House prices

Do you think internet has something to do with the price hikes?
I mean you dont need to live near a city anymore to work many jobs

Absolutely.

So what do we have -

- low interest rates
- CGT discount
- cashed up crew returning from O.S.
- negative gearing
- COVID combined with quality internet allowing people to work remotely.

In truth no one knows what will happen further rises or real falls. The one certainty is the uncertainty.

Be that as it may, the weight of evidence is heavily favouring one of those outcomes right now.

its all true and we have a federal government that will do anything in its power to keep house prices rising - Andy's list above + insanely unsustainable rates of immigration preCovid and no doubt after it at even a more faster rate ... but it all still could come tumbling down but wouldn't the mean a world of pain for all for a very long time?

im interested in a legal point of view - at what point if at all can a valid claim be made against Gov / RBA and or banks given the push towards purchasing.

is there a precedent for this? anecdotally i have heard yes.

'no one forced you to buy' they would say. but given the expense and lack of rental accommodation coupled with the crazy incentives, tax discounts and interest rate "guarantees" from RBA.. i would argue that yes, they actually did.

does this have any merit at all legal crew?

Totally clutching at straws there Bonza

Put very simply high property prices are really a result of good times and a long period of good times, long period of growth and healthy economy, low interest rates etc..

The government doesn't want high property prices as such, but they want the things that lead to high property prices as do most people. (Healthy economy, low interest rates)

If the economy turned to shit and interest rates jumped, the government would get kicked out and the housing market collapse.

BTW. On a world scale our interest rates are now similar to other developed countries.

Seeing as, umm, governments set government policy that enable the things that lead to high property prices, saying that
"The government doesn't want high property prices as such, but they want the things that lead to high property prices"
is one of your better bits of mental gymnastics Indo.

Still highly relevant today

And lets never forget which PM voted against the Banking Royal Commission 28 times and has totally ignored its findings.

i heard of case and i have no idea if true where the purchaser over committed - claimed irresponsible lending on behalf of the bank and essentially returned his mortgage and got his deposit back. i called bullshit at the time but mate was pretty certain.. around the time of the hayes royal commission.

That is the law. The federal gov are currently trying to scrap the responsible lending laws which would mean your friend wouldn't have got jack if they pass.

thanks carpetman

Story - I went to the bank yesty. Im thinking about buying a car and was going to pay $80k for it. I have the money saved. But as I was driving past a bank I decided I'd just drop in and pick their brains. They said "if you use your $80k saved you wont have it there to buy anything" DOH...but WHAT WE CAN DO is provide you a "supplementary loan" against your mortgage over say its term of 15 - 25 years with no set up fees and no exit fees at between $100 and $130 bucks repayment a week. If I won the lotto and paid it all back in 1 day I'd only pay interest on that 1 day also. It amazed me how cheap money is and it explains as to where people are getting their money from to buy things when from a commercial business perspective many sectors of the market are TANKING!
Its frightening!

In the wake of the GFC, the responsible lending laws were handed down by the banking royal commission and passed in the form of the National Consumer Credit Protection Act 2009.

Late last year the govt caught wind of an opportunity to significantly unwind and water down (but not entirely scrap) these laws under the guise of speeding up the flow of credit to assist with the post-covid recovery.

The proposed changes to the laws are not in effect yet and are still being debated. With lending and the economy bouncing back strongly, and property prices starting to soar again, it seems that these changes are not needed and would likely only intensify any house price bubble.

Some info:
- https://www.canstar.com.au/home-loans/responsible-lending/
- https://mozo.com.au/home-loans/articles/how-are-responsible-lending-laws....
- https://www.theguardian.com/australia-news/2021/mar/21/borrower-beware-h...

I think unwinding these laws would be a step backwards towards the dark ages of pre-GFC lending standards.

Thanks gsco.

Do you think / is there a precedent or case that this logic and legislation if it exists can be applied to Gov / RBA for their part in heating a market and pushing FHB's to overextend and thus led to potential bankruptcy?

Mate bought a house for 500000, sold it 7 years later for 735000, it went on the market 3 years later and sold for over a million.

Does anyone seriously see any real scenario where that coastal real estate would go backwards to 700000 or 500000?

Or, looking around the world, is far more likely to be sold for 2 million in 5-10 years time?

I say the second scenario is the far more likely.

Pre covid yes. post covid no. I've surrended.

"It amazed me how cheap money is and it explains as to where people are getting their money from to buy things when from a commercial business perspective many sectors of the market are TANKING!
Its frightening!"

Why?

If you've got 80k cash in the bank to buy a car and equity in a property you're an extremely low lending risk.

Many sectors of the market are tanking? Seriously?
ASX is now back to what it was (record highs) before the pandemic.

Huge leap in GDP from the latest quarter.

Economy is roaring back to life.

and this is all happening with no immigration.

What do you think will happen to prices when 80000 people a year are moving into Sydney and Melbourne?

an uprising would be nice

I think depression style tent villages is a more likely outcome.

Byron Shire Council is already seriously considering that.

@bonza

Not that I'm aware of in Australia or any other (common law) countries.

But I think I understand your question and I find it very interesting: could the govt/regulators be held to account for any contribution on their part to say a property price bubble and subsequent crash and financial hardship?

I don't believe this is the intent of the responsible lending laws.

Maybe holding govts/regulators to account is just up to the democratic process? Regarding the RBA, at https://www.rba.gov.au/about-rba/boards/rba-board.html it says: "The Reserve Bank Board comprises nine members: three ex officio members ... and six non-executive members, who are appointed by the Treasurer." I'd say it's the same with say APRA, ASIC, etc.

I'd be interested to have someone well versed in the law to give a definitive answer of how the govt and regulators are legally protected in this scenario apart from just losing their jobs.

Why is it scary? Because its too easy. While certain sectors of the economy are doing well...many are not so fortunate.
1. Commercial Construction Rooted
2. Commercial leasing Rooted
3. Hospitality Rooted
4. Tourism moreso OS Rooted.
5. Even real estate agents are now being challenged by low stock so they're dropping their rates from 8% to 2%.D
Delusional to think the economy as a whole is bouncing back with a vengeance. Free flowing money and spending does not mean there's some serious concerns happening underneath. Ie never seen so many worried looks on high end construction / builders / associated trades commercially since 1991.
Govt Health and Education sectors are spending but apart from that there's a lot of worried people in the construction sector unless some normality comes back very soon. (Unlikely). Im about to start another business...if I can survive in the next few years then I'll have a good platform when some reality returns.

I'll add seeing as though we're throwing out select anecdotes... Business spending is at its lowest now since records began. Was in a neg state in the early 90's post the recession we had to have and high interest rates. Then it tanked again in 2010 post GFC... Now its less than ever. So while individuals like me can go to the bank and access cheap money based on me owning my inflated house price and having some assets businesses themselves arent. And even if they did, their ability to access the cheap money I can as an individual isnt there. Why? Much HIGHER risk. Which is strange if the economy is firing dont you think!

I guess we'll see.

commercial leasing has been rooted since well before the Pandemic.....structural changes related to online businesses.

Disagree on hospitality, already bouncing back quickly.

Some tourism is fcuked, a lot is thriving on domestic spending.

Business confidence up 4 points to highest level since 2010.

We'll see where we are in 12/24/36 months.

I'm calling major boom.

thanks gsco.

@AndyM

I don't see how it's mental gymnastics.

It's very simple governments don't aim to create high property prices.

But they do aim to create a health economy and a stable economy (and the longer the better), they aim to create low unemployment, and ideally they want low interest rates.

But yes all these things also result in higher property prices.

As you have pointed out though in your reply to Groundswell for this current boom there is other factors, i think you can also add just a general confidence in our economy to the list, as we have had such a long run of economic success for so long and we weathered the world financial crisis very well and then we have weathered Covid from an economical perspective very well.

I think this gives people a sense of security (or false sense of security), a feeling that our economy is bullet proof and we cant have a recession like we did in the late 80s early 90s again.

And yeah i guess this is dangerous.

"governments don't aim to create high property prices."

How do you know this?

Check out the (basic and incomplete) list below

- low interest rates
- CGT discount
- cashed up crew returning from O.S.
- negative gearing
- COVID combined with quality internet allowing people to work remotely.

For the past 20 odd years, cashed up expats can be replaced with the usual high levels of immigration.

Especially looking at the CGT discount and negative gearing, it is absolutely clear that governments, specifically the LNP, have intended to turn housing into a speculative asset.

"governments don't aim to create high property prices."

""How do you know this?""

Can you provide any realistic idea's why they would?

I doubt the extra tax income created would be worth it, there is positives and negatives either way for them.

Im sure the government would also prefer households to have as much disposal income as possible to stimulate/fuel the economy that's not possible when you spend most of your money on paying a house off or spend most of it on rent..

@freeride76

I agree on your coastal real estate views.

I think the second scenario is more likely.

It's just something that is so limited but in such high demand and that demand is only growing, especially costal realestate within 3 hrs drive from a city.

And it's getting harder and harder to open up new land for housing in coastal areas for much of Australia, so much opposition from those already in these coastal areas.

@indo

"It's very simple governments don't aim to create high property prices."

Might need to rethink that. As explained on the RBA's explanatory page on the transmission of monetary policy (https://rba.gov.au/education/resources/explainers/the-transmission-of-mo...), one of the main channels of monetary policy is the Asset Prices and Wealth Channel, which they explain as:

"Asset prices and people's wealth influence how much they can borrow and how much they spend in the economy. The asset prices and wealth channel typically affects consumption and investment.
- Lower interest rates support asset prices (such as housing and equities) by encouraging demand for assets. One reason for this is because the present discounted value of future income is higher when interest rates are lower.
- Higher asset prices also increases the equity (collateral) of an asset that is available for banks to lend against. This can make it easier for households and businesses to borrow.
- An increase in asset prices increases people's wealth. This can lead to higher consumption and housing investment as households generally spend some share of any increase in their wealth."

So they in fact directly target asset prices, including property...

Going to leave a trail of pain in their wake. So much for taking care of the weak and needy or younger generation to come. Australia could help its disadvantaged, but i guess when the establishment runs the show the classes will be further divided. Creating a greater economic class system. People deserve better rich or poor, The reforms haven't kept pace with the Australian dream. Failing a generation to come who's living standards are only going up.

Well that's another bit of Indo nonsense disproven.

Yeah the Libs have done a bang-up job looking after Australians.

"After decades of labour market reform to make Australian workplaces far more “flexible” and decades of tax reform to make investment in rental housing “more attractive” it is now much harder for young Australians to form the kind of traditional families that conservatives often like to romanticise.

It is no accident that it is now virtually impossible for young families to repay a mortgage on a single average income while one parent stays home to raise the kids.

This is the inevitable consequence of those tax and labour reforms."

https://www.themonthly.com.au/issue/2017/june/1496239200/richard-denniss...

Romanticise is the key marketing word.

I hate seeing Aussies struggle, 1 in 7 is below the poverty line 1 in 4 women experience domestic violence. Australia can do better.

aint nothing like a covid induced recession to create a 0 interest rate environment, no wages growth for the next few years (which is why the RBA doesn't expect inflation to become a problem in the near future), and another housing boom.

If the coalition also gets their way and undermines the responsible lender laws, induce a huge number of investors back into the property market, and further inflate the housing boom, then combined with no wages growth they will structurally decimate housing affordability for another few generations.

It's nearly the perfect storm really...

" they will structurally decimate housing affordability for another few generations."

I see this an an almost inevitable outcome at this stage of the game.

More on the expat factor in the increase in house prices.

https://www.westpac.com.au/news/making-news/2021/04/very-appealing-expat...

The thing is, 'decimating' housing affordability is pretty much a win win for the Liberal party. Extremely high house prices generally really increases the wealth of their voter base and serves to transfer wealth from the less well off (less likely to vote Liberal) to the richer (more likely to vote Liberal) and this is entirely in their ideological wheelhouse. The rich get richer and the poor get poorer.

https://www.theguardian.com/business/grogonomics/2021/apr/08/whenever-th...

While this story isn't about the affordability of the housing market, it demonstrates the same ideological stance that the Liberals hold.

I think one of the comments (not my work) on said story sums it up really well:

"Business will always regard labour as a cost to be minimised - but the employee who is a cost of doing business and the customer who is the lifeblood of business are one and the same person.

There's no getting around that fact - it's inherently a part of capitalism.

To suppress workers wages is to suppress the redistribution of income that allows households to consume the capitalists goods and services in the first place, ultimately undermining aggregate spending. The only other source then becomes increasing household debt. We have just about emptied the bag of tricks that allows households to drive solid economic growth by a continuous robust expansion of debt, if we want solid growth to continue reliably into the future, it's going to have to be led by income growth, not more credit growth. For this to occur, wages are going to need to be allowed to rise.

This will probably necessitate a return to higher levels of trade union membership. Bill Mitchell argues the case here: http://bilbo.economicoutlook.net/blog/?p=47058"

To emphasise:

"We have just about emptied the bag of tricks that allows households to drive solid economic growth by a continuous robust expansion of debt, if we want solid growth to continue reliably into the future, it's going to have to be led by income growth, not more credit growth."

Just as pursuing policies that will directly raise wages are not in the Liberal parties ideology, neither are policies that will improve housing affordability - different areas, but the reasoning is the same. This is conservative economic ideology - and it doesn't work long term.

The economic system is so large and complex that what is actually a 'cannibalistic' arrangement can appear to sustainable due it's rate of breakdown being comparatively slow compared to people's life spans.

@gsco

Hmm i appreciate your effort and you bring a decent argument but I'm still not convinced :P

@AndyM

It's ridiculous to blame LNP, it's not down to one factor its a combination of factors and some of these factors are also every changing and unique to each little boom we have had, but end of the day it's fuelled by our long run of economical success coupled with low interest rates.

Im all for equal rights for women and their right to have a career etc, but this change in the structure of families is why it's so hard to pay off a house on one income unless the single income family has a very well paying job. (or you bought in when cheaper)

It's a domino effect that happened gradually long ago, put simply one family decides both parents will work so they can buy a bigger better house, and others start doing it, and then you end up with a situation like we have where both parents of most families need to work to some degree to buy a standard house, unless one person has a very well paying job.

It's just what it is though that was always going to happen with how society has changed only way it could ever be affordable to buy a house on a single average income again in most areas of Australia is if only one person with an average income in most families worked.

But that's not going to happen.

Anyway this issue isn't just happening in Australia look at NZ with their crazy house prices rises.

Going to be nasty watching Australia tear it's self apart at the cost of some lower economic families. The social issues due to hardship will increase. Prisons are not the solution. Community groups can only do so much. interesting points jq blowin indo.

@jq
“pursuing policies that will directly raise wages are not in the Liberal parties ideology, neither are policies that will improve housing affordability”

“pursuing policies that will directly raise wages are not in the Liberal Labour Greens parties ideology, neither are policies that will improve housing affordability”

There. Fixed it for you.

Indo the Libs have been very focused in helping this along.

That is absolutely beyond debate.

"Indo the Libs have been very focused in helping this along.

That is absolutely beyond debate."

...and in a most interesting manner...

starting with first home buyer grants, way way back in the day... that went up, went down, went all around, and have now settled a little, somewhat...

as did a heap of other policies as mentioned above

loads of policies, all designed to 'cushion the blow' ...of impending doom it would seem...

but it would also seem, that they have all totally overshot the mark, ...TOTALLY overshot the mark... and inflated prices out of reach for many, yes the wider economy numbers have remained pretty good, but ya gotta wonder... have they got any clue what they are actually doing?

and, would some of these stimulating / avoiding doom policies, have been much better left undone to allow some sort of correction process?

as someone mentioned above, it seems crazy pushing through the corona changes in the current (surprising) climate

regarding real estate, it seems thay are always driven by paranoia rather than any form of prudent financial management. ...then other forces push stuff up (unforseen?!), with more than a dash of paranoia stimulus to go on top...

you've gotta wonder what similar countries have done through this 20 odd year period?

you'd think australia technically shouldn't need these policies as much, given our resources rich economy and outrageously over the top immigration through this period, yet here we are...

it all looks to spell a recipe for disaster to me, paranoia, stimulus on top of stimulus, desperation, not much forsight, ...not much pure 'the market decides' going on...

but as long as the 'assetts class' are happy ...all is sweet I guess...

Interesting to go back 5 years and read the opening page.

Even with a global pandemic and the biggest recession since WW2 the right answer was : Up.

You'd have to ask that question around the world.

NZ, USA, UK etc etc . It's all gone nuts.

Where's the end, the correction, the crash?

Might be a while off yet.

Bourke looks cheap.