Our real estate ( houses) are getting cheaper in Australia? Let's take a home that now is priced $1000k AUD. One million dollars.
converting to USD it means $660k USD.
exchange rate 0.66

But a decade ago the same home may have been priced AUD 800k which means USD 880k
conversion ration 1.1

Summarizing., the Same home is now worth $220k less in USD currency.The conclusion could be such that not the case that houses./ real estate is gaining any value but our currency - Australian dollar is losing purchasing power rapidly !!!

As we live in Australia, and purchase in Australian dollars, its irrelevant what anything is worth in US dollars.
If a home is now worth a million dollars, 10 years ago it was worth a lot less.
All purchased with AUS $$$.
So in fact our dollar, and the real estate we purchase with it, has increased dramatically.

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dratts said..
As we live in Australia, and purchase in Australian dollars, its irrelevant what anything is worth in US dollars.
If a home is now worth a million dollars, 10 years ago it was worth a lot less.
All purchased with AUS $$$.
So in fact our dollar, and the real estate we purchase with it, has increased dramatically.

No, the real estate value remain the same but our purchasing value declined.You could draw the same conclusinon based on petrol pricess . Regardless of cheaper oil price our petrol is much more expensive.
2010 $1.25
2020 $ 1.50-1.70
It will be interesting to see the graph of our properties value over last 50 years but this time converted to US dollars ( used as absolute measurement)



oil prices dropped 40% but petrol priced risen during recent decade .
We could not explain phenomenon with inflation numbers - around 1-2%.

THis is just drop in Australinan dollar - ecoenomy output/ efficiency

This is interesting. Although maybe the European cities had already reached unsustainable heights and had nowhere left to move.

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Harrow said..
This is interesting. Although maybe the European cities had already reached unsustainable heights and had nowhere left to move.

Very interesting.

There are more renters in Europe and they're not obsessed with real estate as a personal investment. They also don't have the NG and CGT tax perks to the same extent we do.

In Australia, we've dug ourselves into a debt trap, where only the most well off baby boomers and early investors (pre-2000) are ahead.

Everyone else basically now supports the lifestyle of these lucky few who are financially comfortable mostly through luck of birth. They grew up being able to afford a nice home on an ordinary salary. Some even had a free tertiary education but vote for politicians who think cutting university funding is a good thing..

Now a significant cohort of this group get upset when the rest of us want to level the playing field by removing some of the unsustainable tax perks that help drive up land prices.

This cohort did no doubt work hard and contributed to society but, ultimately they've also become selfish in their golden years.

I understand your point Macro, and it does hold for people who directly generate income from exporting goods/commodities priced in $US ............. but for the rest of us who buy imported consumer goods and use locally sourced goods/services

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Harrow said..
This is interesting. Although maybe the European cities had already reached unsustainable heights and had nowhere left to move.

Or Australia was held back by tyranny of distance, expense and inconvenience of intercontinental travel but now technology and ease of global migration have reduced those impediments and Australia has now played catch-up.

"Catch up?!

Isn't the definition of catching up that one gets behind but then finishes about level? I see neither of these cases in the graph.

Gotta remember, our wages are stagnant so it makes the ratio worse.

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Harrow said..
This is interesting. Although maybe the European cities had already reached unsustainable heights and had nowhere left to move.

But we could this graph completely differently.Home is home, price is always the same .

In such case our incompe is now 2-3x lower then rest of the world since 1975.

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holy guacamole said..
"Catch up?!

Isn't the definition of catching up that one gets behind but then finishes about level? I see neither of these cases in the graph.

No 'cos the graph isn't absolute values but is instead indexed to 1.0 as at 1975 so it tells you nothing about actual ratio of price to income. It only tells you versus whatever the positions were in 1975.

Yep you are right macro.

We have been robbed of 30% odd of our net worth on an international basis (take the TWI not the USD as a better cross economy proxy though) but like the frog in the hot water we think we are richer because our house prices have gone up in AUD terms.

We arent. We are going sideways at best and thats only if your house is in the right parts of sydbourne or melney.

If you factor in the eye watering debt levels many have taken on to "get on the property ladder" we have gone sideways and massively increased our economic risk profile. Thats so dumb as a nation its criminal.

Yeah our net worth on an international basis is less concerning to someone who just stays in oz and works in the short term but in the long run the drop in purchasing power affects nearly everything we buy (imports AND export competing goods and services eg the food we grow) and destroys our standard of living.

boil on frogs.

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Cambodge said..No 'cos the graph isn't absolute values but is instead indexed to 1.0 as at 1975 so it tells you nothing about actual ratio of price to income. It only tells you versus whatever the positions were in 1975.

holy guacamole said..."Catch up?! Isn't the definition of catching up that one gets behind but then finishes about level? I see neither of these cases in the graph.

Yes I suppose you could see it that way, but disputing the graph is not the most astute way to substantiate your original claim. If you think the graph is not accurate let's discuss an alternative analysis.

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Bara said.....We are going sideways at best and thats only if your house is in the right parts of sydbourne or melney.

If you factor in the eye watering debt levels many have taken on to "get on the property ladder" we have gone sideways and massively increased our economic risk profile. Thats so dumb as a nation its criminal.

Yep. I wouldn't say criminal but certain very dumb and shortsighted.

Australia is going sideways and moving ever closer to economic irrelevance....offshoring wealth by digging huge holes in the ground, offshoring profits and selling our intellectual property at the first chance.

One slight economic crisis and we're stuffed.

Instead, we favour all the fake modes of national wealth - materiality and property and tax perks.

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holy guacamole said..

Bara said.....We are going sideways at best and thats only if your house is in the right parts of sydbourne or melney.

If you factor in the eye watering debt levels many have taken on to "get on the property ladder" we have gone sideways and massively increased our economic risk profile. Thats so dumb as a nation its criminal.

Yep. I wouldn't say criminal but certain very dumb and shortsighted.

Australia is going sideways and moving ever closer to economic irrelevance....offshoring wealth by digging huge holes in the ground, offshoring profits and selling our intellectual property at the first chance.

One slight economic crisis and we're stuffed.

Instead, we favour all the fake modes of national wealth - materiality and property and tax perks.

no its criminal because

(a) it was engineered in part by out very own institutions ie basically as a way of dropping our too high AUD wages to keep things simple.
(b) the economy wide repercussions will take most with it not just the ones who loaded up on debt to ponzi scheme.

criminal dumbness - yeah it should be in the code when it affects everyone on this scale. First to be charged phillip lowe of our RBA but the list would be looong.

It's steered primarily by fiscal policy so even though it's not criminal ................ it should be. Criminal dumbness is a pretty good description I reckon Bara.

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Paddles B'mere said..
It's steered primarily by fiscal policy so even though it's not criminal ................ it should be. Criminal dumbness is a pretty good description I reckon Bara.

Would it not be monetary policy steering this course? Cheap and available credit does two things. Firstly it reduces the value of savings and existing money. Secondly it encourages the growth of asset bubbles as the cheap credit needs to go somewhere and as prices start rising in an asset type, in this case real estate because banks are happy to loan money to buy property, people start having a fear of missing out and start buying in by borrowing more money.

Cheap rates also reduce the value of our currency.

Mortgage interest rates are really low and have been for quite a while. There seems to be not much chance rates will rise. As long as this is the case its improbable house prices will reduce.

Hey Moby, I'm talking the fiscal policy associated with negative gearing allowing individuals to claim investment expenses against taxable income every year, instead of delaying it and making them rack up the expenses and claim them against the capital gain when they dispose of the investment. It let's more people into the real estate market sooner (it was supposed to help first home buyers) but unfortunately promotes speculation by high income earners looking to minimise their yearly tax bill and creates inflation of market values.

The effect of negative gearing diminishes as I type this. The combination of increasing rent and reduced interest rates have made many rental properties positively geared.

In Sydney at least most buyers are not investors. The high cost of real estate plus little possibility of capital gains means most buyers of residential property are owner occupiers.

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Mobydisc said..The effect of negative gearing diminishes as I type this. The combination of increasing rent and reduced interest rates have made many rental properties positively geared.

So then logically you'd agree that removing NG from established property would have little impact and should be non-controversial?

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holy guacamole said..

Mobydisc said..The effect of negative gearing diminishes as I type this. The combination of increasing rent and reduced interest rates have made many rental properties positively geared.

So then logically you'd agree that removing NG from established property would have little impact and should be non-controversial?

If the current environment continues there is little need to change the rules. However I feel this low interest rate environment cannot last. Its never been around before and one day rates will rise. When they do then people will claim losses from negative gearing.

I believe negative gearing was abolished in the 80s and it was brought back shortly afterwards.

Negative gearing has been with us for quite a while then. However high house prices have not. The main driver of high house prices is cheap and easily available credit.

^ Makes complete sense.

The thing is, it was NG that partly fuelled the major price rises in the past 20 years but we've only had low interest rates in the past five due to an economy surviving on life support, including stagnant wages. So do we keep a policy that encourages price rises but delivers little overall benefit to the economy other than increase stamp duty tax receipts (not that good hey) or ditch the policy because it's only leading to ill effects in good times?

I still see no sound economic reason for NG on established real estate. Makes sense for new development because it encourages investment, but makes no sense for established property. All it does with established property is fuel price rises when times are good, making housing far less affordable for average Australians and pitting cashed up investors against owner occupiers.

Agree to disagree perhaps?

All true Moby, in the current climate negative gearing may not have much impact but it's in the booms that it does the damage when people are motivated to reduce their tax bill by speculating on real estate and the values balloon out and household debt gets piled up to unsustainable levels for the slow times like we are experiencing now.

If income taxes were not so high perhaps taxpayers would not be seeking ways to reduce their taxable income. If one was just say paying 15 cents on the dollar tax, perhaps they could not be bothered to seek ways to reduce their taxable income.

When money is wasted chasing gold medals in Olympics, car racing, stadiums, art galleries & all this other stuff people should pay for out of their own pocket, plus wasteful spending in the name of defence, there must be a buck or two that can be saved in government spending & not taken from tax payers.

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Mobydisc said..
If income taxes were not so high perhaps taxpayers would not be seeking ways to reduce their taxable income. If one was just say paying 15 cents on the dollar tax, perhaps they could not be bothered to seek ways to reduce their taxable income.

When money is wasted chasing gold medals in Olympics, car racing, stadiums, art galleries & all this other stuff people should pay for out of their own pocket, plus wasteful spending in the name of defence, there must be a buck or two that can be saved in government spending & not taken from tax payers.

i look at all the capitol works projects using hired lighting and hired water tankers and hired this and hired that,...oh yeah, the leasing companies are cleaning up. Of course that's just one obvious example.

Macro, you need to come back to earth.

The cost of houses is the sum of material and labour cost plus outrageous building approval fees. There will be headworks contributions in a lot of cases as well.

The real increase in housing affordability is due to increasing land values.

Why don't you split your house off your farm on an acre or more, sell it and build your ultimate eco friendly home somewhere else on the farm??

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Buster fin said..

Mobydisc said..
If income taxes were not so high perhaps taxpayers would not be seeking ways to reduce their taxable income. If one was just say paying 15 cents on the dollar tax, perhaps they could not be bothered to seek ways to reduce their taxable income.

When money is wasted chasing gold medals in Olympics, car racing, stadiums, art galleries & all this other stuff people should pay for out of their own pocket, plus wasteful spending in the name of defence, there must be a buck or two that can be saved in government spending & not taken from tax payers.

i look at all the capitol works projects using hired lighting and hired water tankers and hired this and hired that,...oh yeah, the leasing companies are cleaning up. Of course that's just one obvious example.

Most probably the hire company is associated with the contractor who is associated with high level bureaucrats. Private/public partnerships tend to invariably cost a lot of money with a few people at the top walking away with a lot of money. Invariably the minister putting their signature on the project becomes a consultant or director of the company running the project, after the politician takes early retirement.

its how it roles here and then they call places like Indonesia corrupt.

If macro does subdivisions he will be required to give 66% of his land back as a green space .
In Sydney they are making my sister do this .
This is certainly a factor driving house prices up .

Actiomax, it's certainly a factor in not making as much profit, but at the end of the day you can only sell your land at the price the market is willing to pay and hope that it's well above the cost to actually develop it (which is actually a lot more than a lot of people might think)

Moby, people will always be looking for a way of reducing their tax bill no matter what they are already paying. Tax ix quite reasonable I reckon for what we get, as long as they don't waste it.

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Paddles B'mere said..
Actiomax, it's certainly a factor in not making as much profit, but at the end of the day you can only sell your land at the price the market is willing to pay and hope that it's well above the cost to actually develop it (which is actually a lot more than a lot of people might think)

Moby, people will always be looking for a way of reducing their tax bill no matter what they are already paying. Tax ix quite reasonable I reckon for what we get, as long as they don't waste it.

If an organisation has the power to effectively take unlimited amounts of money off people without the promise of anything in return, money will be wasted as we constantly see.

Waste is quite a misleading word too when it comes to money. Waste normally we think of something that is flushed down the toilet or thrown in the bin. However when it comes to money as we have with taxes, waste is better termed as it actually is, corruption.

Every time a bureaucrat or politician doles out money to some group or individual on the basis of political favour or policy, its corruption. Its also corrupting in the way we come to expect something from the State. If we don't get our handout we feel hard done by, especially if we wear a suit and have a few letters behind our name.

Unfortunately Moby, it's a necessary evil that you're going to need to get used to, it's how the system works

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cisco said..
Macro, you need to come back to earth.

The cost of houses is the sum of material and labour cost plus outrageous building approval fees. There will be headworks contributions in a lot of cases as well.

The real increase in housing affordability is due to increasing land values.

You are 100% correct.
tax and authority charges make up 35% of a new house sale price. The design and construct costs are ridiculously low. Along with the taxes, the land value is a result of available supply which in Australia is very limited. Taxes and limited land supply are the reasons our house prices are so high - it's that simple !