I make no apologies for saying this, real estate prices in Australia are completely out of sync with reality and anyone wishing a boom is around the corner are deluding themselves and at the same time without knowing it – wishing for a complete collapse of the market.
This could be a scenario we face unless we address some fundamental problems with the way our market works and the people who profit from rises in the market.
If middle Australia cannot afford to buy a home in the area they work, the real estate industry will collapse, this means your future will be in another industry.
For us to really see where the problem is we have to understand how much it actually costs for the average Australian worker to live in a capital city. We also have to assume that Joe and Jill are a dual income family, because since the mid 90’s it is now nearly impossible for a middle to high income single person to purchase a house in any capital city in Australia without serous financial help.
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Joe & Jill
Note: Joe and Jill are both on Australia’s Average Wage of $62,000 per annum before taxes, they living in Brisbane with a $421,000 purchase price (Median House Price Brisbane 2009) with a 5% deposit. As you can see Joe and Jill are short by about $23,000.
You can pick apart these figures and that Joe and Jill can make some adjustments, just as equally you can add some expenses. But what are we here for – to work out 65 years of our lives scraping to get by? Every single economist that wheels out statistical data that points to a property shortage and tells us this is the reason why we will have a boom, does not understand that collapses occur when the majority are out of their depths financially..
Dangerous ideas
So here are some ‘dangerous ideas’ for you to mull over and if these ideas at least get into the conversation I will be pleased.
Good signs?
Anytime I hear some expert telling us there are some ‘good signs’ in the property market, I cringe. It is as if this is the correct statement, it is not, it is actually the opposite of what it means. Good signs for who?
- First home buyers? These people already need assistance to purchase a home, so any increase in prices is going to hurt them.
- Single home owners? Certainly not if they want to own just one home, most poeple buy in the market the sell in. So it makes no difference.
- Realtors? Certainly not, the higher the prices, the lower the volume, the only good boom came in the 90’s, which basically got prices up to a reasonable level and gave a good return for a good sales person. If the volume was there you could say yes, but the volume isn’t.
- Dual Property owners? Perhaps yes, as property prices rise, the size of their investment swells. However taxes come into play.
- Governments? Yes, if all taxes are directly tied to property prices by percentage then they reap the benefits of any rise.
- Banks? Yes, the volume might be down but property price rises usually mean interest rates rises also, so they get a double benefit.
Why do we think it is a good thing when we hear that property prices are going to rise or that the next boom is coming. Why real estate institutes are always so eager to make these statements and why agents do not revolt against this kind of language is beyond me.
If I were a real estate agent, I would be welcoming a slow and steady decline in property prices and a slow and steady increase in real income. Can you imagine the turnover of property sales if we were in a market where middle Australia could actually afford to buy a home in any capital city?
We kid ourselves when we turn to the government to prop up the market. We need to get home prices to a level where more of middle Australia can play than the current climate where fewer and fewer can.
Taxes
Let’s get one thing clear, duties, excises are always to be referred to as taxes, period! Anytime a state or federal government takes money from the people they are to be referred to as taxes, never let them fool you that any of these taxes are for the greater good.
Let’s make another thing clear, in my mind, the only way middle Australia can succeed in owning a property is for state and federal governments to get their filthy, dirty, stinking, corrupt, incompetent hands out of the way of any consumer real estate transaction.
Removing stamp duties and land taxes gets the government out of the way of the transaction and allows them to look at housing problems without having to work out how much it is going to cost them. Any organisation that has an interest in property prices increasing is never going to look at things objectively.
Remove incentives
How many people could afford a home if property prices were actually just a life purchase and not an investment property. Property prices would probably be at least half the price they are today. If I were an agent I would be happy to see any incentives removed from the purchase of properties. They may give some short term impetus, but they are a waste and
Phase out negative gearing, it only aids the wealthy few percent these days. Before you howl down about rentals shortages, take your own interest out of the thinking. Negative gearing does not help the real estate industry and their is no evidence that it will help people wishing to rent by allowing for more stock on the market.
Self Sustainable Kit Homes
We always hear about how expensive it is to create a new subdivision, provide services such as power, water, waste etc. Then how about the government providing incentives for some of these amazing kits homes that are 100% self sustainable (power, water, waste, telecoms) and can be set up in days.
Set up an independent body that evaluates each home on its merits and make have councils pre-approve certain homes styles and types for their area. So within weeks a person can buy land, build a house and start living in it saving time and money.
if you are not convinced then have a look at the links here from a 2007 article.