Tuesday, October 01, 2013

Is the housing market in Australia crazy?

Here's something on the Australian housing market from today's Australian newspaper:
A few weeks ago, real estate identity John McGrath sold an unremarkable house in Eastwood in Sydney's northwest for an eye-watering 77 per cent premium to its $1.35 million reserve.

The 16 registered bidders were all Chinese, based locally and offshore, with the lucky one...forking out $2.385 million.

I still can't get over this kind of thing. Housing in Australia used to be high quality and affordable. Now an unremarkable home gets sold for $2.4 million.

According to the real estate agents, this is not evidence of a property bubble. John McGrath claims that "This is just a normal period of post-financial crisis catch-up."

The cost of housing is increasing at three times the rate of wages growth. According to the Australian journalist this is something to celebrate:
Tony Abbott and Joe Hockey welcomed the big gains last Friday, and why not?

Across Australia, there are millions of homeowners who are suddenly feeling enriched, with their number vastly overwhelming the people who are penalised by the latest bout of runaway prices and eroding affordability.

I don't think it's that straightforward. If you're a homeowner you might see the value of your house increasing, but if you sell you're then faced with the problem of having to pay a large amount of stamp duty and then a high price for your new house. How then are you better off?

It's really only those people with an investment property who are likely to make money out of the current market.

And the problem is that young local families are either being priced out of the market altogether or forced into high mortgages that will keep both spouses permanently in full-time work until they retire, without much of an opportunity to save or invest.

Update: There are pictures of the house here.


  1. I don't understand how this benefits the country. Housing is a market I will never understand. I had a look at the pictures - the house is outdated, and quite unremarkable. Compare to this house I looked up in 2 minutes. http://www.realestate.co.nz/2087850

    Politicians who can see this happening and think it is a good thing are scum who don't give a damn about their people.

    1. It doesn`t benefit our country!
      The house is outdated and unremarkable, but don`t worry,
      what will replace it will have a lovely grey colour and be about
      3 stories high full of tenants paying lovely high rent.

  2. I suppose some would argue that if this property is subdivided into smaller properties, that creates cheaper housing. But in the meanwhile every rundown or average property that has any potential as an investment takes on value beyond what it actually represents to people wanting a clean, warm home to raise a family.

  3. It looks like the creation of an asset bubble engineered by speculative property buying and like all other bubbles, it will eventually burst. The auction photo is horrific. It's a Chinese invasion. There really is no other word for it. There are very few white people there. The Chinese, afraid of economic collapse in China and collapse of the US dollar, are seeking to dump their cash reserves into property in the West. I suppose one can conclude that this is a land grab and the Western Governments are so desperate for cash that they just permit it.

    The disastrous consequences will be felt by the white population who are being priced out of the land and property market and by those who are paying over the odds for the properties which may face a collapse of value when the bubble inevitably bursts.

  4. The problem is the Big Australia policy, which both parties believe in and are promoting. Most immigrants are coming from China because more customers, more customers, more customers = more monetary transactions, more taxes that enable politicians to have fun going on a spending spree with OUR money and then to get all the glory for being so generous with OUR money on us. I personally don't care about tax cuts anymore. Just build a new childcare centre or 1050 already and fix the bloody roads in Sydney.

    John McGrath is one of the primary realtors promoting Australian property to the Chinese.. It seems Australia is For Sale. Young white Australians will be pushed towards the desert and will become the next Aborigines. Imagine Australia in 100 years. The country has been sold to China and considering we aren't the country in trillions of dollars of debt to them, I'd really like to know why.

  5. This problem is universal in the world today, and its causes are largely independent of the usual themes of this blog. The fundamental trend, driven mostly by technology, is that nearly all productive economic activity is increasingly concentrated in a relatively small number of metropolitan areas. Outside of these, there is almost nothing to do.

    The result, unsurprisingly, is that the land prices and rents in these areas are soaring. In some areas it's less bad than in others, depending on how much habitable land there is nearby, as determined by both geographic and legal constraints -- but as a rule, wherever one can make decent money, a house costs a substantial fraction of typical middle-class lifetime earnings. (Of course, the situation is exacerbated by the mortgage system by which the governments artificially direct enormous amounts of additional money to chase this scarce land, making it even more expensive, all in the name of "promoting homeownership." But overall, things would probably not be fundamentally different even without this.)

    One can try to lay the blame here on the usual institutional and ideological culprits, but for once, here they don't have a decisive inflence on what's going on.

  6. The phenomenon is nothing new. Adam Smith discussed mass migration connived by aristocrats as a means to transfer wealth from labour to capital - their capital that is. It's unsustainable, because ultimately a home while useful to the owner is in fact dead capital. The economic outcome can be nothing other than financial catastrophe, as useful money is being diverted to a non revenue generating state.

  7. It's the natural result of the love of money. Our financial system is usurious and all things are subordinate to the power of money.

    The banks reap the constant reward from interest on loans that they have a licence to print. The Australian property market is part and parcel of this debt driven economy.

    There is no care for nation when there is money to be made. That's why the Liberals talk about "national economy" but never nation. By national economy they don't mean the economy of a nation but their sovereignty over an economy. The nation can and will be constituted of anyone and anything, but never based on the dictionary definition of nation. What is ensured is the right to control the economy, such economy firmly based in extracting interest on money that has no basis in productivity but the ability to create it; the licence to print money.

    Remember: The Left and Labor hates you, Liberals don't care about you.

  8. The Chinese and all Asian nationals should be barred from buying property if they are not citizens. Any citizens being used as proxies should be investigated. Why can't our government fulfill this simple task?!

  9. The same thing is happening in the USA and so it looks as though it is a policy. The Chinese Government and banks may be using proxies to exchange their US dollar holdings for land and property holdings in the event of a collapse in value of the US dollar. And so the bankrupt US Government is selling off the country and other countries too. This is amazing - must be the only time in history when an alien race seized assets in a foreign country without an invading army.

  10. AFrica for Africans, Asia for Asians, White Countries for Everyone???

    That's the problem, look at the picture. Those aren't Australians.

    That's an Asian invasion driving up prices and dispossessing Aussies.

    Nobody's flooding Asia with non-Asians and giving them affirmative action, free health care and special privileges.

    Only white countries are doing it, only White children are affected, only White politicians are allowing it.

    IT must stop.

  11. This is what happened in the US in the second part of the 2000s. Whenever you see that kind of a sharp rise in asset prices, there will always be a correction, because while it is true that there is a demand/supply element to the equation, there is also a substantial irrational exuberance to it that is typical of asset price bubbles. That is, it's normal for housing and other costs to go up to reflect increased demand, but the severity or sharpness of the rise is what is indicative of a bubbling effect. Another telltale sign of this happening is when "ordinary people" start to have investment properties, and start engaging in buy/flip activity -- this generally only happens to any significant degree among ordinary people when you are in an asset bubble phase.

  12. This is how modern Australia, the "knowledge nation," makes a buck these days - selling its houses, along with its residency rights, to Chinese investors/invaders.

    The Australian government, acting on behalf of its mates in the real estate industry, is effectively inviting foreign populations to move in and colonise parts of the country.

    And, once again, Australians are forced to carry the costs. They have to compete with rich foreigners for housing in a country already facing a chronic housing shortage. They have to pay their taxes just so that wealthy Chinese can simply move in and make use of Australia's public services and infrastructure. They have to tolerate the creation of foreign enclaves within their cities, knowing that any objection, no matter how slight or reasonable, will result in them being labelled "xenophobic" and "racist."

    This is the reality of life in modern Australia, a big piece of real estate up for sale to the highest bidder.