Real(i)ty bites – Canberra house prices fall seven per cent

2604 10 December 2008 128

The ABC reports that house prices in the ACT have fallen by seven per cent in the past three months. Annualized, that turns into a whopping 28 per cent fall!

Of course, this news is accompanied by the usual REIACT statements hosing down any negative consequences for house sellers. I wouldn’t have guessed it, but it turns out that now really is a great time to put your house on the market.

Thoughts anyone?

While this will have negative consequences for ppl who borrowed heavily to purchase at the top of the boom and now have no choice but to sell, I think that this is great news for everyone else. The sooner that we can forget about the possibility of a whole generation never being able to afford to buy a house, the better.


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128 Responses to Real(i)ty bites – Canberra house prices fall seven per cent
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2604 2604 10:24 pm 16 Dec 08

I own my own place, but wanted to point out that $400k is actually a lot of money for people starting out with no equity – which is the position most first home buyers find themselves in.

In fact, arguing that there’s no affordability problem because you can get a 3-4 bedroom house for $400,000 is pretty glib. To save a $40k deposit from scratch, whilst paying Canberra rent, is a hell of an effort. Particularly if you’re on a single wage. Oh, and you’ll need $17-18k to pay stamp duty, as well.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 11:21 am 15 Dec 08

aND MY SPELLING SUCKS BECAUSE i CAN’T SEE WHAT i’M TYYPING!

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 11:20 am 15 Dec 08

According to allhomes, there are almost 240 3 and 4 bedroom houses for sale at 400k and under, right now. In Canberra and r surrounding area (like QBN). Housing seems expensive now because we are just past the top of the cycle. In a few years when incomes have caught up a bit, it won’t seem so bad.

But fundamentally, well located and desribale propertyy has nowhere to go but up in the longer term.

sepi sepi 10:53 am 15 Dec 08

You can get a house on a big block for under 400 thou if you go further out and don’t want a new house.

And for govt to mandate house prices in a relationship to income would mean 100 percent govt housing.

tylersmayhem tylersmayhem 10:42 am 15 Dec 08

Just out of interest, how low did you want prices to go?

That price for a house…or at least some land bigger that 350 sq m.

wycx wycx 9:57 am 15 Dec 08
wycx wycx 9:51 am 15 Dec 08

Maybe to the region of Canada’s median income to medain house price ratio.

I point your attention to: http://www.demographia.com/dhi4rls.doc

Note the correlation between countries “permit the strategy” of negative gearing and house prices…

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 9:16 am 15 Dec 08

It will take serious land release, not a token govco gesture. If you want the price to drop, thousands of blocks will need to hhit the market. And even then it will take years for all the building to get fiunished.

Just out of interest, how low did you want prices to go?

tylersmayhem tylersmayhem 9:01 am 15 Dec 08

“There’s really only one thing you need to do if you want to improve affordability: improve supply.

I still really can’t stomach this as an answer. Yes, we probably need more supply – but new “affordable” developments such as in New McGregor and 2-3 beddy tiny townhouses going for a staggering high 3’s to early 4’s is hardly “affordable” or lowering the price bar.

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 3:57 am 13 Dec 08

Yep – probably right. I also believe that more supply would reduce prices in the longer term. But, like you said, goco doesn’t have the wontons to do it.

wycx wycx 11:46 pm 12 Dec 08

Shame on me! Regurgitating the party line. Not so fast on the increased rents part. I present data (REIA I think) on median rental prices for your review. Scaremongering by the beneficiaries of negative gearing?

QUARTER SYD MEL BRI ADE PER CAN
1982-Mar NA 94 87 82 74 82
1982-Jun 130 108 90 76 78 84
1982-Sep 115 102 96 92 79 82
1982-Nov 108 96 103 85 75 85
1983-Mar 105 95 95 95 87 90
1983-Jun 116 103 108 100 81 NA
1983-Sep 109 106 95 107 79 NA
1983-Nov 125 110 94 99 79 117
1984-Mar 125 108 99 110 88 110
1984-Jun 132 116 97 108 88 130
1984-Sep 128 115 101 118 80 127
1984-Nov 131 117 102 111 102 145
1985-Mar 137 124 101 108 83 142
1985-Jun 160 119 97 114 89 140
1985-Sep 161 125 102 113 86 152
1985-Nov 163 123 109 114 85 144
1986-Mar 157 123 110 118 102 150
1986-Jun 152 129 110 120 136 152
1986-Sep 162 129 106 119 131 160
1986-Nov 181 136 104 119 142 149
1987-Mar 187 133 105 119 130 145
1987-Jun 252 136 128 125 123 153
1987-Sep 230 138 122 122 120 149
1987-Nov 215 139 123 125 124 158
1988-Mar 205 140 125 120 120 150
1988-Jun 223 143 128 123 130 152
1988-Sep 210 145 140 120 125 150
1988-Nov 220 140 140 125 135 153
1989-Mar 220 145 147 131 135 155
1989-Jun 200 150 150 130 135 155
1989-Sep 200 150 150 140 135 150
1989-Nov 200 160 150 140 138 155

wycx wycx 10:32 pm 12 Dec 08

…rents went up and house prices didn’t go down, and the government got shit scared and put negative gearing back. I suggest it wasn’t gone long enough for it to work through the system, not to mention vested interests determined to get it back. An earlier comment of yours might indicate one of the reasons preventing the 1985 legislation from working:

“There’s really only one thing you need to do if you want to improve affordability: improve supply. Hound govco to release more land. Lots more. Personally, it’s not in my interest for that to happen, but to me it’s the only viable solution. Of course, it will take a while for builders to catch up, but when that happens, house prices will return to a lower price point.”

I do believe the Federal Government controls tax laws, whilst state and local governments are responsible for land release. They are now and they were in 1985.

No federal government will ever have the guts to change this again. But if they did, lower house prices wouldn’t happen overnight, but they would happen.

If navtecv8’s justification for negative gearing the provision of public housing, then why isn’t negative gearing only applicable to newly built houses?

VYBerlinaV8_the_one_they_all_copy VYBerlinaV8_the_one_they_all_copy 9:48 pm 12 Dec 08

What’s interesting is what happened when labor removed negative gearing for a while in the late 80s…

wycx wycx 9:37 pm 12 Dec 08

navtecv8,

The policy aim of negative gearing may have been to subsidise public housing. I however, am concerned with the outcome. I belive that, all things being equal, house prices would be cheaper if negative gearing were not permitted. Furthermore, I believe the costs of negative gearing outweigh the benefits.

To begin, as you have said yourself:
“If we wern’t, most of us wouldn’t buy new property because the rental yield is nowhere near the interest payments and we’d all go broke.”
My take on this is that negative gearing as a long term strategy means that the viability of property as an investment is disconnected from rental yields. Thus, the price of the house does not matter, you can make a loss every year until you pay off the mortgage, all the while making tax deductions against your personal income, giving you more money to pay off the mortgage. Combine this with a growing credit supply and the gateway for speculation on capital gain is wide wide open. Remove negative gearing. Now as you rightly say, most property investments would be unviable. Without the tax deductions the rental yield becomes the important factor for whether the investment is viable. Now there are two possibilities for what would place a ceiling on house prices: what home owners are willing to pay, and what rental yields will permit. If rental yields are the determining factor, and I think they would be, then property investment must compete with other investment vehicles, and it may turn out that they are not that competetive, and demand from property investors would lessen further, all the while resulting in lower prices for people who want houses just to live in.

But that is not all, negative gearing results in other costs on our society and economy. Following the entry of non-bank lenders into the Australian market in the 1990s much of the funds lent as mortgages in Australia were borrowed from overseas. As identified above negative gearing promotes higher house prices, and thus higher mortgages. The interest paid on those mortgages gets sent back to the creditors overseas, exporting our wealth, impoverishing our nation. It is not a pathway to prosperity.

Furthermore, as a use of capital, property investing is quite unproductive. The higher house prices provided by negative gearing employ no more people than would the same houses sold at lower prices and rented in a positively geared fashion. Property investing as a whole creates very few jobs, and certainly does not make Australia a more productive or advanced nation. You dont build prosperity with expensive housing, all it does is make banks rich on money that could be used elsewhere. If the tax advantages provided to property investment were removed, more of that money may go into productive forms of investment. I would trade negative gearing for a flow-through share scheme any day.

“Capital Gains are not the be all and end all. So what if the value improves? it’s not the depreciating house asset but the land component in most cases and that’s as a result of buying in competitive areas. No harm done there.”

Asset speculation is asset speculation. Buying in competetive areas is asset speculation (why else would you care if the price went up?). By definition speculation is unproductive investment.

What really gets me, is that I as someone who pays their tax via income tax, I am effectively subsidising the mortgages of investors (via their tax deductions), which fund their unproductive investments, which are a tax on society.

Jim Jones Jim Jones 2:52 pm 12 Dec 08

How about: “If you want a picture of the future of the rental market, imagine a boot stamping on a human face, forever.”

With apologies to George Orwell.

tylersmayhem tylersmayhem 2:40 pm 12 Dec 08

All these quotes between JB & Jakez are so reminiscent of a particular scene out of Good Will Hunting. I’m sure you all know the one.

jakez jakez 1:59 pm 12 Dec 08

tylersmayhem said :

Oh good grief Jakez – save it for quotes.com! ;\

Well I was going to explain the invisible hand in my own words but….I suck.

Johnboy: Very good, I’m also aware of that Adam Smith quote. I think he was right to caution against big businesses colluding. This is why I so vehemently oppose the power of Government as this power finds itself in the hands of those very businesses.

Self regulation absolutely fails when businesses have the backing of Government. I don’t view Government chartered businesses, operating on legislation supporting subprime loans, with billions of dollars of indirect subsidies from the Government, a direct line of credit with the Treasury, and the implicit backing of risk by the US Federal Government, as good examples of the free market in action.

There is a reason people like Ron Paul, and various free market economists have been ringing the alarm bells for many many years on this issue.

johnboy johnboy 1:48 pm 12 Dec 08

jakez said :

“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” – Adam Smith, Wealth of Nations

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” – Also Adam Smith.

If you’d been paying attention to recent events Jakez you might have noticed the abject global failure of self-regulation.

Holden Caulfield Holden Caulfield 1:45 pm 12 Dec 08

tylersmayhem said :

One trend I’ve seen on this post is some particularly over-defensive views and comments by investors.

I think the term “defensive” is the key here, as in responding to some pretty daft comments. Let’s start throwing terms like unethical and illegal about your perfectly legitimate personal affairs and see what you reckon.

Interesting that clueless hasn’t still managed to come back and have another crack to support his/her original “unethical” claim.

tylersmayhem tylersmayhem 1:35 pm 12 Dec 08

Oh good grief Jakez – save it for quotes.com! ;\

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