AbdapYou state:The money will come from “The same place it came...

Abdap

You state:

The money will come from “The same place it came 5,10,15,20,25 years ago when the same question was asked. Wages”


Yes, median wage growth going forward is likely to be approx in the 2.5/4% range… and yet you’re talking of property appreciation over then next 10 years averaging greater than 10%pa. There is a large disparity here… exp when one considers the obvious fact that interest rates will be higher at some point in the future…

(Please explain this disparity – my money’s on you not being able to.)

As I have stated previously, the appreciation in property prices over the last 30/40 years has been primarily because of two reasons:

1. Individuals and couples committing a larger percentage of their after tax income to servicing and paying off a mortgage (this has allowed then to borrow a greater sum)
2. A large number of families moving from a single income to dual incomes with both spouses working.

Both of these drivers have been exhausted ie. I can’t see people committing a significantly larger percentage of their incomes to paying off a mortgage than is now the case (many people are over extended atm as it is)… and I can’t see much more room for an increase in the number of dual income families.

So, imho, I see both of these drivers already reflected in the increased property values we see today… these drivers will only provide further stimulus if there is an increase in either, which is unlikely to any significant degree.




Grant

Below are my responses to each of your points:


1. Please explain your theory re the trans-generational effect. I would have thought this was a big negative.


2. Well if we’re to believe your theory of super money adding to demand for investment properties (which has some validity), then one must question what will happen when the people reach retirement age, and wish to cash in their super for either conspicuous consumption or as a source of income. (You must remember that you’re unable to leverage to invest in property in super…thus one must assume most of the super money chasing investment property belongs to older professional workers, who are likely to retire within the next 10/15 years). What happens the net demand for investment property by super funds changes to net supply?


3. The impact of the family home being tax free is already reflected in current prices. In fact, if anything, the new capital tax regime (half the marginal rate of tax on investments held for more than 1 year) is likely to reduce the relative tax advantages of home ownership.


4. Yes, average weekly earnings may continue growing, but at what rate relative to yours and other expectations of property price growth? There’s a disparity there that can’t continue indefinitely. Other drivers (principally falling rates, and the other two I mentioned above in my reply to Abdap) have acted to offset this disparity in the past, but I can’t see these drivers having much effect in future – they’re mostly exhausted. (reflected in current prices)
Your point re the price of Sydney property relative to other cities is valid, although it probably doesn’t apply to an great degree to Melbourne (so in effect it doesn’t apply to almost half the population of Australia’s main land cities)


5. Your point re increased professionalism of the Australian workforce should be reflected in growth in the median wage. What’s the median wage increased over the last 10 years?


6. The population growth of slightly over 1% is rather insignificant, imho. Are the number of new dwelling in Australia increasing by more than 1% pa? Yes…. So what effect does this increased population statistic have on property price growth? (It may be a driver for price appreciation of properties with development potential, but these are in the minority). In fact, the increased vacancy rate of 4% in Sydney tells me that there are more dwellings than there is demand…


7. I presume your immigration figures are represented in your population growth stats as mentioned previously, in which case my response to point 6. covers your argument re immigration as well.


8. Further concentration of the population along the eastern seaboard corridor is likely to occur, but the vast majority of new residents along the eastern seaboard must have come from somewhere, …from other areas of Australia perhaps? So, instead of experiencing additional demand, we’re only seeing a shift in the demand from one area to another. This will have close to nil net effect on the Australian property market taken as a whole.



So in summary Grant, I think have a couple of your points have some validity, whist some others are sorely lacking. In whole, I don’t think you have provided an argument of very great strength for continued growth in property values in excess of 10%pa for the next 10 years and beyond…


Regards, and thanks for your response.