A high sale price = unaffordable housing

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It is clear that a high sale price = unaffordable housing and the question is what should be done to produce affordable housing for the communities in which we live. When selling a house we all may desire the highest price and in doing so we are making our house for sale to be potentially a part of the problem of unaffordability of housing. When the government and the opposition speak of affordable housing they are only fiddling at the edges but not really attacking the problem. The real estate industry does not want the higher price movements in housing to slow down as their profits are linked to the prices as commissions from sales are the most common remuneration to the real estate agents. The economic commentators look at house price rises as being a positive economic outcome, while on the other hand slowdowns in growth rates on price increases on house prices is seen as a negative for an economy and is undesirable. Imagine if the house prices began decreasing and not just not rising this would be considered to be a recession, yet if prices were running high quite rapidly upwards over time then house prices would become unaffordable for many low income earners so a correction that could cause a reduction in prices ought not to be considered to be a recession but a correction. The following link will be able to be used to explain the reason we cannot have affordable housing unless one of two things happen: 1. The government intervene in the market by using taxpayers money to selectively assist in targeted housing to be “more affordable” than the market would have naturally produced. 2. Policies that will cause prices to actually go down and not just to slow down, even though this would be considered to be a classic recession indicator.

Real Estate Report – July 2018 Issue

Some quotes from the report and comments:

Sydney rarely drops in price during a downturn; it tends to run flat for a sustained period – making for a fairly benign correction or realignment back towards fair value. However, property prices are actually dropping in parts of Sydney at present. Many vendors have never expected, experienced or planned for such market conditions.   The rising prices over recent years have been seen to show a strong and desirable market a slow down to flat line on prices is seen as a correction BUT prices reductions are net expected and there has been no plans for such conditions. This is seen as very problematic for the industry.

When there is one house and two or three interested buyers, what can go wrong?  With competing buyers the price will be potentially higher.

In the current market, when listings are equal to, if not outnumbering genuine buyers, vendors need an agent they trust, who is also a competent negotiator. When there are more houses to buy than buyers then the prices would naturally be somewhat lower.

“Home price weakness is at levels where the RBA started cutting rates in 2008 and 2011, so while it’s not our base case we still can’t rule out the next move in rates being a cut rather than a hike”, Dr Oliver said. The government has used interst rates to assist in management of house prices and other things in the economy.

Consumption may be tied to relative wealth. Particularly when supply is highly inelastic and one’s ability to purchase a good may be highly related to one’s relative wealth in the economy. Consider for example the cost of real estate in a city with high average wealth (for example New York or London), in comparison to a city with a low average wealth. Supply is fairly inelastic, so if a helicopter drop (or gold rush) were to suddenly create large amounts of wealth in the low wealth city, those who did not receive this new wealth would rapidly find themselves crowded out of such markets, and materially worse off in terms of their ability to consume/purchase real estate. In such situations, one cannot dismiss the relative effect of wealth on demand and supply, and cannot assume that these are static.  The wage disparity between the high income earners and the low income earners will show a division between housing that is affordable for high income earners and the housing that is unaffordable for the lower income earners. Over time we find that the lower income earners are finding that most housing is becoming unaffordable to them.

Canada has a similar economy to Australia. In 2016/2017 they introduced stringent regulation to stop the inflow of residential buyers from China. Their property market suffered an instant price correction of 15%, highlighting how much the foreign funds were inflating the prices. Note well in Canada the exclusion of some foreign buyers saw a downturn of prices. We have been told that foreign investment does not affect the affordability of housing while the Canadian experience is proof that it does strongly affect prices.

This report proves that housing affordability is related to many factors in the economy including:

1. The relative comparison between the high income earners and the low income earners and so if we see a huge distinction between the high income earners and the low income earners we would expect to see the rise of unaffordable housing.


2. The role of foreign investment and ownership in housing.

3. The interest rates.

4. The relative availability of credit for housing.

5. The extent of government charges.

6. The relationship of the number of houses available for sale and the number of buyers capable of being able to reasonable purchase the houses.

LAND SHORTAGE SENDS PRICES SOARING – Newcastleherald Digital Editions, 2_16_2018

Note well: There is a direct link between the price of the land on offer which is called “shovel ready” and the price paid for the land and while many areas are approved for development the staggered stage development is designed to maximize profits for the developers and the real estate agents.

‘Lower Hunter builder Stephen Murray, who runs Yarrum Designer Homes, agreed and said high land prices were pushing many first home buyers further out of the city or forcing them to put off entering the market.
“There appears to be plenty of land that is zoned,” he said. “But in terms of land available with a [development application] approved that developers can go in and develop, it is very different”.’

The high land prices are preventing people entering the property market in the Hunter Valley and yet the prices in Sydney are so much higher and would exclude so many more first home buyers. This is why many necessary changes must be made to bring real balance back into the market.

Sharp drop in number of ‘entry level’ suburbs – Sydney Morning Herald, 7_7_2018

Note well: the NSW government considers that the entry level housing is about $650,000 for a first home buyer, however it seems to me that at that price a person should have about $130,000 for a 20% deposit and this is a huge barrier to a person with a income of less than $90,000 a year. So the government entry level virtually excludes people earning around the $30,000 to $40,000 from entering the property ownership market. The Christian Democratic Party wants to have housing affordable to be purchased by people on incomes between the $30,000 to $40,000 per year.Our plans will deliver housing for buyers in this range of income. 

Decision to make housing more affordable must include:

1. Restrict foreign ownership of Australian housing stock.

2. Close the gap between high income earners and low income earners – The high income earners on salaries over $1m per year are receiving excessive income while many others are struggling on wages under $50,000 per year and are finding housing almost unattainable. The unemployed whose job prospects are virtually zero are becoming homeless in all major cities in Australia. To resolve this problem is by the creation of jobs for the unskilled or those who have lost their jobs via the “structural changes” in the economy. Due attention to this must be given to this within the economic setting of the economy.

3. Government charges need to be significantly reduced or in some cases even removed completely as they are causing higher than necessary housing prices.

4. Maintaining low interest rates and other credit charges.

5. Timely releasing of new areas for housing to be built

6. Establishing infrastructure that will ensure quick and convenient transport connection between housing estates and work, business and entertainment areas.

The Christian Democratic Party will take direct action to make housing more affordable to all Australians, we will need your support to achieve this for without your number 1 vote for our candidates we will not be able to deliver affordable housing to you and your families.