so hard to work)

if it is then as usual get's no media attention. grrr. 'we'll believe a stat controled by rea rather than the ABS thanks'

author message
homes4aussies2375 points 
Re: Re: ... a couple of questions and comments.
on: Fri 03 of Jul, 2009 [06:33 UTC]
Yeah Zaph, that's the one - down 2% private houses. For a release that you hear about, just go to the ABS homepage and if it's been a couple of days just click on the "previous releases" tab and you should be able to locate what you want.

http://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyReleaseDate/0545FFC6A101264DCA25719F007F6F1F?OpenDocumentexternal link

author message
Barry1 points 
Re: ... a couple of questions and comments.
on: Thu 02 of Jul, 2009 [10:40 UTC]
(response from the original correspondent)


A few points in response.

1. Housing construction may not have had a strong up-tick as you
say but that does not mean that stimulus has not had an effect. We know
from yesterdays ABS data here that Building approvals are down. What we
don't know is how much more they would have fallen had the FHOB not been
in place. For all we know they could have been down another ten
percent.

2. You wrote "In actual fact, it is quite possible that housing
construction jobs have been lost". Well, how are we to tell? Again, a
rational argument would be that if 10 jobs were lost in construction
than without stimulus it could have been 40.

3. You wrote that the Minister's table "clearly intended to give
the impression that much of that has flowed through to housing
construction and jobs, which it clearly has not" Neither of these
assertions is clear to me. That is just your interpretation. If the
later contention, Vis a Vis jobs, is true, you might provide some
evidence to support your view.

4. On the social housing issue, you have asked questions but
provided little in the way of answers. Please remember that the onus is
on you to substantiate your original claim that the stimulus money is
largely being used to buy surplus housing stock and not for the
commencement of new builds. For what its worth, I have monitored the
process in WA and they held an information meetings with builders and
developers interested in tendering for social housing contracts and an
application process was put in train. I will endeavor to find out as
conclusively as possible if and how much, if any, of the 2600 new social
housing units will not be new builds.

5. I agree with you that the most important question is how much of
the stimulus money has been used on existing builds. Lets try and find
out.

6. I do represent an NGO but I understand that the housing market
is inter related and am not focused on social housing provision
exclusively. In fact, demand for social housing has skyrocketed
precisely because affordability rates in the private market have
diminished so rapidly in the last five years. I am merely trying to
establish as many facts as possible about the intentions of government
policy.

7. One final point, there are victims whether the market is propped
up or allowed to collapse. On the one hand, there are those priced out
of the market. On the other, in the event of collapse, there would be
thousands more placed in negative equity. A valuable question,
therefore, is how best should the bubble be deflated in terms of its
affect on ordinary people?

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Thu 02 of Jul, 2009 [21:59 UTC]
Barry, I sent an immediate response to this which I have taken down because it was a tad too strong - I stopped reading your post at Point 4 because it really got me going!

I have now read the last points and decided you were a little more balanced than those first points suggested.

Following is a few points (which I've extracted from my original response - you'll probably notice some annoyance biggrin) and I'll add more later when I can.

How is it that you suggest that I "remember that the onus is on (me) to substantiate (my) original claim"?

What onus? We're in a blog! If I'm being tried, or if I'm in front of Senate Estimates, please let me know.

I have answered your original points in great detail. And I stand by what I said. I would suggest that what I have put forward, in the frequently less than clear affairs surrounding contentious political issues, is a very substantive set of ideas, supported by the few facts available, in support of my views.

You are attempting to make this all about hard and verifiable facts. Easy to come by in the theoretical world. Not so easy in the real world, especially that pertaining to contentious political issues. Necessary to prosecute a case against someone - a la Utegate - but not vital in the common sense world that we all inhabit where we can put 2 and 2 together that the PM's mate was looked after because that's what the boss wanted!

When it comes down to it, assessing this policy mix is going to be quite subjective because there is so much going on (GFC etc as you suggest). But when it comes down to it, in the words of Dennis Denuto who argued most excellently for Darryl Kerrigan, "it's the vibe of it" - for me it just doesn't stack up.

But I will take a bit of time to respond to your 9 points by distilling down where I think our main differences lie.

Brett

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Fri 03 of Jul, 2009 [01:57 UTC]
Points 1 & 2 pertain to the counterfactual argument and I accept your point. Still, there are a few points which further support my argument. Perhaps most importantly, investors is the segment of the housing market down the most from earlier levels, and I think it is generally accepted that they are far less important in the new housing market.

But as I said in my earlier post, we just don't know enough about how this money has been and is being spent. You have concentrated mainly on the social housing program - and seeing as you have personal knowledge, I am happy to accept that this program is just kicking off, at least in WA (perhaps you'd agree that since we are in “the economic equivalent of a rolling national security crisis", the worst financial crisis in 80 years, it would be reasonable to expect that some of the funds were put into action a little earlier than 5 months - and perhaps they have and you are unaware?)

But what I do know is that, for both the FHOB and the NRAS, there was no requirement whatsoever that the property involved NOT be commenced, or even completed or substantially so, after the policy announcement.

Now, you may be right - perhaps the Social Housing will not involve a lot of pre-builts or even none. (Nonetheless, let's not forget, the Labor senator confirmed they insisted on retaining the "flexibility" to buy pre-builts or partially-builts.) But, then again, we would have had to have had a genuinely MASSIVE overhang of inventory for developers still to have a lot of inventory after 8 months of the boost (which again the Government has enthusiastically advertised has been taken up by many) and one round of the NRAS.

(Note my comment to which you made your initial response did relate to backward looking data.)

As I said earlier, I found rather odd your assertion - on a blogsite - that the onus was on me to provide proof that the housing policy mix had not created jobs.

I would imagine that you are atuned to the political system and know that the onus is actually on the Minister and the Government to prove their case in the positive. That's what politics is all about, and hopefully we'll have a strong opposition to keep them to account. As I said, the Minister's press release was meant to create the illusion of proof that their policies had led to more jobs in housing construction (with the majority of the public falling for the smoke and mirrors in this day and age of 5 second sound bights.) And I think that any first year political science or media student would recognise immediately that press release for what it was. (POINT 3 & 4)

In point 5 you say that you are "merely trying to establish as many facts as possible about the intentions of government policy". My experience leads me to suggest that you will never know for certain what INTENTIONS a politician has, just like I can not truly know what yours are debating me here. But it's up to each of us to decide that for ourselves - and most of that will be based on Dennis' "vibe". I have some strong views on the vibe that I've picked up from the Government - most importantly, I don't like a guy that suggests he's fair dinkum, almost above politics, and cares about everday Aussies, but then enacts policies which actually continues to hurt many of them without explaining what he is doing, instead establishing a narrative which is clearly all about spin (and I say below, even contradicts some of the Government's earlier statements). Now people here can read my comments and they can agree or disagree. That is what a blogsite is all about. But let's be clear, when it comes to politics, facts or certainty are a rarety - and even when they're available, you have to have the skill to see through the spin (yes, with it's inevitable subjectivity).

Let me give an example that occurred to me recently. We know that the email that the federal police found in Godwin Grech's home was a fake. But it occurred to me that it is possible that that was not the original email that Godwin received. I know myself in positions I've received an email and then thought a week or two later I should keep that, maybe print a copy. When did he send the email home to his home account or print if off and take it home - was it immediately on receiving that email? With the potential to bring down a PM, there's a lot of reasons why some would go to extraordinary lengths to diffuse a situation (a la Watergate). Look, I know this seems straight out of the movies - and NO, I have absolutely no proof whatsoever - it's just a possibility which occurred to me as a naturally contrarian, "out of the box"-thinking, ex-scientist - but few of us will ever know the real facts, certainly not before the PERCEPTIONS of what have transpired have long sunk in and the consequences have flowed from that (this is already in train with Turnbull in pretty serious threat of being overthrown by his party).

With the aim of coming to a conclusion, going back to points 1 & 2, equally you must agree that we don't know what would have been the outcome if the boost were ONLY applied to new builds, instead of also including existing housing in the boost, albeit at a lower rate.

The justification (spin) for the boost was housing affordability, housing supply and jobs! But including existing housing certainly inferred that the boost was about much more - in fact, given that Minister Plibersek is on the record saying that increasing the FHOG only leads to price increases (you'll find the link to that on this site somewhere) - strongly suggests that these issues were actually secondary to propping up prices.

And this is where, I believe, our main area of difference lies.

Through much of your last comment you seem to be making a case for propping up the bubble, and that is justified by the human consequence of negative equity. Your final question - "how best should the bubble be deflated in terms of its
affect on ordinary people" - infers so much.

It seems to suggest that you think we can actually have control of this thing if we actually want to. Now I don't think that is at all the case.

Perhaps that comes from the apparent success the Government has had in the last 6 months. In my view, this is temporary.

But more importantly, the last 6 months has shown one truth of politics in spades. Politicians pick winners. They cloak it in "making hard decisions, weighing up the costs and benefits to varying constituents, to come out with the best outcome for the country". But in reality they decide on the option that will give them and their party the most political advantage.

I am unapologetic in my firm view that the Government has chosen to support the housing market to assist in retaining their middle class voter base and their party funding base. They have a strategy of appearing sympathetic to lower income Aussies and they have a few marque policies on homelessness etc to create the illusion that they are following their genetic predispositions to which Mr Rudd eludes.

I don't believe the middle class house gamblers should continue to be chosen to be the winners. Firstly, they made their choices - the low income Aussies being squeezed did not. I think those who never had options should not continue to be punished for the poor decisions of others (afterall those poor decisions were a large part in pushing the bubble higher, thus causing more pain). Moreover, this housing affordability crisis has been going on for a long, long time - the longer it's perpetuated, the more desperate the situation becomes. And even though some (let's just call it Government) housing is coming on line, they are being careful not put enough out there at one time so as not to affect pricing. Again, lower income Aussies suffering to protect others from their own mistakes. And some of those people made many more than one mistake - they bought investment properties, 4x4s, trips.

And the really crazy thing is that a lot of this comes down to the homeowner's ego - if they feel that they are smarter than the sucker renters, then they'll go out and spend their money and the economy will just be wonderful.

Well I'll say it again - bullshit! (that's nothing personal to you Barry, it's from an earlier thread).

How about, instead of making the most marginalised in society continue to pay, we educate the middle class to be less materialistic and stop investing their self-confidence in their ability to earn money and the amount of status possessions they can obtain?

I should also say that, I would much rather that the bubble not be deflated in lieu of the ideas of Steve Keen. He is for debt forgiveness accompanied by a cap on the amount that can be burrowed to purchase a home in the future (eg. 3 times income, or a multiple of rent.) This would immediately lessen the consequences of the current bubble, immediately make housing affordable because prices would adjust immediately and have a consequent affect on rents, and it would prevent future speculative bubbles. Those without debt would lose paper money, but it was only there because of the debt bubble anyway. Unfortunately, most consider this politically unacceptable even though it would be the fairest way.

And one final thing, if the Government really does succeed in propping up house prices, how on earth can we be confident their intention (there's that word again) is to deflate the bubble? There are multiple reports of the close links between political parties and businesses that have benefitted from the housing bubble, so why should any Aussie really think they would want it to deflate? Perhaps they want it going up again??

I can understand your need to show compassion to all Aussies struggling with this and I applaud you for it. But, while the government continues favouring middle class house gamblers - which they are no matter how they used equity from the rising market - over lower income Aussies, then I'll continue to take the latter's side on things.

As I said earlier, Rudd developed an entire narrative of being above all of this crap and doing the right thing for his countrymen - like he was above politics. And he made much of standing up for those really struggling - only yesterday I saw a clip of him from the election saying that they're going to do something about housing affordability and rent. Well, the only thing I've seen so far are policies to perpetuate those problems, not help them.

In actual fact, I still want to believe that Kevin Rudd, the man, does live up to those ideals, but that Kevin Rudd the politician has been dogged by some nasty political realities.

So I am doing my best to play a constructive role in providing a political backdrop for the two Kevins to meet.

But, I say it's either time to live up to those lofty ambitions - like I consider Barack Obama to be well on his way towards - or come out and admit he's not the man he had us believe.

Now I've put a lot into this response. It's done in good faith and it contains my honest views. If you come back with further questions or comments to which you would like me to respond, I can't promise that I will be able to promptly.

Regards,
Brett

author message
pb123438 points 
Re: ... a couple of questions and comments.
on: Fri 03 of Jul, 2009 [07:33 UTC]
Point number 7 could have been worded 2 years ago as follows



7. One final point, there are victims whether the market is propped
up or allowed to collapse. In the event a bubble is allowed to grow, there would be thousands more placed out of housing affordability. A valuable question, is how best should the bubble not continue to expand in terms of its
affect on ordinary people?

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Fri 03 of Jul, 2009 [11:59 UTC]
Barry, Business Spectator's KGB interogation of Australand managing director Bob Johnston is timely and backs up much of my original argument quite strongly.

http://www.businessspectator.com.au/bs.nsf/Article/KGB-INTERROGATION-Robert-Johnston-pd20090702-TK75X?OpenDocument&src=sphexternal link

I draw your attention in particular to the following paragraph:

"Well, certainly on the ground we’re seeing most developers, including ourselves, sort of moving inventory, particularly in the lower price bracket. So the first home owner grants have certainly stimulated that end of the market and most of us are moving inventory to get capital back. Cash is king, currently, in the market place and that remains that way even though things have stabilised from where they were three or four months ago. Most of us are still continuing to focus on getting capital back – so, turning over inventory, getting stock moved. So we’re seeing that happen, but I guess the first home owner grants have stimulated a lot of activity in the established home sector, but not as much as one would’ve hoped in sort of new home sales. And I think that’s where some of the statistics are starting to bear out."

He has stated a number of times that they are selling down inventory to build up cash, and the boost has been instrumental in facilitating that!

And he expresses disappointment that the boost was also directed at existing housing because that statistics are bearing out that it has resulted in a disproportionately large response in that sector.

Though he doesn't state many facts, I would suggest that we can take this as fairly conclusive evidence in support of my views.

author message
Barry1 points 
Re: ... a couple of questions and comments.
on: Sat 04 of Jul, 2009 [21:15 UTC]


Brett,


Thanks for the comprehensive response.



There is probably too much in it to address every point made.



I share your sense of injustice as to how the housing system is managed. Equally, I find the FHOB and exercise in cynicism. I believe however, however scarce they may be, that the strongest criticisms of the scheme and government housing policy in general should be grounded in facts and evidence.



Sometimes jots must be joined and hunches aired, but it should be made clear, I believe, that such assertions not be confused for facts. I am referring specifically to the original assertion that the stimulus money is being channeled into the purchase of preexisting properties rather than new ones. I don’t think the case is as air tight as you claim. That’s not to say that it isn’t true, just that more evidence is required to support such a view, irrespective of the difficulty of finding them. Like I said, I will be watching how it plays out with SH and NRAS in WA closely and will keep you posted.



I don’t think its fair to say that the middle classes are materialistic for buying property or that they are gamblers. Gamblers are people that buy housing other than their principle residence in the anticipation of capital gains. They are, often also, it should be noted the people who provide the population with rental properties and as such perform a valuable social role.



People buy houses because they want stability for themselves and their families. I don’t have to tell you that tenant’s rights in Australia pale in comparison to those afforded to renters in most of Europe for example. They want a place they can call their own. This is natural, understandable, and even rational.



What’s unfair is the nexus that has formed between government, lending institutions and developers to artificially inflate the price of housing. Perhaps, young couples should know better than to put themselves in that much debt. However, we must understand that powerful and vocal vested interests with the media as their lap dogs constantly barrage them with a stream of propaganda about the need to get on the ladder etc etc. Dissenting voices are frequently drowned out.



One final point, I believe that we should be careful what we wish for in terms of the bubble. A short, sharp correction would plunge many into negative equity. Australian households are among the most indebted in the world coupled with rising unemployment there could be disastrous consequences for the individuals concerned but also for the economy as a whole. Even those who didn’t buy and are relatively debt free could be dragged into the mire.



As you said, there may be little that the Australian government can do either way to keep a floor under house prices. I agree with this. But maybe a drawn out decline- as is typical of housing busts- would be preferable to declines of 30-50% as has been seen in the States, Ireland and UK over the last 2 years.


Barry



edit: Barry's reply was delayed by trouble logging on and my being away and getting his emails late - dan

author message
dan
dan12959 points 
Australia
Re: Re: ... a couple of questions and comments.
on: Sat 04 of Jul, 2009 [22:34 UTC]
> I don’t think its fair to say that the middle classes are materialistic for buying property or that they are gamblers. Gamblers are people that buy housing other than their principle residence in the anticipation of capital gains. They are, often also, it should be noted the people who provide the population with rental properties and as such perform a valuable social role.


Barry, I do think that in buying any asset there is a speculative component to the decision and an investment component. By way of example, if you buy a forty year old convertible to put in the garage and never use in the hope of selling it for more you are gambling. If you buy a $500 hatchback so you can get to uni so you can become a professional, you are investing. But there is an in-between that many such decisions sit in. You buy a forty year old convertible to get to work in partly because you think they will become more popular and valuable but also because you need a car to get to work anyway. Then there is a bit of a gamble and a bit of an investment there.

It's my contention that the gamble has in large part taken over the family housing decision. Why should I buy a house for my family to live in? So I don't miss out (on price rises). When I explain to people who own their own house to live in why I think prices will fall a lot in the next few decades, they generally go pretty pale and beg me to stop. If they owned it purely as a family home, like you own a twenty year old hatchback purely to get from A to B, they wouldn't care where the prices go. So I think of course there is going to be a component of each in the decision, but at the current prices, the gambling has taken over. People buy houses to live in that are never going to be suitable to their needs and live in them because they think the prices will go up.

I'd like people to be able to see that, so I call it gambling, but I try not to be too accusing about it. I guess I just want to stop the next round of suckers from joining in somewhere, because it will stop one day, they might as well not get caught.

>
> People buy houses because they want stability for themselves and their families. I don’t have to tell you that tenant’s rights in Australia pale in comparison to those afforded to renters in most of Europe for example. They want a place they can call their own. This is natural, understandable, and even rational.
>

I guess that is why I am coming to the view that what we really need to do is fix renting. If we fix renting so that renters are treated as well in our society as owners, then those of us who just want to get on with our lives can ignore the purchase market altogether. I'd quite like to own a home a bit like the one I live in now, but the only reason I'd like to own it is that the private rental market is such a cottage industry full of unprofessional landlords who only own a tenth of one house and often can't afford to fulfill the commitments they have taken on in renting it out. The tenure issue is another reason, but neither of these things are worth losing a couple of million dollars over. I can understand why people particularly those who feel frightened about the issue of tenure (eg. those who could not afford to live in a hotel for a month between houses if needed) buy houses. However I think their fear is being used against them and they are being ripped off very badly - often losing far more than they could really expect to save in their entire lifetimes.


>
>
> One final point, I believe that we should be careful what we wish for in terms of the bubble. A short, sharp correction would plunge many into negative equity. Australian households are among the most indebted in the world coupled with rising unemployment there could be disastrous consequences for the individuals concerned but also for the economy as a whole. Even those who didn’t buy and are relatively debt free could be dragged into the mire.
>
>
>
> As you said, there may be little that the Australian government can do either way to keep a floor under house prices. I agree with this. But maybe a drawn out decline- as is typical of housing busts- would be preferable to declines of 30-50% as has been seen in the States, Ireland and UK over the last 2 years.
>

I understand this, but I'm not sure it's true. The losses are already there. They were made and locked in at the time of purchasing assets for far more than they will ever earn. There is a certain amount of pain that "has to" be had. By "has to" I mean that it's already locked in. If prices are propped up that will be good for the people who manage to sell while the prices are propped up, but their good fortune will be at the expense of whoever they sell to taking on the losses for them.

I guess it's not clear what is better for the community as a whole and we will never know because we will only go down one path anyway, but both are good and bad. A short sharp severe recession in which prices become sane, everybody goes "what were we thinking" and ten or twenty percent of people end up underwater financially and we can then get on with life, or a couple of decades of slow crushing losses eventually ending up with the same as we have now but in reverse. Then rather than a population that will buy a house at any price because they always go up, you'd end up with an equally mistaken population that won't buy a house at any price because they always go down.

Also, we, and even the government have far less control over it than we like to think. Recognising that price falls are inevitable is not the same as wanting them to fall and neither of those things will make them fall a particular amount by a particular day.

I'd be happy enough to have government doing things to prevent price falls if and only if 1. I was not paying for them - why should I? I've kept out of it of my own volition and I'd rather fund hospitals, schools, third world immunisation etc. 2. They fix renting while they are at it.

Fixing renting includes fixing the taxation treatment of renters they should be on an equal footing with homeowners. Either rent should be tax deductible, or the rent that homeowners earn (by not having to pay it elsewhere) should be taxed. I also include fixing the tenure issues tenants face, which would allow them to force landlords to fulfill their maintenance obligations. You can't complain about any issue when they hold the trump card that they can throw you out without a reason.

I am fed up with moving and not being sure where I will live next year. My oldest kid will be doing his higher school certificate in a couple of years and I would like to be able to know I won't have to move during it just because a gambler has a panic attack. I don't think it's reasonable to just say oh, people like me will just have to live in such an insecure way for the next twenty years as well so that no one notices too quickly that they have have a lot less money than they thought they did. I didn't buy and I am reasonably debt free and I've been dragged into the mire already. (I'm having a good time down here in the mire, but it is all a bit silly)

The problem is that it's not possible to fix renting without inducing large house price falls. If you fix renting, then at these prices, there truly will only be the gamblers left - everyone sensible would rent. So it seems to me, that I am stuck with wanting rapid large price falls if I want to fix renting.

author message
dave
dave936 points 
Australia
Re: Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [02:19 UTC]

> I don’t think its fair to say that the middle classes are materialistic for buying property or that they are gamblers. Gamblers are people that buy housing other than their principle residence in the anticipation of capital gains. They are, often also, it should be noted the people who provide the population with rental properties and as such perform a valuable social role.

I have to disagree with the last part of this (while agreeing with most of it!!). Very few mum and dad landlords provide the population with anything - they buy an existing house and rent it out. The house was there before they bought it and it is still there after they bought it. There are a few who take on risk and develop a site with new accomodation (and actually add something) but they are in the minority.

Further to this as you say (and would agree with) many "invest" not on the back of a rational price signal (rental yields) - they invest on the back of perceived capital gains (i.e. I can flog this off to somebody else for more than I paid for it). That in my mind makes them a gambler.

As for owner occupiers with a single house then I would agree they are not necessarilly gamblers. It's a similar religion though - but based on fear rather than greed. They fear being locked out forever so jump in now often over their head.

''> One final point, I believe that we should be careful what we wish for in terms of the bubble. A short, sharp correction would plunge many into negative equity. Australian households are among the most indebted in the world coupled with rising unemployment there could be disastrous consequences for the individuals concerned but also for the economy as a whole. Even those who didn’t buy and are relatively debt free could be dragged into the mire.
> As you said, there may be little that the Australian government can do either way to keep a floor under house prices. I agree with this. But maybe a drawn out decline- as is typical of housing busts- would be preferable to declines of 30-50% as has been seen in the States, Ireland and UK over the last 2 years.''

I see what you are saying but I am actually in the other camp. I think anything painful should happen quickly. Let it crash in a big way, write off the debt, recapitalise the banks and then move on. The Japanese aimed for a slow let down from their 80's excesses and it just led to 15 years of no growth.

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Sat 04 of Jul, 2009 [22:52 UTC]
Barry

I actually agree with much of what you said in your latest post.

I think I've made my views as clear as possible, but it's worth just taking the conversation the full circle and quoting again the title of the news link to which you first stated concerns

"The boost, NRAS and social housing all FAIL to result in more building and jobs - why? - because it was really aimed at soaking up the overhang of ALREADY BUILT new houses"

I am satisfied that I've argued quite strongly in support of that statement, and the comments by Bob Johnston certainly go a long way to confirming it.

(And let's not forget where we are - this is a property bear website/blogsite which is poking and prodding at the establishment, sometimes with a little fun wink)

Finally, I am certainly not without compassion for those who will feel the squeeze from the bursting of the bubble. Not at all. I felt very sorry for those all over the news just a year ago being squeezed by just 9%+ mortgage rates.

That is why my preference is for the ideas of Steve Keen to be adopted - debt forgiveness and caps on future borrowing. The reason most consider them to be politically unpalatable is that the wealthy in society will lose the possibility to speculate themselves and/or prosper from the speculation of less sophisticated investors.

That is the greatest pity here. And it underlines, in my view, the greatest weakness in our society - and the primary cause of our current financial crisis - the conflicts of interest that lie at the nexus of our political and financial systems. (And I'm working on a piece to publish here in the aim of stimulating more interesting debate.)

In the end, I am strongly of the view that we have a robust democratic capitalistic society - which will always require fine tuning - because of the discipline of the market. Those that exhibit characteristics of greed - in simplest terms, by living beyond their means - face a high probability of ultimately coming to regret it.

The Government has a place in the market to ensure fairness. But nowhere near the degree to which successive Australian Governments have meddled in our housing markets, and I think most of us are now so sceptical with Government that we do not think they are about fairness, rather about their own political ofjectives. As a consequence their successive distortions have just kept making things worse.

So, yes, the imbalances are now so great that the people are going to pay a great price for working them out of the system. But, in reality, we Aussies have already been paying a very high price for a long, long time now - borne disproportionately by the more marginalised among us - and that has intensified greatly through the last decade.

Getting Government out of housing markets is like so many other issues. It's about keeping Governments honest and going ahead with good policy, but recognising that there will need to be good support for those affected as the readjustment takes place.

But nobody should give the Government a free ride and let them shirk their responsibility to do the right thing by us - at the same time, doing what they want for their own political conveniences - just because the adjustment will be challenging.

Thanks for the discussion.

Regards,
Brett

author message
zaph305 points 
Re: ... a couple of questions and comments.
on: Sun 05 of Jul, 2009 [04:25 UTC]
h4a - thanks for the ABS site tips.

Dan your comparrison to a car purchase is great. The problem is someone brought up all the $500 hatch backs and so now they're going for $2000 and cost a student $100 a week to hire.

I'm hoping that there is a sharp quick correction in house prices so i can buy one. Although i'm not convinced this is best socially, or that it will happen. Those that have brought recently and are forced to sell will suffer massive losses and probably bankruptcy (not good). the gamblers who owe masses and have no equity will be in the same basket and for them i say 'so sad, too bad'.

This may just draw in another lot of 'investors' (borrowers) who can pick up the pieces and wait for the next boom. such an up and down market only encourages gambling.

i guess a situation where houses have a sharp quick correction and a very slow 'recovery' would be best. this will teach investors that property is not really a good investment and that it is shelter.

anyway off to the tab to enjoy a lovely sunday. wish me luck!

author message
r0gue230 points 
Australia
Re: ... a couple of questions and comments.
on: Mon 06 of Jul, 2009 [03:27 UTC]
>> Dan
>but at the current prices, the gambling has taken over. People buy houses to >live in that are never going to be suitable to their needs and live in them >because they think the prices will go up.


Firstly - great thread and great posts from Dan, H4A and Barry - this is why I am on this forum!!! smile

Secondly to suppot the comments re people 'gambliing'. How many times have we heard people that bought a house which was beyond their means say "well if I can't afford it I can sell and make a profit anyway". Affordability has been lost as a point of consideration over the last 10 years of boom.

Getting caught in the spin from RE Agents "property is going up $10k per month - can you save that much? If not you better get in now before it is too late, you can't save as much as prices go up"

People buy into a bubble for one or more of 3 reasons: Fear, Greed and Opportunity. They FEAR prices will get away from them and they will never afford, they get GREEDY seeing all the money others are making, and they have OPPORTUNITY presented to them that they never had before (ala loose bank lending criteria).

All the hallmarks of those attending a Gamblers Anonymous meeting right there!

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Sat 18 of Jul, 2009 [02:34 UTC]
NOW THE HIA WANTS MORE GOVERNMENT HANDOUTS TO (SUPPOSEDLY) ACTUALLY BUILD MORE HOUSING AND PROVIDE JOBS because the data continues to prove that the stimulus has not flowed through to housing construction.

It's time for taxpayers to say enough is enough - the disingenuous use of our future earnings (through increased taxes) needs to stop, and these guys need to deal themselves with the reality of the business cycle!!!!

http://blogs.news.com.au/couriermail/publicproperty/index.php/couriermail/comments/building_work_sluggish/external link

author message
zaph305 points 
Re: ... a couple of questions and comments.
on: Sat 18 of Jul, 2009 [04:14 UTC]
business cyle? what's that?

Getting in early for lobbying that the FHOGB is extended again, or possible increased.

author message
tom362 points 
Australia
Re: ... a couple of questions and comments.
on: Sat 18 of Jul, 2009 [10:49 UTC]
h4a / zaph,

I don't think our own ideal of reasonable house prices is that far removed from the HIA's aim of building more houses. More supply means lower price in my books.

At present the all up cost to produce a house in Australia, i.e. what you would compare to an existing house is too high, mostly due to the land component, which includes govt levies.

As long as the tax dollars are aimed at new supply I don't have an issue with them as it does create jobs and houses, two things I believe a government should be assisting its people with. Certainly this is better than fueling demand and restricting supply at the same time as adding to the costs of production, as our governments do now.

author message
Pragmatist387 points 
Australia
Re: Re: ... a couple of questions and comments.
on: Sat 18 of Jul, 2009 [13:01 UTC]
Tom,

I'd be completely with you on this if the government would move the tax regime from transaction (stamp duty) to holding (land value tax) to 'encourage" the large developers to meet the market with the stock that they have already built. Right now, the extra housing being built isnt lowering prices because the big boys are witholding it from the market to maintain stupidly high prices.

Also, as has been pointed out a number of times by H4A, the government support needs to be focussed on actually getting new stock built whereas the current subsidies clearly allow for (and are being used to) clear unsold inventory at inflated prices.

author message

Sean202 points 
Australia
Re: ... a couple of questions and comments.
on: Sat 18 of Jul, 2009 [13:23 UTC]
Greens Senator Stephen Ludlam asked a few questions at the recent Senate Estimates Committees of the housing boffins in FAHCSIA. I have some transcripts somewhere of the results — they should be on the public record also. FAHCSIA would be able to provide info on how many of the NRAS places were already built, or else forthcoming NGO insiders who have bid for the places.

author message
tom362 points 
Australia
Re: ... a couple of questions and comments.
on: Sat 18 of Jul, 2009 [14:15 UTC]
Pragmatist,

A broad land tax; I Agree it is the perfect way to fix under utilisation of land and property prices. It is the ideal and I am right with you on that, I just fear that even if the tax review agrees with us, it is a politically challenging tax.

Stamp Duty; With land tax depending on the depth of it they could remove stamp duty, but I would rather see development levies removed first and anything else that effects the output cost of new supply. In my opinion fix the cost of new supply and you fix house prices not only now but for the long term.

Developers; I imagine they behave like any other business would i.e. they are not going to go out and place all their stock on a no reserve auction. They have a price they think they can achieve and they wait for it. At the end of the day they want to get as much as they can still taking into account the time cost of money, so yes they want to sell it fast but not if it costs them.

New Supply; I agree that yes the government needs to do things that bring on new supply, and I think new supply is exactly what the HIA is for also. The HIA does not care about re-sales either. They were all for dropping the existing home grant and only having a new home grant. I am quite certain they would be more than happy to concede to a very strict application of the first home owners grant so that it only applied to homes commenced on or after June 09 etc.

Clearly this is far better for their members than having grants for existing homes acting in competition with the new home grant. The upshot is if the government will not fix the structural issues making new supply so expensive in Australia the least they can do is subsidise new supply. Of course I would prefer to see them release more residential land and remove development levies, but if they won't do this than removing stamp duty from new homes only and having a subsidy for buying new is the next best thing for bringing on more supply.

Of course even if the government does nothing in a falling market it is possible for house prices to disconnect from costs of production and fall below this figure. Eventually however as population increases, the cost of production will be the long term driver of house prices even relating to the price of houses in well established areas, it’s all the same market afterall.

author message
zaph305 points 
Re: ... a couple of questions and comments.
on: Sat 18 of Jul, 2009 [23:25 UTC]
we may, like others here suggest, end up with an oversupply of new housing. in most other bubble countries that claimed an under supply that's what happened.

author message
tom362 points 
Australia
Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [00:01 UTC]
Zaph,

Agree in the short term it is possible to have price falls that fall below the cost of production. This will be the case with any compositional change to household formation that you would likely get in a recession. Will houses stay below the marginal cost to produce forever though?

What happens at the point where existing homes become cheaper than building new? No new housing will be built at all. Then it could take 5 years or 10 years but sooner or later new demand for housing will push house prices back up to the marginal cost to produce that first new house. (This is theoretical demand / supply economics but you get the idea?) So again we might get away with low housing costs for a time while costs of production are outrageous but they will push right back to the marginal cost to produce eventually.

Like with other goods the price of the existing stock is effected by the marginal cost to produce one more of the same good, only when the demand shrinks below the level of existing stock can a disconnect exist.

Therefore the govt pulling revenue out of new housing at the same time restricting supply of residential land through zoning delays and difficulties specific to residential, at the same time putting in atrocious infrastructure to these new suburbs ensuring existing houses have a far higher amenity value, basically guarantees we were going to have un-affordable housing in the long term.

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [00:52 UTC]
I agree with a lot of what you say Tom.

I would have no problem at all with more supply coming on line - even though I do think that ultimately Dan is right regards vacant houses and second homes coming back into the market through deleveraging - IF the government's actions were done in a way which allowed the market to find it's own price.

But that's the problem here. I think it is clear that the Government is actually using it's actions to provide MAXIMUM support to prices, rather than adding to supply and creating jobs.

That they included existing housing in the boost is a graphic example.

As I said before, any pre-built homes that come into the NRAS or social housing programs should be purchased (if done so with taxpayer dollars) at heavily discounted prices relective of the fact that they are distressed assets.

author message
tom362 points 
Australia
Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [01:13 UTC]
I just lost this post!

Sorry I thought it was a repeat so deleted.

author message
zaph305 points 
Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [01:23 UTC]
well put Tom and agree

what distorts the model is the speculative nature of property. appart from the price of new housing stock i just don't see an undersupply. In Brisbane and perth at least. when i drive around new housing areas i see houses that have been built new as consumable products sitting vacant for months, and in some cases years. land with roads and services, ready to build on sitting idle. if there was such a restriciton in supply it wouldn't be so.

long term there absoultely has to be a shift in govt policy that does not restrict and tax land development. changes would need to be made to the taxation side of investment property too.

author message
tom362 points 
Australia
Re: Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [01:36 UTC]
Sorry zaph, hope you still agree I was in there tidying it up and added that last para. (Late Edit.... and then lost the whole post!)


The speculation is the problem, but if supply had just met the market demand be it speculative or otherwise we would never of had a speculative bubble. In stead our government has milked the speculation for whatever it could, hey people are prepared to pay that for a house, OK lets make em pay this for a new one!

And yes I agree if anything new land zoned residential should be mandated every year to stop another bubble. Not new land based on future population figures allowing individuals to corner the market in residential zoned land but plenty of land so holding it as an investment is futile.

author message
zaph305 points 
Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [02:22 UTC]
how much of a block of land is; govt, fees, taxes, surcharges and levies? what's the profit margin?

author message
tom362 points 
Australia
Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [03:10 UTC]
I should start by saying I don't advocate everything in the article, but it has some sickening figures in it.

Whiloe reading this keep in mind if the cost to produce is 30% higher in say ingleburn then I would expect the price of a home in say double bay to be effected by a similar %.

So at first you might think well whats 100k but when it comes down to it in more developed higher amenity value areas this 100k might be 300k.

Anyway see the article:

http://www.propertyoz.com.au/Article/Resource.aspx?media=512external link

Again I know this is going to sound ironic, but we have more in common with our developer and builder friends than it might at first appear.

author message
tom362 points 
Australia
Re: ... a couple of questions and comments.
on: Sun 19 of Jul, 2009 [04:55 UTC]
And the full report.

It is 3 years old but nonetheless things have no doubt only got worse since then!

It is a .pdf about 700kb.

I know it is laced with a bit of propaganda, but I think it has a lot of substance to it.

http://www.propertyoz.com.au/library/RDC%2006%20Reasons%20to%20be%20fearful.pdfexternal link

author message
homes4aussies2375 points 
Re: ... a couple of questions and comments.
on: Fri 28 of Aug, 2009 [05:36 UTC]
Those that followed this discussion might be interested in this from Robert Gottliebsen

http://www.businessspectator.com.au/bs.nsf/Article/commercial-building-industry-pd20090827-VAVMA?OpenDocument&src=sphexternal link

To add to the great volume of what was said above, I'll simply say that now that the overhang has gone - because the boost was so successful - there is no urgent need for another program - which would, if it genuinely involved building new housing without boosting land prices, have helped the real battlers - so it's now a low priority and looks like piddling out and helping very few.

I have to say that words fail to express my disappointment with Rudd and Labor. It really does look like there is no party interested in helping out the real needy - just those that are somehow made out to be battlers because they over-extended buying a half million dollar house when they never could afford it.

And when we look at what has happened here in Queensland with the cash for access scandal, we don't need to think hard for possible reasons as to why a Queensland Labor PM would be cloaking propping up the last house price bubble in the world in the guise of economic stability (exactly what I warned against when I wrote to Mr Swan - incidentally, another Queensland Labor politician - on 17 Feb 2008 - letter on my website)



Show posts:
 
Powered by TikiWiki
RSS Wiki RSS Forums rss Directories