Why are our housing prices so high?
RBA's Philip Lowe said recently “if you asked anyone how a country would deliver high housing prices, you’d find we’ve made all the right choices: live in a few coastal cities, under-invest in transport, have a liberal financial system and not want high density”.
I think that is a pretty good list but I think I can better that.
Here are my five big reasons why:
1. Urban planning policies
2. Tax incentives and taxes
3. High immigration and baby bonus
4. Cheap and accessible credit
5. Foreign investment
I have written about this before - click on the link below to revisit. It might be worth 30 seconds of your time.
Why are prices so high?
High levels of population growth is only one of the reasons why our housing prices are high. The current immigration debate, for mine, is missing the bigger picture.
Point 4, above, is the biggie, as our economic growth and in particular much of the country's dwelling price growth, since the 1990s, has been largely built on increasing debt.
We are truly boxing ourselves in.
Some maxims to close out this week.
Debt = Consumption brought forward.
Growth = Assumption that consumption will continue.
High debt + rising costs + low wage growth = Less growth.
Another truth I like is "having high debt is like flying with only one engine, you can land the plane but you better not run into any turbulence".
That's Oz right now - high debt, rising costs and low wage growth plus we are running into heavier weather.
Heavy weather you ask?
Our household saving ratio is now stuck below 3% and it was much higher just a couple of years ago. A recent survey by ME Bank found that the cost of necessities is the biggest worry for half (46%) of Australian households; with a third (30%) surveyed saying their financial situation has worsened over the last year and the main reason being rising living expenses.
A future of low-wage growth, low savings and high dependence on debt doesn't paint a pretty picture.
What to do.................?
What to buy...............?
Where are the opportunities...............?
What's the ten year outlook for housing really look like.................?