Comments on news report by Sally Rose "'We ain't seen nothing yet': Chinese foreign investment in Australian property tipped to surge", 21/07/2015
Rose reported that, "according to Colonial First State Global Asset Management chief economist Stephen Halmarick", "the liberalisation of China's capital markets will inflate asset prices acrosss the globe", with a surge to an unprecedented degree we have never seen.
By liveralisation of China's capital market, it is meant and I quote a paragraph from Rose's news report:
"But what will really matter for the world is how China opens up to allow its people to send money offshore. Australians might think they've seen a lot of Chinese investment in the Sydney and Melbourne property market, but we ain't seen nothing yet," Mr Halmarick said at a panel hosted by the Australian Institute of Superannuation Trustees in Sydney.
I have the view and have commented before that while there are bubbles in the Australian housing market, but those bubbles won't burst for a prolonged and extended period and could even perpetuate, simply because of the unique characteristics of the Australian housing market. Those characteristics include the following:
Australia is politically very stable with few sovereign risks
Australia is a small and open market - small population and allowing foreign investors to buy into its housing market
Australia has very large land, so its population density is very low
Australia is geographically located close to Asia, where there there are two countries, China and India, whose population are over a billion each and some other countries with population over 100 million. Population density in most Asian countries is very high
Large Asian countries, such as China and India, are emerging and fast growing economies with rapidly rising income in general and many people have become, are or will be becoming rich including multi millionaires
The property markets in some Asian countries, such China, are very expensive and many of those people are looking at overseas to buy properties for them to enjoy
Further, it is possible some in their home countries may feel insecure of their own assets and
want to find more secure countries to invest or park their money for one reason or another
All these factors suggest there are strong external factors which increase the demand for Australian housing properties.
The relatively small Australian housing market, combined with those strong and large external demand, mean a domestic housing market bubble sustained by external factors that will last for a very long time to come.
As a result, the demand for housing properties in Australia is not just its domestic demand and has a significant element of external demand that makes the demand much higher than the domestic demand alone. The housing market cannot be analysed in the conventional way that only focuses on domestic factors.
Put it another way, the Australian housing bubbles have very strong and thick layers supported, strengthened and reinforced by strong and large external factors - bubbles can last.
Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts
2015-07-17
Negative gearing is not necessarily unfair
Comments on Antony Ting "Why negative gearing is not a fair tax policy", 17/07/2015
While a good attempt, your analysis has some fatal weaknesses. For example, you have one paragraph that reads as follows:
"Should mortgage interest on an investment property be deductible? Investment properties generate two kinds of income: rental income and capital gains (if any). As capital gains on investment property can enjoy a 50% tax discount if the property has been held for at least a year, strictly speaking only 50% of the interest expenses related to the capital gain should be deductible."
Why only 50% of the interest expenses related to the capital gain should be deducted, as opposed to 75%? Interest expenses can also be used to generate the rental income, while you seem to reason it is only used for generate capital gains.
You also argued the following two paragraphs:
"Many countries resolve this issue by quarantining losses on investment properties. It means that losses generated from negative gearing cannot be used to offset against other sources of income, for example, salaries or business income. Instead, the losses can be carried forward to future years to offset against income from the investment properties.This policy is fair in the sense that the same tax principle for deductions applies to both taxpayers with and without negative gearing. Many countries adopt this quarantine policy, including major developed countries such as the US, the UK, France and Japan."
That policy is not necessarily fair if one carries investing in properties as an enterprising, together with their other incomes. You think that is fair because you failed to understand the links between those incomes.
Furthermore, your following paragraph is in comprehensible and it may be self contradictory if you explained it better:
"Some countries have even stricter tax rules on investment properties. For example, China allows a fixed 20% deduction of the rental income, and the Netherlands tax property investors on a deemed yield rate of 4% on the value of the properties. In other words, these countries do not allow deduction of any tax losses on investment properties at all."
Another point is why didn't mention that in the US, people can deduct interest expenses even or their own principal residency.
While a good attempt, your analysis has some fatal weaknesses. For example, you have one paragraph that reads as follows:
"Should mortgage interest on an investment property be deductible? Investment properties generate two kinds of income: rental income and capital gains (if any). As capital gains on investment property can enjoy a 50% tax discount if the property has been held for at least a year, strictly speaking only 50% of the interest expenses related to the capital gain should be deductible."
Why only 50% of the interest expenses related to the capital gain should be deducted, as opposed to 75%? Interest expenses can also be used to generate the rental income, while you seem to reason it is only used for generate capital gains.
You also argued the following two paragraphs:
"Many countries resolve this issue by quarantining losses on investment properties. It means that losses generated from negative gearing cannot be used to offset against other sources of income, for example, salaries or business income. Instead, the losses can be carried forward to future years to offset against income from the investment properties.This policy is fair in the sense that the same tax principle for deductions applies to both taxpayers with and without negative gearing. Many countries adopt this quarantine policy, including major developed countries such as the US, the UK, France and Japan."
That policy is not necessarily fair if one carries investing in properties as an enterprising, together with their other incomes. You think that is fair because you failed to understand the links between those incomes.
Furthermore, your following paragraph is in comprehensible and it may be self contradictory if you explained it better:
"Some countries have even stricter tax rules on investment properties. For example, China allows a fixed 20% deduction of the rental income, and the Netherlands tax property investors on a deemed yield rate of 4% on the value of the properties. In other words, these countries do not allow deduction of any tax losses on investment properties at all."
Another point is why didn't mention that in the US, people can deduct interest expenses even or their own principal residency.
2015-07-09
RBA staff: Australian housing 30% undervalued
Comments on Peter Martin "House prices 30% undervalued. Buy, don't rent, says Reserve Bank official", 9/07/2015
I got a shock when I saw the headline of this article, wha, Australian housing is 30% undervalued.
After reading the article, my shock has increased further as opposed to eased. Now I am worried about the country because I am concerned with the whether our RBA, the monetary authority in charge of the nation's monetary policy, is able and capable enough to discharge its monetary policy duty to contribute to the welfare of the nation, given such a claim of 30% undervaluation of Australian housing came from RBA staff members.
Many Australians are entitled to ask: are they competent to do their job properly? I think many may also pose a more stringent question: are they insane or sane intellectually? Do they have common sense? Where do they live, on the earth as we are? Or they are from Mars and are Martians?
It is interesting that the RBA even allow this kind of research results to be presented at the Australian Economists conference. Does the RBA have any quality assurance in place?
I got a shock when I saw the headline of this article, wha, Australian housing is 30% undervalued.
After reading the article, my shock has increased further as opposed to eased. Now I am worried about the country because I am concerned with the whether our RBA, the monetary authority in charge of the nation's monetary policy, is able and capable enough to discharge its monetary policy duty to contribute to the welfare of the nation, given such a claim of 30% undervaluation of Australian housing came from RBA staff members.
Many Australians are entitled to ask: are they competent to do their job properly? I think many may also pose a more stringent question: are they insane or sane intellectually? Do they have common sense? Where do they live, on the earth as we are? Or they are from Mars and are Martians?
It is interesting that the RBA even allow this kind of research results to be presented at the Australian Economists conference. Does the RBA have any quality assurance in place?
2013-09-18
Why are house prices in Australia so high?
Comments on Alan Kohler "A housing bubble? You bewdy!" 18/09/2013, http://www.businessspectator.com.au/article/2013/9/18/economy/housing-bubble-you-bewdy
Alan, you listed two reasons, "a lack of spending on infrastructure by state governments and planning restrictions by local councils", for "why is there a persistent shortage of housing in Australia when it’s the 3rd least densely populated nation on earth. (Mongolia and Western Sahara are less dense)."
While they are correct, there may be other more important reasons. For example, the relative price of building a house in Australia may be much higher, due to high labour and building materials costs here. This reflects a general pattern that non-traded goods and services have a much higher price relative to trade goods and services in Australia.
Capital costs are generally higher in Australia as, much higher than in the US. This is because it is an small, growing and capital importing country. For example, it is probably common for the official interest rates in Australia to be more than 2 percentage point higher than in the US.
Further, state and local governments rely on either land tax or rates as a source of revenue, so if land value is lower, their revenue may be lower too. From that point of view, they have incentives to keep land value high, contributing to higher housing prices. This is particularly true for local governments given that rates are one of the main sources of revenue for them.
On the demand side, Australia's geographical location close to Asia where there are billions of people with much higher population densities and relatively scarce land in conjunction with Australia's fairly open policy on foreign buyers of real estate properties, mean external demand can be a significant factor in driving the house price higher than it would otherwise be.
In fact, I would argue that this is a very important fact behind Australia's much higher ratio of house price to income and has been overlooked by many economists and analysts when they say that Australia's housing price is too high and there is a significant bubble in the housing market in Australia.
If using housing price to income ratio as a definition for house market bubble, then it is true that there is a housing market bubble in Australia and indeed a quite big one. However, it can be argued that such bubble may not be as easily to burst as in other industrialised countries because of the external demand factor.
This is likely to be a unique feature of the Australia housing market.
Alan, you listed two reasons, "a lack of spending on infrastructure by state governments and planning restrictions by local councils", for "why is there a persistent shortage of housing in Australia when it’s the 3rd least densely populated nation on earth. (Mongolia and Western Sahara are less dense)."
While they are correct, there may be other more important reasons. For example, the relative price of building a house in Australia may be much higher, due to high labour and building materials costs here. This reflects a general pattern that non-traded goods and services have a much higher price relative to trade goods and services in Australia.
Capital costs are generally higher in Australia as, much higher than in the US. This is because it is an small, growing and capital importing country. For example, it is probably common for the official interest rates in Australia to be more than 2 percentage point higher than in the US.
Further, state and local governments rely on either land tax or rates as a source of revenue, so if land value is lower, their revenue may be lower too. From that point of view, they have incentives to keep land value high, contributing to higher housing prices. This is particularly true for local governments given that rates are one of the main sources of revenue for them.
On the demand side, Australia's geographical location close to Asia where there are billions of people with much higher population densities and relatively scarce land in conjunction with Australia's fairly open policy on foreign buyers of real estate properties, mean external demand can be a significant factor in driving the house price higher than it would otherwise be.
In fact, I would argue that this is a very important fact behind Australia's much higher ratio of house price to income and has been overlooked by many economists and analysts when they say that Australia's housing price is too high and there is a significant bubble in the housing market in Australia.
If using housing price to income ratio as a definition for house market bubble, then it is true that there is a housing market bubble in Australia and indeed a quite big one. However, it can be argued that such bubble may not be as easily to burst as in other industrialised countries because of the external demand factor.
This is likely to be a unique feature of the Australia housing market.
2013-05-10
Measure housing affordability in Australia
Comments on Gennadi Kazakevitc, Lionel Frost and Luc Borrowman "Just how stressed are we when it comes to housing affordability", 9/05/2013, http://theconversation.com/just-how-stressed-are-we-when-it-comes-to-housing-affordability-13937
Genadi, Lionel and Luc, the methodology you mentioned in this article is obviously a step n the right direction and you should all be congratulated for making and using it.
Another method could be simply use a ratio of average housing costs to household disposable income. Average housing costs can be defined by renting costs and/or by average mortgage payments, or a combination of them in some weights.
In answer to Gennadi's reply: "Lincoln, Many thanks for your comment. Unfortunately, using average housing costs in the ratio does not help avoiding the fundamental problem with the ratio approach - it does not allow for singling out the groups/types of households that are really in stress."
Thanks Gennadi. Is it possible to calculate the ratios by groups/types then compare and rank them to form an order of stress?
I've though such ratios would produce better measurements, i.e. irrespective rent of buying, different preferences in terms of voluntarily paying more or less and the differences in size of houses/properties, etc, as well as the stages of mortgage payments.
Anyway, it may be my thought bubbles is bubbling.
Genadi, Lionel and Luc, the methodology you mentioned in this article is obviously a step n the right direction and you should all be congratulated for making and using it.
Another method could be simply use a ratio of average housing costs to household disposable income. Average housing costs can be defined by renting costs and/or by average mortgage payments, or a combination of them in some weights.
In answer to Gennadi's reply: "Lincoln, Many thanks for your comment. Unfortunately, using average housing costs in the ratio does not help avoiding the fundamental problem with the ratio approach - it does not allow for singling out the groups/types of households that are really in stress."
Thanks Gennadi. Is it possible to calculate the ratios by groups/types then compare and rank them to form an order of stress?
I've though such ratios would produce better measurements, i.e. irrespective rent of buying, different preferences in terms of voluntarily paying more or less and the differences in size of houses/properties, etc, as well as the stages of mortgage payments.
Anyway, it may be my thought bubbles is bubbling.
2013-01-16
A plague on Aussie housing?
Comments on Philip Soos “A plague on Aussie housing”, 16/01/2013, http://www.businessspectator.com.au/bs.nsf/Article/residential-property-house-prices-housing-mortgage-pd20130115-3Y4BY?OpenDocument
While the article and some comments provide insights to some of the issues related to the housing market in Australia, there is one important point that none of them have touched upon.
That point is: the housing market in Australia is no longer a market for Australian alone and is affected by some international factors.
There are a number of points related to that.
Firstly, the housing market in Australia is relatively small in size.
Secondly, population density is small relative to its land mass.
Thirdly, Australia is geographically located closer to Asia where population is large and population density is much larger.
Fourth, there are rapidly growing economies in Asia and with it many have become relatively rich.
Fifth, the house prices in some Asian countries are relatively high.
Sixth, Australia housing market is relatively open internationally.
All these factors suggest that house prices in Australia are probably higher than otherwise they should be if there were not those international factors.
Having said that, how important those international factors in affecting the prices in Australian housing market needs to be quantified to be clear of their effects.
Of course, relatively low interest rates and the taxation rule allowing negative gearing and deductions undoubtedly have their roles to push the prices higher than otherwise too.
While the article and some comments provide insights to some of the issues related to the housing market in Australia, there is one important point that none of them have touched upon.
That point is: the housing market in Australia is no longer a market for Australian alone and is affected by some international factors.
There are a number of points related to that.
Firstly, the housing market in Australia is relatively small in size.
Secondly, population density is small relative to its land mass.
Thirdly, Australia is geographically located closer to Asia where population is large and population density is much larger.
Fourth, there are rapidly growing economies in Asia and with it many have become relatively rich.
Fifth, the house prices in some Asian countries are relatively high.
Sixth, Australia housing market is relatively open internationally.
All these factors suggest that house prices in Australia are probably higher than otherwise they should be if there were not those international factors.
Having said that, how important those international factors in affecting the prices in Australian housing market needs to be quantified to be clear of their effects.
Of course, relatively low interest rates and the taxation rule allowing negative gearing and deductions undoubtedly have their roles to push the prices higher than otherwise too.
2013-01-14
A need for a better house price indicator
Comments on Toby Johnston “Coast watch: the best and worst performers”, 14/01/2013, http://smh.domain.com.au/real-estate-news/coast-watch-the-best-and-worst-performers-20130111-2cjm2.html
While it is a general practice to use median price to compare price movement over time, that very indicator can be problematic, particularly when the market is thin and the number of properties sold in a particular time is small.
They may not always be comparable and can be very misleading. The very large percentage changes listed in the article are likely to indicate the problems with such comparison as opposed to real changes in prices in those areas. The current Australian hosing market does not support those big changes.
Having said that, it is difficult to tell a simple story on price movement, I have to admit.
But some property research and information gathering organisations should develop a more effective method to tell the true picture of housing market.
I would recommend trying to use some kinds of weights using the characteristics of properties sold, including types, size, bedrooms, location, etc.
Unless one uses a more meaningful and more reliable method, lot of the property reports and analyses are non-sensical.
While it is a general practice to use median price to compare price movement over time, that very indicator can be problematic, particularly when the market is thin and the number of properties sold in a particular time is small.
They may not always be comparable and can be very misleading. The very large percentage changes listed in the article are likely to indicate the problems with such comparison as opposed to real changes in prices in those areas. The current Australian hosing market does not support those big changes.
Having said that, it is difficult to tell a simple story on price movement, I have to admit.
But some property research and information gathering organisations should develop a more effective method to tell the true picture of housing market.
I would recommend trying to use some kinds of weights using the characteristics of properties sold, including types, size, bedrooms, location, etc.
Unless one uses a more meaningful and more reliable method, lot of the property reports and analyses are non-sensical.
2013-01-10
A house price hike this year?
Comments on Stephen Koukoulas “All signs point to a house price hike”, 10/01/2013, http://www.businessspectator.com.au/bs.nsf/Article/Australian-house-prices-property-market-interest-r-pd20130110-3SR4N?OpenDocument
While I understand the point of both Stephen Koukoulas' and Bill Edwards'. However, I'd add one point that both may have missed, that is, the international factor particularly the housing situation in the US.
It may work either way, that is, either for a housing rebound or a continuation of stagnation.
Should the US housing market show strong signs of recovery, then the Australia housing market will follow suit and possibly overshoot.
On the other hand, if the US housing market continues to struggle, then the Australian housing market will stay put.
It is a confidence contagion internationally, following the GFC.
Another international factor is buyers from overseas into the Australian market, including those associated with international students studying in Australia when some of their families may buy properties here.
While I understand the point of both Stephen Koukoulas' and Bill Edwards'. However, I'd add one point that both may have missed, that is, the international factor particularly the housing situation in the US.
It may work either way, that is, either for a housing rebound or a continuation of stagnation.
Should the US housing market show strong signs of recovery, then the Australia housing market will follow suit and possibly overshoot.
On the other hand, if the US housing market continues to struggle, then the Australian housing market will stay put.
It is a confidence contagion internationally, following the GFC.
Another international factor is buyers from overseas into the Australian market, including those associated with international students studying in Australia when some of their families may buy properties here.
2011-08-17
Households real income and housing costs
Comments on Christopher Joye "The house that pocket change built", 17/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/RBA-house-prices-mortgage-rates-disposable-income-pd20110816-KS3L5?OpenDocument&src=rot
It is an interesting article and useful information.
However, could the auther do some further anlaysis, removing some of the changing factors like the increase in 'empoyment' per household, and possibly a scenario of adjusting for interest rate change to see a case if interest rate moves higher?
Doing those would provide a more comparable comparison and is likely to singificantly qualify the conclusion the author derived. It would also provide some sensitivity analysis for affordaility when interest rate moves unexpectedly.
It is an interesting article and useful information.
However, could the auther do some further anlaysis, removing some of the changing factors like the increase in 'empoyment' per household, and possibly a scenario of adjusting for interest rate change to see a case if interest rate moves higher?
Doing those would provide a more comparable comparison and is likely to singificantly qualify the conclusion the author derived. It would also provide some sensitivity analysis for affordaility when interest rate moves unexpectedly.
2011-08-04
Huge growth differential between Aussie's and the US' housing markets
Comments on Chirstopher Joye "Australian housing's hidden US affinity", 4/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/property-US-Australia-home-sales-house-prices-pd20110804-KE3WV?OpenDocument&src=sph&src=rotIs Australians' housing really in the affinity of the US's? The data Joye presented do not support that.
Although the differential growth between the two markets in real terms is small, they are always small as opposed to large anyway in reality. However, the whole period actually shows a really remarkable differential of 2 percentge points.
In another word, the US growth during the period is only about 1/5 of that of Australian's. Looking from this point of view, one would not find it difficult to conclude that either the US is significantly undervalued, or the Australians' is overvalued. Alternatively, the starting points might be not comparable. But this can be checked from the current house income ratio.
To conclude, Australians' housing market is likely to be highly over valued, if the data presented by Joye is reliable and comparable.
Although the differential growth between the two markets in real terms is small, they are always small as opposed to large anyway in reality. However, the whole period actually shows a really remarkable differential of 2 percentge points.
In another word, the US growth during the period is only about 1/5 of that of Australian's. Looking from this point of view, one would not find it difficult to conclude that either the US is significantly undervalued, or the Australians' is overvalued. Alternatively, the starting points might be not comparable. But this can be checked from the current house income ratio.
To conclude, Australians' housing market is likely to be highly over valued, if the data presented by Joye is reliable and comparable.
2011-03-18
Bloxham's possible correct conclusion based on wrong theory
Comments on Paul Bloxham “The Australian housing bubble furphy”, 18/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/Australian-property-prices-housing-bubble-pd20110317-F24WP?OpenDocument&src=rot
Paul Bloxham's use of the less than two decades data to justify his theory is a bit over reach, or over stretch.
In the late 1990's, many people were used to the theory of new valuation for the dot com tech companies. But that didn't prevent the market fallout in 2000 or thereabouts.
Before the recent global financial crisis, many people, including many financial genius, thought probably new paradigms of finance. But we just have had the Great Recession, not to mention the near death (collapse) of global banking and finance industry.
However, I think Paul might have had a point right even though his theory is wrong. Australia is different from the US and many other European countries. It is related to international geography, populations and immigration as well as relative external and internal demand and supply.
It has small population with a large land and located in Asia where people density is so high and populaitons are so large. Any demand from Asians for Australian houses and land can potentially sustain an otherwise serious housing bubble.
Therefore, the effects of external demand for Australian housing market can cause serious dislocation of house valuation, because for many Asians, it may be relatively cheaper to have houses with land that is so scarce in their home lands.
So, I think Paul has a wrong theory, wrong diagnose, but a possibly correct conclusion.
That itself is an irony, but it often happens to the so called experts. And it is not very unusual after all. I would give a mark of 50% to Bloxham's work.
Paul Bloxham's use of the less than two decades data to justify his theory is a bit over reach, or over stretch.
In the late 1990's, many people were used to the theory of new valuation for the dot com tech companies. But that didn't prevent the market fallout in 2000 or thereabouts.
Before the recent global financial crisis, many people, including many financial genius, thought probably new paradigms of finance. But we just have had the Great Recession, not to mention the near death (collapse) of global banking and finance industry.
However, I think Paul might have had a point right even though his theory is wrong. Australia is different from the US and many other European countries. It is related to international geography, populations and immigration as well as relative external and internal demand and supply.
It has small population with a large land and located in Asia where people density is so high and populaitons are so large. Any demand from Asians for Australian houses and land can potentially sustain an otherwise serious housing bubble.
Therefore, the effects of external demand for Australian housing market can cause serious dislocation of house valuation, because for many Asians, it may be relatively cheaper to have houses with land that is so scarce in their home lands.
So, I think Paul has a wrong theory, wrong diagnose, but a possibly correct conclusion.
That itself is an irony, but it often happens to the so called experts. And it is not very unusual after all. I would give a mark of 50% to Bloxham's work.
2011-01-30
Measures for improving housing affordability in China
Comments on Li Shi “Social security and housing the poor in China”, 28/01/2011, http://www.eastasiaforum.org/2011/01/28/social-security-and-housing-the-poor-in-china/
AS Professor Li said, there are no easy solutions to social affordable housing.
Beyond the three schemes, I think the government should consider a specific tax that targets the wasteful empty properties that exist in many Chinese cities, as opposed to the currently various proposed property taxes. The huge waste of housing resources contrasts with the housing difficulties and is probably very uncommon in other countries. If the many empty properties can be rented out, then it would be easier for people to rent a property at more affordable rents.
That tax could be supplemented with an excessive resource using tax that targets some people who may spread their family members too thinly to occupy more properties that they would not normally do if no resource wasting tax is in place.
On top of this, low income tax reduction and a housing subsidy for low income people can be implemented.
PS: both taxes can assist in reining in the run away housing market in China.
AS Professor Li said, there are no easy solutions to social affordable housing.
Beyond the three schemes, I think the government should consider a specific tax that targets the wasteful empty properties that exist in many Chinese cities, as opposed to the currently various proposed property taxes. The huge waste of housing resources contrasts with the housing difficulties and is probably very uncommon in other countries. If the many empty properties can be rented out, then it would be easier for people to rent a property at more affordable rents.
That tax could be supplemented with an excessive resource using tax that targets some people who may spread their family members too thinly to occupy more properties that they would not normally do if no resource wasting tax is in place.
On top of this, low income tax reduction and a housing subsidy for low income people can be implemented.
PS: both taxes can assist in reining in the run away housing market in China.
2010-12-16
IMF lost its way on Australian housing market!
Comments on “House prices to stay overvalued: IMF report”, see BusinessSpectators, 16/12/2010, http://www.businessspectator.com.au/bs.nsf/Article/Overvalued-house-prices-likely-to-stay-C76J5?OpenDocument&src=hp2
Grant Colbran has made a very good point.
Indeed how did the two poor IMF guys get the figure of 120% growth of Australian house price in the last 20 years? They obviously did not understand the Australian housing market.
While they are correct in saying the strong population growth and high values of terms of trade provide support for the overvalued house market, they have not identified and studied the effects of Australia's geographical location and the impact of other Asian countries on the Australian housing market.
They are important factors, because Australia is a western country with a small population located in the East Asia region, with stable democracy and freedom, and high income, large land and lots of nice beaches. The Japanese bought properties in the 70s and 80s. Now the Chinese are buying properties in Australia.
A small number of people in those big countries can mean a big impact on the Asutralian house market!
Anyone ignores these factors run the risk of getting his analysis wrong.
The IMF has lost its way, just as the Rudd government did as claimed by the current PM!
What to do with IMF as opposed to a PM, not much at the moment it seems.
Grant Colbran has made a very good point.
Indeed how did the two poor IMF guys get the figure of 120% growth of Australian house price in the last 20 years? They obviously did not understand the Australian housing market.
While they are correct in saying the strong population growth and high values of terms of trade provide support for the overvalued house market, they have not identified and studied the effects of Australia's geographical location and the impact of other Asian countries on the Australian housing market.
They are important factors, because Australia is a western country with a small population located in the East Asia region, with stable democracy and freedom, and high income, large land and lots of nice beaches. The Japanese bought properties in the 70s and 80s. Now the Chinese are buying properties in Australia.
A small number of people in those big countries can mean a big impact on the Asutralian house market!
Anyone ignores these factors run the risk of getting his analysis wrong.
The IMF has lost its way, just as the Rudd government did as claimed by the current PM!
What to do with IMF as opposed to a PM, not much at the moment it seems.
2010-10-17
Features of Australian housing market and mysteries of bank funding
Comments on Jennifer Hewett “Something has to give in housing market”, 17/10/2010, http://www.theaustralian.com.au/news/opinion/something-has-to-give-in-housing-market/story-e6frg6zo-1225939389620
It seems there are some mysteries here.
Why should the cost of funding for the banks have to be higher than that before the crisis, given that in many OECD countries the official interest rates are so low, either zero or close to it? Surely they were not as lows as such before the crisis. The differentials between the Australia and overseas interest rates should be larger now. That is a mystery why the funding costs for the banks are higher now.
The second mystery is the ratio of price to income. Surely, when international comparison is done, there should be some consistency required, including the cases with dual-income households and income from other sources.
One has to take into account some unique features of the Australian housing market. It is relatively small, close to Asia and overseas buyers can have a relatively large effects on demand and price.
This probably means the Australian house price is over valued as far as domestic income is concerned. However, overseas demand can sustain the over valued price and house bubbles in domestic terms may not burst as in other markets in other countries.
That, unfortunately, has some implications for Australians. Their housing is a double edged sword. For high income earners who can afford to buy a house, that is probably not too much a problem, even though the price is high, since the price will be higher in the future when you sell it so the overvalued value can be kept and rising further.
For low income earners, the higher housing costs are a real burden relative their income.
In this context, whether there is anything the government can do to assist them without being too disadvantages to high income earners remains to be seen.
On the other hand, the Australian banks enjoy more profits from higher house price, higher demand and higher lending than otherwise.
It seems there are some mysteries here.
Why should the cost of funding for the banks have to be higher than that before the crisis, given that in many OECD countries the official interest rates are so low, either zero or close to it? Surely they were not as lows as such before the crisis. The differentials between the Australia and overseas interest rates should be larger now. That is a mystery why the funding costs for the banks are higher now.
The second mystery is the ratio of price to income. Surely, when international comparison is done, there should be some consistency required, including the cases with dual-income households and income from other sources.
One has to take into account some unique features of the Australian housing market. It is relatively small, close to Asia and overseas buyers can have a relatively large effects on demand and price.
This probably means the Australian house price is over valued as far as domestic income is concerned. However, overseas demand can sustain the over valued price and house bubbles in domestic terms may not burst as in other markets in other countries.
That, unfortunately, has some implications for Australians. Their housing is a double edged sword. For high income earners who can afford to buy a house, that is probably not too much a problem, even though the price is high, since the price will be higher in the future when you sell it so the overvalued value can be kept and rising further.
For low income earners, the higher housing costs are a real burden relative their income.
In this context, whether there is anything the government can do to assist them without being too disadvantages to high income earners remains to be seen.
On the other hand, the Australian banks enjoy more profits from higher house price, higher demand and higher lending than otherwise.
2010-09-09
More factors affecting housing prices
Comments on Christopher Joye “Popping the hedge funds' bubble”, 9/09/2010, http://www.businessspectator.com.au/bs.nsf/Article/Popping-the-hedge-funds-bubble-pd20100909-94UB9?OpenDocument&src=sph
Joye argues that many hedging on the Australian housing prices are overvalued and are going to burst are not supported by more accurate estimates.
While a more accurate price to income ratio is good for international comparison of affordability or potential bubbles in housing market, it may be also desirable to include some data for differences in housing quality, such as average housing areas.
It is obvious those larger houses are more expensive than smaller ones, assuming all other things equal.
Another point of interest is differences in land price that may reflect how efficient a country may be in terms of its housing market.
Are land prices the same of different with population density?
PS: Christopher Joye is managing director of research group Rismark International which produces the RP Data-Rismark Hedonic House Price Indices. Rismark also operates a series of funds that invest in residential mortgages.
Rismark shows that the price income ratio for Australia as a whole is 4.6 as opposed to 7.5 by US investment legend, Jeremy Grantham, who captured global media attention with the claim that Australia’s housing market was a “time bomb” on that basis.
Joye argues that many hedging on the Australian housing prices are overvalued and are going to burst are not supported by more accurate estimates.
While a more accurate price to income ratio is good for international comparison of affordability or potential bubbles in housing market, it may be also desirable to include some data for differences in housing quality, such as average housing areas.
It is obvious those larger houses are more expensive than smaller ones, assuming all other things equal.
Another point of interest is differences in land price that may reflect how efficient a country may be in terms of its housing market.
Are land prices the same of different with population density?
PS: Christopher Joye is managing director of research group Rismark International which produces the RP Data-Rismark Hedonic House Price Indices. Rismark also operates a series of funds that invest in residential mortgages.
Rismark shows that the price income ratio for Australia as a whole is 4.6 as opposed to 7.5 by US investment legend, Jeremy Grantham, who captured global media attention with the claim that Australia’s housing market was a “time bomb” on that basis.
2009-11-04
Housing costs and home ownership in Australia - what is the main reason?
Comments on Robert Gottliebsen “End of the Australian dream”, 4/11/2009, http://www.businessspectator.com.au//bs.nsf/Article/house-prices-RBA-interest-rates-hike-pd20091104-XFQY5?OpenDocument
While there is some truth to the story that the housing price may go up as both the costs of construction and the number of investors may rise, it is a far too one-sided story.
Any builders cannot expect that the interest rate will stay as low as they are now. So the rise of interest rate may increase construction costs, builders should be able to absorb higher interest costs.
The argument by some builders or their representatives are nothing less than a self-interested lobby by a special interest group.
Further, how much of the high prices or costs of housing are due to interest costs in construction in Australia?
Why don't builders put pressure on government, both federal and state to lower the costs of their planning and administration that seem to be one of the main reason of higher housing price and short supply in Australia?
Any knee-jerking reaction by the federal government on the interest cost deductibility is short-sighted. That is policy on the run. It may have an effect to dampen price of housing, but will increase the rentals for many renters.
Government has to treat investment in a fair and equal manner in terms of cost deductibility and taxation. It is a wider issue than just the interest cost deductibility for investors in housing properties.
While there is some truth to the story that the housing price may go up as both the costs of construction and the number of investors may rise, it is a far too one-sided story.
Any builders cannot expect that the interest rate will stay as low as they are now. So the rise of interest rate may increase construction costs, builders should be able to absorb higher interest costs.
The argument by some builders or their representatives are nothing less than a self-interested lobby by a special interest group.
Further, how much of the high prices or costs of housing are due to interest costs in construction in Australia?
Why don't builders put pressure on government, both federal and state to lower the costs of their planning and administration that seem to be one of the main reason of higher housing price and short supply in Australia?
Any knee-jerking reaction by the federal government on the interest cost deductibility is short-sighted. That is policy on the run. It may have an effect to dampen price of housing, but will increase the rentals for many renters.
Government has to treat investment in a fair and equal manner in terms of cost deductibility and taxation. It is a wider issue than just the interest cost deductibility for investors in housing properties.
2009-11-02
RBA is not responsible for housing undersupply
Comments on Robert Gottliebsen “Rate rises may backfire”, 2/11/2009, http://www.businessspectator.com.au/bs.nsf/Article/Cup-Day-deliberations-pd20091102-XDRU7?OpenDocument&src=sph
Robert, both you and Triguboff have got it wrong on this issue. The RBA is charged with price stability and now also has to take asset prices into account in fulfilling their duties.
Yes, faster rate rises will dampen construction and have a n negative effect on supply of housing in the media term. But that does not mean that the RBA should not act to combat price rises.
The undersupply of housing in the past decades has had its multiple reasons, and interest rate has been the least of them.
To overcome undersupply, those prime reasons, like government bottlenecks in planning and land release, red-tapes and etc have to be tackled. That is a fundamental principle of economics and public policy.
Restricting the RBA's hand is no solution to housing shortage and is a wrong approach to fixing it.
Robert, both you and Triguboff have got it wrong on this issue. The RBA is charged with price stability and now also has to take asset prices into account in fulfilling their duties.
Yes, faster rate rises will dampen construction and have a n negative effect on supply of housing in the media term. But that does not mean that the RBA should not act to combat price rises.
The undersupply of housing in the past decades has had its multiple reasons, and interest rate has been the least of them.
To overcome undersupply, those prime reasons, like government bottlenecks in planning and land release, red-tapes and etc have to be tackled. That is a fundamental principle of economics and public policy.
Restricting the RBA's hand is no solution to housing shortage and is a wrong approach to fixing it.
2009-07-03
Australians are worse off in housing due to government inefficiencies and lack of competition
Comments on Robert Gottliebsen “Locking in property prices”, 3/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/Locking-in-property-prices-pd20090703-TKT9F?OpenDocument&src=sph
It is always good to see property prices go up for owners as well as for investors. It is also good in the current economic environment.
But in the long term, is Australia going to have property market bubbles due to government current processes or planning? Or will Australians always have to pay more for those inefficient government doings?
Internationally speaking, the ratio of average house price to average income in Australia is higher than its main international counterparts, such as the US, UK and possibly Japan. What that says is that Australians spend proportionately more of their income on housing than people in those other countries. If one has to spend more on housing, he can only spend less on other things.
We need to remove all unnecessary inefficiencies, whether they are from the private sector, or government. Australians’ welfares may be improved by remove those inefficiencies. Those inefficiencies should be a shame rather than proud for Australia.
Australia has relatively more land available for housing and Australians should be able to enjoy that advantage. But we are aparently not being able to do that.
Another factor may be that there is a lack of or insufficient competition in the building industry, so the costs of building houses are inflated by that process as well.
It is always good to see property prices go up for owners as well as for investors. It is also good in the current economic environment.
But in the long term, is Australia going to have property market bubbles due to government current processes or planning? Or will Australians always have to pay more for those inefficient government doings?
Internationally speaking, the ratio of average house price to average income in Australia is higher than its main international counterparts, such as the US, UK and possibly Japan. What that says is that Australians spend proportionately more of their income on housing than people in those other countries. If one has to spend more on housing, he can only spend less on other things.
We need to remove all unnecessary inefficiencies, whether they are from the private sector, or government. Australians’ welfares may be improved by remove those inefficiencies. Those inefficiencies should be a shame rather than proud for Australia.
Australia has relatively more land available for housing and Australians should be able to enjoy that advantage. But we are aparently not being able to do that.
Another factor may be that there is a lack of or insufficient competition in the building industry, so the costs of building houses are inflated by that process as well.
2009-06-29
Australian housing in international context
Comments on Alan Kohler “Goldilocks housing”, 29/06/2009, http://www.businessspectator.com.au/bs.nsf/Article/Goldilocks-housing-pd20090629-TFST8?OpenDocument&src=sph
What is wrong or right with the Australian housing market? It seems to have a different pattern from other major advanced countries.
I remember a study sometimes ago showing that it's ratio of average housing price to average income has been higher than that in the US and the UK. Now that the housing prices in the US and UK have fallen more than that in Australia, the differences in the price to income ratio would be even greater.
If there were housing bubbles in the US, then why weren't there housing bubbles in Australia? Are the differences in the price to income ratio structural or cyclical? What features contributed to those differences? Why are houses in Australia more expensive compared to income than in those in other advanced countries?
Of course, it is always good not to have a crash in housing prices in times of economic recession. However, is Australia facing housing bubbles that will persist for a long time, due to high immigration and capital inflow, as well as government policies?
What is wrong or right with the Australian housing market? It seems to have a different pattern from other major advanced countries.
I remember a study sometimes ago showing that it's ratio of average housing price to average income has been higher than that in the US and the UK. Now that the housing prices in the US and UK have fallen more than that in Australia, the differences in the price to income ratio would be even greater.
If there were housing bubbles in the US, then why weren't there housing bubbles in Australia? Are the differences in the price to income ratio structural or cyclical? What features contributed to those differences? Why are houses in Australia more expensive compared to income than in those in other advanced countries?
Of course, it is always good not to have a crash in housing prices in times of economic recession. However, is Australia facing housing bubbles that will persist for a long time, due to high immigration and capital inflow, as well as government policies?
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