I see the "other side" as more of an obtuse universe...
Whilst not booming...you could hardly say Australian property is "busting"...more like treading water +/- a few percent here or there, whilst the market takes a breather after some pretty stellar periods.
All part of the normal cycle.
Our population is still growing and home-nesting children are getting older...and cannot maintain a "failure to launch" forever...there is a pent-up wave of new renters (and some buyers) that at some point will eventually hit the market.
Importantly, "Generation Y", to whom we have all been subjected to for the last 25 or so years...you know, the group that have long detested the idea of locking up their party money on rent or god forbid, buying property, and would rather stay at home...are getting older and somewhat more moderate in their views.
This is yet another wave...or more likely a ground-swell...of new market entrants in waiting.
The rush to lock in FHBG's bought a swathe of buying forward...in the wake was the typical buyer void...this has almost washed through the system now.
Then of course there is the "global thing" and wider fear of what may or may not be around the corner that has resulted in many delaying their moves into property, in spite of the fact as a nation we are enjoying low unemployment and everytime we turn the next corner, there are no boogy men to be found. Whilst property treads water however, this group will continue to save, continue to wait to get around the next corner...but at the first signs of life in the property market, watch as they flood in.
In this regard we have seen a couple of false starts in the last few years...my area saw house-prices lift by 20% in just 6 months towards the end of 2010...a sign of what may well transpire suburb-wide when the next cylce starts in ernest.
In select areas (and I am talking non-mining related) rents are the equivalent of the mortgage repayments to buy the houses...or close to...this is more or less a natural floor for all property. Whilst not yet wide-spread, as this scenario gradually spreads...suburb by suburb...we get further confirmation property is at or near the start of the next wave.
Every drop in interest rates, every rise in rents, adds more and more suburbs to this list in a flat property market.
Of course, there will always be some areas that remain expensive...typically for local reasons...and some of these may well lag the initial run on property, in effect balancing their relatively low rental returns.
I hear from some circles that rents are rising...I am not so sure? I actually dropped mine (marginally)...but just enough to ensure full-occupancy. I am constantly amazed at how many landlords hold out for that extra $20 per week...only to see their properties take longer to let. If your property remains unoccupied for even just one extra month...you have lost 8.35% of your annual rental income...2 months unoccupied and you have lost 16.7%.
Drop the rent by 5%...good for my renters, good for me.
Whilst on housing...costs to build continue to rise...thanks partly to inflation, but thaks also to an inept government hell-bent on ideology above fiscal management. The carbon tax is just one of many direct and indirect taxes now creeping in from the current mob, that among other things add pressure to new-house prices, from the costs of trades and services, right through to just about every building material that goes into a new house or renovation.
When the cost to build rise, the whole market (new and existing houses) rise in a sort of price-spread balancing act.
Base-rate inflation, whilst historically low, will forever continue to add to the cost of building or renovating...this is a certainty...so every time increases in house prices fall behind inflation, we know there will be a catch-up at some point.
This is a basic cost-of-doing-business situation...there would need to be a massive and sustained collapse in the Australian economic cycle to see houses fall below the current cost to build.
One of the few reprieves for high income earners to minimise their often prohibitive tax bill, is to offset their tax via negative gearing. I read the views of those who want to see an end to this...be careful what you wish for.
Abolish negative gearing on property and three things will happen;
1. House prices will initially fall for a period as some investors de-leverage to servicable levels, and/or re-direct their money into alternative asset classes such as shares. No-doubt many will go to the wall as a result, leading to foreclosures, firesales and general economic contraction. The RBA is likely to lower interest rates to stimulate the economy, setting the scene for an eventual recovery of property on the back of cheap money;
2. A long-term deficit in investment based housing/unit construction will gradually develop, leading to unsustainable short-falls in new housing starts and the ongoing contraction of the building industry in general. The building industry is one of the biggest employers in the country, with many direct, indirect and down-stream industries aligned, at all levels of the socio-economic spectrum. Contraction here will obviously lead the RBA to cut interest rates further...the net result after a few years will see existing housing prices recover (thanks to the interest new rate cuts), but a major short-fall in new housing-starts will prevail given the lack of tax incentive;
3. Within a few years, rents will start to go exponential in the face of growing supply shortages, leading to higher house prices based on rental returns ratios which will need to be sufficiently high to fill the void negative gearing benefits currently fill!
All up...the removal of negative gearing would be a zero net-sum game for all concerned...so lets not go there.
House prices do not neccessarily always go up relative to inflation...but like all things, over time they will go up.
House prices are a bit like an endlessly rising tide...there will be waves in and out...and it may look like the tide is turning from time to time, but no, the tide just keeps on rolling in.
Population growth guarantees this endless rising tide...as do increases in per-capita disposable incomes.
There are more things for than against property rises...
Unemployment rates remain historically low.
Land releases are still not keeping up with demand.
The spate of cheaper sub-divisions of existing blocks in high-density suburbs is in decline...it has pretty much come and gone...due to fewer blocks left that are suitable.
In my view, in spite of what some might want us to believe, the commodities "boom" never actually happened per se. I prefer to see the increased activity accross-the-board and associated commodity price increases in the staples (copper, coal, iron) as the new "normal" for the sector.
I base this on the fact commodity prices are, and have been for some time, at benchmark levels...that is, if they fall any further, sufficient operations will become uneconomic (and close) to effect the supply chain...leading to undersupply and subsequent price rises...thereby underpinning current prices.
So...with the commodity cycle potentially still at ground-floor levels in key areas...and the real impact of much of the pre-development spend only just starting to trickle through to the rest of the economy...and results of new product sales from the many new developments yet to see the light of day...in my mind, the real benefits to the economy are yet to come.
Fortunately for Australia, China's growth is still phenomenal by any measure (especially given their population)...and even based on internal demand, is likely to continue for at least another decade.
I love the way some suggest China's growth rate has "slowed" to say 7.4% or so...and wonder do they actually realise what these numbers mean? For "growth rates" to remain "unchanged" for three years straight for example, we are actually seeing exponential growth of 8% on 8% on 8%...for three years...which is actually 26% compound growth over the period.
Try to get your head around what it means to see 26% growth in a nation with 1.4 billion or so people...the vast majority of which fall into the socio-economic levels that require the greatest level of consumption of raw materials to lift their lot even a small degree?
A so-called "drop" in growth rates from 8% to 7.4% will actually see the level of consumption maintained...lol.
The sameramp-up of growth is happening in other countries with major populations such as India and Brazil...and Russia too is gaining traction again...and then we have the Asian Tigers who once again are showing tentative signs of stirring.
The basket cases of the west are mature economies, who's growth does not result in the same level of consumption of the staple raw raw-materials mentioned above...they already have most of their major infrustructure in place.
To be honest, the only real negative I see for Property in Australia...and for the whole economy in fact...is the current government. They have made an absolute balls-up of everything they have touched so far...and appear to have no idea about genuine fiscal management beyond encouraging mediocrity and discouraging the kind of self-motivation that creates jobs...they appear to want to see everything turn into the same shade of grey.
Politburo anyone?
I feel no confidence with the other lot either...and wonder at which point "government" stood less for governing and managing, and more about celebrity and popularity polls?
Ironically...if the current mob do manage to kill the golden calf (doing a great job by the way)...the only safe place to put your money will be gold buried in the backyard, stockpiling food, oil, coal, iron and/or copper...in fact anything that will not evaporate overnight!
