news. sydney properties fall in half , page-13

BB has actually hit the nail on the head as to what fundamentally is wrong with property investing, in particular domestic housing.

No one needs BHP or CBA shares to live, they do not need gold investments to eat.

A roof over ones head though is one of the essential necessities in life, we all have to have some where to live.

As with all essential necessities in life, people have to be able to afford them and if they can not the result will be trouble of society as a whole.

For real estate to have any value as an investment it has to have a greater return than inflation. This alone means that housing over time is going to be increasingly less affordable even with a historical normal growth of 2-3% above inflation. We have however over the last decade or so had wage growth above inflation due to productivity increases, so this has allowed a greater growth in things like housing but still kept it affordable in real terms.

When though you add to the equation the types of growth that have occurred over the last 5 or 6 years and greedy property investors who expect similar growth rates to continue and something has to give.

Yes sure there is a valid argument that people need to adjust the amount they are prepared to pay and their expectations as to the standard of housing they want but there does come a point when people will not compromise any further or pay any more.

Housing is not oil, it is not a finite resource (in Australia at least), the problem of any shortage in supply in housing can be solved by any government with the balls to do so. The only question is are they going to wait until we see massive social problems resulting from the lack of affordable housing or are they going to act sooner.

The whole problem has been created by governments over decades moving from directly providing cheap housing to having private investors provide the housing through tax incentives. The problem with this is human nature in particular greed.