Financial Standard Comments - Census 2011: Australia is changing, and fast

Comment by AB ()

AB () — Fri, 22 Jun 2012 15:20:59 +1000

"For the mass market, strategies for getting them into the housing market as early as possible are likely to be the best financial advice they could get. "
And why is that Alex? Was it the best strategy in Ireland, Spain, the US, etc.?

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Comment by Alex Dunnin, editor ()

Alex Dunnin, editor () — Fri, 22 Jun 2012 15:58:01 +1000

AB, because you gotta live somewhere and if you don't want to rent you have to buy.
Sure, young people can keep paying ballooning rents if they want but without housing supply stepping up it's hard to see house prices structurally falling anytime this century. Your comment about Ireland misses the point. Ireland went crazy because EU grant money flooded the country as did economic growth fuelled by a tax subsidy business culture.
The US and Spanish housing markets are fundamentally different in structure to Australia's.

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Comment by Joel Mitchell ()

Joel Mitchell () — Fri, 22 Jun 2012 16:40:09 +1000

I'd agree with the logical assertion that the FHOG & FHOB has helped jack up housing prices to some (small) extent, however the net impact on rental yields has been insignificant. Not sure where the 7% pa rental growth figure comes from (even in the 'short' term property bull market encapsulated by the NHSC's data) rental growth Vs median income doesn't really blow out by that much.
Prices on the other hand have skyrocketed (vs median income) to reflect a pretty mediocre, diluted (after tax & fees) yield. The idea that property - at current prices - will still offer good returns is based on the expectation for capital growth, fuelled by this increased demand.... or speculation, of course, however without the fundamentals supporting speculative returns you're catching knives.
It's really concerning that there are advisers stuck to the idea that house prices double every 7 - 10 years... it's ludicrous and shows very little understanding of economics 101. People sometimes also forget that buying a property for $500k, spending $100k on renovations and selling for $600k is actually not a great result (losing on: Stamp Duty/transaction costs, agent fees, interest expense, inflation). Note that the REIA and your local property agent would still be reporting this as a $100k gain... Using "historical" short-term data to support this argument is like an adviser using 5 year returns on international Treasury Bonds to support his argument for loading up on them.
The supply shortage is (on a national level) somewhat of a red herring, in that it doesn't actually account for "households" vs "supply" based upon increasing capacity utilisation (that is, more people per household). As rightly pointed out, an ageing population also mean we have a lot of single person households with elderly persons.

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Comment by BC ()

BC () — Fri, 22 Jun 2012 16:47:48 +1000

Don't worry AB - in the fullness of time we'll see which one of you is right and which one is sitting on a large loan deep in negative equity...

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Comment by Joel Mitchell ()

Joel Mitchell () — Fri, 22 Jun 2012 17:17:14 +1000

"For the mass market, strategies for getting them into the housing market as early as possible are likely to be the best financial advice they could get. "
-I tried posting an explanation on why we believe this is fundamentally incorrect, including our expectation that negative gearing within the decade will be vastly different to what we now know it as. Also comments about housing shortages are based on some very broad assumptions (you've read the NHSC report so you would know this). ...also not sure where you're getting your "7%" rental yield growth figures from; adjusted for median income or CPI (take your pick).
"For these people, superannuation comes a distant second, no doubt explaining in large part the low engagement frustrations of the superannuation sector."
You're not serious? Superannuation is a tax structure. I'd actually say that engagement success or otherwise is largely due to the government moving the goal posts every 6 months. The industry has also been more focused on working out what their future is (FoFA etc) than sitting their members down for some 1 on 1 time.
Out of interest, if superannuation is a distant second, which other assets would you suggest fit the area in between?

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Comment by AB ()

AB () — Fri, 22 Jun 2012 17:31:25 +1000

My comment was a bit abrupt so I apologise for that.
Yes, all markets are different but my point was more that there are good times and bad times to buy so simple advice as to buy as soon as possible is not correct. Credit inflated bubbles all deflate or collapse eventually so why buy when prices are falling?
As for rents, they increased sharply for a few years but they have generally been flat since about 2010 and they are far less than the equivalent mortgage payment, hence why negative gearing is so popular.
My advice is to keep saving for a deposit for the short to medium term.