All Topics / General Property / Myth Busters – Episode 2!

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  • Profile photo of foundationfoundation
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    Myth 2: House prices are rising because Australia’s population is increasing.

    This myth is most often spread by word of mouth, occasionally rearing its head in the media.

    Example:

    And that cost will continue to grow because there is no more land to satisfy the demand. That’s called “capital growth”. It is the growth that is caused by the demand for property in an area where land is scarce.

    http://www.residex.com.au/index.php?content=article21

    The continuing growth in Australia’s population, fuelled by high levels of net migration (sic), is a significant factor affecting the demand for, and the affordability of, housing.

    http://www.population.org.au/action/sub/sub_Inquiry_First_Home_Ownership_2003_SPA_ACT.pdf

    Growth in the housing market, fuelled in part by immigration

    http://au.biz.yahoo.com/041107/20/1yra.html

    Melbourne residential and investment property sector is performing well and is predicted to continue doing so. Here are some reasons why:
    Improved immigration numbers. Melbourne’s population is now increasing at a faster rate than many other capital cities leading to an increase in the demand for housing. Population growth is around 4%

    http://www.propertyinvestorplanning.com.au/melbourne.htm

    Time to BUST THIS MYTH WIDE OPEN!!

    Over to Simon Tennent, Senior Economist, Housing Industry Association in 2002:

    the annual production of new homes – usually around 150,000 per annum

    and

    According to the ABS quarterly publication Australian Demographic Statistics (3101.0), Australia’s population over the past five years has been growing at an average rate of just over 217,000 persons (1.1%) per annum. Over 42% of this growth comes from net overseas migration – averaging 93,000 persons per annum. In new housing terms, Australia’s growing population needs around 145,000 new homes each year.

    http://www.abs.gov.au/Ausstats/[email protected]/0/d3b9fd318e7d8f46ca256b3600032287?OpenDocument

    Interesting statistics – 150k new houses per year, 145k additional demand. On December 16 last year HIA reported that:

    Figures released today show that in seasonally adjusted terms 40,263 starts were recorded in the three months to September. That is 5.8 per cent fewer starts than in the June quarter.

    http://economics.hia.asn.au/media/absDwellingCommSepQTR04.pdf

    In fact new dwellings for Australia have been above 160k for over 3 years:
    http://www.abs.gov.au/Ausstats/[email protected]/Lookup/EE689626E0A4BB03CA256F6B0072BA41

    Assuming that construction decisions are based on geographical demand, the boom in house prices cannot be attributed to any shortage of stock. Evidence of this can be found in ‘falling’ apartment prices (critical lack of demand), and insignificant increases in the cost of renting:

    Mr Raimondo said “The inner city apartment market still has relatively high vacancy rates, which are likely to continue as development remains buoyant over the short to medium-term.. Approximately 20,000 units are being earmarked for development in inner Melbourne and middle Melbourne in the next couple of years.”

    http://www.realestateview.com.au/cgi-bin/media_press_release.pl?ID=20

    “We’ve got major variations in different markets across the country. Canberra and Hobart are very strong, in contrast to markets that are over-supplied and over-valued, such as Sydney and Melbourne,” Johnson says.

    http://www.theaustralian.news.com.au/common/story_page/0,5744,12218792%255E25658,00.html

    another sign of deteriorating housing markets, private developers Tjeerd la Grouw and Andrew Richardson have ditched plans for their $78 million “Dakota” apartment project.
    The building was to be located across from Sydney’s Hyde Park.

    http://www.theaustralian.news.com.au/common/story_page/0,5744,12199520%255E25658,00.html

    In the year to June 2003, dwelling rents (ABS index) rose by 1.6%, below the 2.7% overall (CPI) rate of inflation. In real terms rents have fallen a little since September 2000 and it appears that the growth cycle apparent for the latter half of the 1990s has now finished.
    Vacancy rates in March 2003 suggest adequate or excess levels of rental supply in Sydney and Melbourne as well as Perth and Darwin.

    http://www.facs.gov.au/internet/facsinternet.nsf/aboutfacs/programs/house-austhousingmarket.htm

    Melbourne’s residential vacancy rose marginally by 0.1 per cent to 3.8 per in the December quarter 2004

    http://www.reiv.com.au/news/details.asp?NewsID=254&ID=&pnav=135

    In summary:
    Fact – New dwelling construction has continued to meet population demand throughout the property boom.
    Fact – Supply of apartments has exceeded demand in most capital cities.
    Fact – Rent has failed to keep pace with house price inflation.
    Fact – The house price boom is not caused by and will not be sustained by population expansion!

    Cheers,
    F.[cap]

    Profile photo of woodsmanwoodsman
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    F, so what are/have you investing/invested in?

    Profile photo of foundationfoundation
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    Originally posted by woodsman:

    F, so what are/have you investing/invested in?

    Have invested in: Residential real estate & vacant land (my best investment to date), bank bonds, shares (directly & via funds), precious metals, cash and collectables.
    Currently invested in: Direct shares, gold, silver, cash & collectables. Oh, and depending on POV, my PPOR and holiday house.

    Why? Any comments on this myth? (I decided to go with what I believe to be a far less contentious issue today.[wink2])

    Cheers, F.[cap]

    Profile photo of aussierogueaussierogue
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    i agree. there are a lot more forces at work than population growth and land scarcity for that matter. bubble bubble toil and trouble..

    Profile photo of byronent_2byronent_2
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    Man you must have no life or just simply bored <edited>less.

    Byronent
    Adelaide SA

    Profile photo of foundationfoundation
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    Originally posted by byronent:

    Man you must have no life or just simply bored <edited>less.

    Don’t get uptight if you’re having trouble digesting the MYTH BUSTERS series Byronentent, I will ensure that when the MYTH BUSTERS series draws to a close I’ll write up a succinct summary and PM it to you![specool]

    Stay tuned for tomorrow’s exciting episode of MYTH BUSTERS!!!
    Cheers, champ.
    F.[cap]

    Profile photo of byronent_2byronent_2
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    You live in a world of fantasy.

    I think we have a Doc on here that maybe be able to help.

    Doc, are you here Doc?

    Byronent
    Adelaide SA

    Profile photo of foundationfoundation
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    Allways a pleasure Byronent!
    Somehow though, the gist of your last couple of posts seems to have eluded me…[blush2]
    I assume you are taking a stance opposing my assertion that the recent house price boom was caused by and will be sustained by population expansion?

    If you’ve already made your point and it’s gone over my head, please be a little less cryptic! That’d be [specool]!

    Cheers, F.[cap]

    Profile photo of woodsmanwoodsman
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    F, you make the proposition that some of the myths being presented in the media, this and other forums. You are endeavouring to misrepresent and take out of context comments made to different questions and piece them together to make your case.

    One of those is that population growth has fuelled the house price boom. Actually I don’t think that has been anyone’s claims!! To represent otherwise is misleading. It is has been used, as per all your quotes, as one factor which underpins demand, which is in fact what your ABS reference confirms.

    Regarding the supply of apartments, well for those who have been on these forums for some time now, there is general acceptance of that there are areas where this exists.

    You also fail to mention a major caveat on your assertion that rentals have not kept up with inflation. Your reference also states To the extent housing quality has increased, actual rents for all rental dwellings on average may have grown more strongly than the underlying rent index series, which measures rents for constant quality accommodation.

    As for your methodology, I also have an issue in comparing different figures from different reports and drawing conclusions from those, moreover representing your opinions as facts. Different time periods, different data sources, different methodologies (?)

    I guess, the real question is, given the state of the property market, how do you create value? Now that, is what I believe is more pertinent today. This is a value add conversation and would be interested to hear your thoughts on this…

    Profile photo of foundationfoundation
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    Hello Woodsman,
    If you don’t think many average folk believe that ‘immigration is destroying house affordability’, and ‘we have 2 IPs in Sydney which can’t grow any more because of the green wedges, so they will go up in price because everybody wants to live in Sydney!” then I don’t think you’ve been spending enough time around the water cooler! If nobody here believes the myth, that’s great, my objective was already achieved, I just wasted 10 minutes typing![blush2]

    To clarify the rents issue, I clearly stated that ‘Rent has failed to keep pace with house price inflation.’, not broader inflation.

    Oh, and regarding adding ‘value’, I may simply be lazy, but I would rather buy at a reduced price than put in a whole lot of effort![evo]

    Thanks for your suggestions.
    Cheers,F.[cap]

    Profile photo of MonopolyMonopoly
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    Originally posted by foundation:

    Hello Woodsman,
    If you don’t think many average folk believe that ‘immigration is destroying house affordability’, and ‘we have 2 IPs in Sydney which can’t grow any more because of the green wedges, so they will go up in price because everybody wants to live in Sydney!” then I don’t think you’ve been spending enough time around the water cooler! If nobody here believes the myth, that’s great, my objective was already achieved, I just wasted 10 minutes typing![blush2]

    To clarify the rents issue, I clearly stated that ‘Rent has failed to keep pace with house price inflation.’, not broader inflation.

    Oh, and regarding adding ‘value’, I may simply be lazy, but I would rather buy at a reduced price than put in a whole lot of effort![evo]

    Thanks for your suggestions.
    Cheers,F.[cap]

    http://en.wikipedia.org/wiki/Internet_troll

    See definition:

    Internet troll

    From Wikipedia, the free encyclopedia.
    An internet troll is a person who sends duplicitous messages hoping to get angry responses, or a message sent by such a person. The term derives from the phrase “trolling for newbies” and ultimately from trolling for fish; it first appeared on Usenet. The term is frequently abused to slander opponents in heated debates and is frequently misapplied to those who are ignorant of etiquette.

    Trolling is often described as an online version of the breaching experiment, where social boundaries and rules of etiquette are broken. Self-proclaimed trolls often style themselves as Devil’s Advocates or gadflies or culture jammers, challenging the dominant discourse and assumptions of the forum they are trolling in an attempt to subvert and introduce different ways of thinking. Detractors who value etiquette claim that true Devil’s Advocates generally identify themselves as such for the sake of etiquette, whereas trolls often consider etiquette to be something worth trolling in order to fight groupthink.

    Trolls are sometimes caricatured as socially inept. This is often due to the fundamental attribution error, as it is impossible to know the real traits of an individual solely from their online discourse. Indeed, since intentional trolls are alleged to knowingly flout social boundaries, it is difficult to typecast them as socially inept since they have arguably proven adept at their goal

    Profile photo of woodsmanwoodsman
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    If you don’t think many average folk believe that ‘immigration is destroying house affordability’, and ‘we have 2 IPs in Sydney which can’t grow any more because of the green wedges, so they will go up in price because everybody wants to live in Sydney!” then I don’t think you’ve been spending enough time around the water cooler!

    Maybe I don’t hand around average folk as you describe them…That is not my experience from my circle of friends/peers.

    So what if people think that, were you not debating what the true ie factual state of play is?

    BTW, i don’t want to live in Sydney. Melbourne’s a far better place to live!![wink]

    Profile photo of wayneLwayneL
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    Hey Foundation,

    I’m enjoying “myth busters” keep them coming.

    Interesting to note how upset the permabulls become over this…real zealot type stuff. LOL

    Cheers

    Profile photo of woodsmanwoodsman
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    Interesting to note how upset the permabulls become over this…real zealot type stuff

    WayneL, don’t confuse passionate debating with your interesting description.

    I would also take significant issue with any that I have said being categorised as ‘property zealot’ speak

    Oh, and regarding adding ‘value’, I may simply be lazy, but I would rather buy at a reduced price than put in a whole lot of effort

    F, fair enough, you are not the only one then….So what reduction you are waiting for?

    Profile photo of MonopolyMonopoly
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    Originally posted by wayneL:

    Hey Foundation,

    I’m enjoying “myth busters” keep them coming.

    Interesting to note how upset the permabulls become over this…real zealot type stuff. LOL

    Cheers

    Wayne,

    You have called me a property bull on many occasions, but fear not, I am hardly insulted by it at all; quite the opposite in fact.

    FYI I do not invest in property ONLY although that is predominantly my preferred market. My knowledge is infantile in comparison to your re the share market (and to be honest I don’t think I will ever be a match for someone like you who trades every day) however, I am happy to learn slowly.

    I am not in the slightest upset by Foundations “myth busting” efforts; they are interesting, amusing and definitely good value. It is HIS BEHAVIOUR which concerns and annoys me and others in the forum. Please do not confuse the two; although I do not know Foundation well, I do know you Wayne, and your love of a good debate, but that insulting someone with an opposing view is hardly healthy debate don’t you think???

    Cheers,

    Jo

    Profile photo of wayneLwayneL
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    Fair points Jo, here and the the other thread as well.

    Bowing out of the debate here…becoming a concientious ojector Hehehh….back to my cave to concentrate on my preferred market.

    Cheers
    Permabear sharemarket zealot[cap]

    Profile photo of MoJoJoMoJoJo
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    Hang on, going back to all the stats presented at the start of the thread… Re, housing construction figures.

    Is there any numbers available on dwellings DEconstructed, how would this change the figures? Eg, if alot of the new dwellings are developments of residential blocks with an old residence demolished to make way for 2, 3, or 4 new ones.

    If for every 20 dwellings that are constructed, one is removed from supply, the new households:new dwellings ratio would change fairly considerably.

    Hmmm.

    ~jo~

    Profile photo of GramyreGramyre
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    Was thinking the same thing MoJoJo. For a nice piece of factual writing these things do need to be defined. Comparing appples with oranges and saying they are all bananas will not earn any brownie points when those that seek logical argument come along.

    There are plenty of scare mongers out there that use this tactic (not to mention tabloid infonews television programs).

    ______________________

    I know I can, I know I can

    Profile photo of foundationfoundation
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    Hi MoJoJo,
    That’s a good theory. Unfortunately I can’t find any statistics on the matter, but the situation you describe would very quickly lead to a critical shortage of rental houses and units (or a massive increase of people living on the streets!). This undersupply would lead to a sudden spike in rents (and perhaps government rent controls?). I can’t find evidence of this situation.
    Regards, F.[cap]

    Profile photo of supermansuperman
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    Damn you do your research! Amazing stuff. If we can’t debate property issues, what are we doing here? On that note, seems troll has been redefined:

    1. One who’s opinion does not match my own.

    So is Myth Busters actually on air in Australia? I’m too long departed to know [confused2]. You even have their catch phrase to the teeth, “busted wide open” [biggrin]. It’s a great show; it’s season passed in my Tivo. [biggrin]

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