I agree AUS1111, I too reckon that rental demand controls the house pricing for some areas/markets. In particular entry level family housing.

Select to expand quote

AUS1111 said..

FormulaNova said..
Why are rents so expensive? Because houses are expensive. Why are basic jobs so well paid? Because rents and housing is so expensive? Why is food expensive?

I think you'd struggle to prove a causative correlation that rents are expensive because houses are expensive. I'd suggest rents are determined by the laws of supply and demand, and rents themselves are a factor (not the only factor) feeding into house prices. More so than the reverse anyway.

There is some circularity here of course.

Yes, I agree, supply and demand is the ultimate factor, but to my mind housing is more elastic than you might assume. People can share with others, or they can live by themselves.

I think we are in a period where everyone wants to have their own place, but in times past people were happy to share if the cost of rent or mortgages were excessive. This clamouring for rental properties that we saw in Sydney a few years ago suggests that there was demand, and people were looking for their own places.

What I have noticed in the past is the default action by landlords to increase the rent every year. I think this is to recover any losses that they feel they have incurred, but of course this is meaningless if they can't get a tenant.

If you bought a $700K house or apartment, over the long term would you be keen on renting out for less than what it cost you? Unlikely, so you don't buy the house or apartment, and supply falls as everyone thinks the same. If the same house or apartment was $350K, you of course don't need the same rent.

Would you agree that if you were getting half of your mortgage payment in rent that there would be a drop in new supply of housing? Of course. Based on past history I think we need to rule out optimistic speculation though as people seemed to have ignored the fundamentals.

You're right FN, that's called "substitution". "Elasticity" is where the quantity demanded changes with price. "Substitution" is where someone will settle for Kirks lemonade if Coca Cola gets too expensive and therefore the demand for Coca Cola drops. It's a complex, interconnected, economic web like AUS1111 has indicated with his comment of "circularity". High property values mean high repayments for the owner which translate into high rents. Low rental demand in an area will reduce the rent price the market is willing to pay and this will in turn drop investor demand and property prices.

If the housing market softens massively and the costs of housing fall by a lot, I'm interested to see what the effect will be of all these first home buyers and tenants having extra money to spend. Will a reduction in property prices cause an increase in consumer spending?

Select to expand quote

AUS1111 said..

eppo said..
Most of you have little clue how the real economy works.

All hail the oracle

I can't take credit for the cyclic and predictive motions of property due to the enclosure of economic rent. So I'm no oracle.

Rental demand.... ffs look a root cause not the effects. Clutching at straws trying to understand these things through the lens of broken and wrong economic models. Classic.


all the phds in the world didn't see the last GFC coming. Why? Because their models are wrong.

Land is NOT capital.

Select to expand quote

AUS1111 said..

eppo said..
Most of you have little clue how the real economy works.

All hail the oracle

"Those who cannot learn from history are doomed to repeat it."

Eppo has never claimed to be an Oracle. What he has done is read Phillip J Andersen's book " The Secret Life Of Real Estate And Banking" and tried for quite a long time now to impart the information contained therein to the people on this forum.

I've read it and would be willing to bet that he is right.

Ricardo's law of rent:

Select to expand quote

Paddles B'mere said..
You're right FN, that's called "substitution". "Elasticity" is where the quantity demanded changes with price. "Substitution" is where someone will settle for Kirks lemonade if Coca Cola gets too expensive and therefore the demand for Coca Cola drops. It's a complex, interconnected, economic web like AUS1111 has indicated with his comment of "circularity". High property values mean high repayments for the owner which translate into high rents. Low rental demand in an area will reduce the rent price the market is willing to pay and this will in turn drop investor demand and property prices.

If the housing market softens massively and the costs of housing fall by a lot, I'm interested to see what the effect will be of all these first home buyers and tenants having extra money to spend. Will a reduction in property prices cause an increase in consumer spending?

Are you sure that is substitution? I don't agree. I would see replacing houses with apartments or vice versa as substitution, but in my suggestion, if people move in with others to a share household, then its demand drying up.

I guess this time around the softening of the market could be different, but in the past investors will hang on if they can and hope to ride it out. I don't think that a softening market is going to leave the rest of the economy untouched. Consumer confidence will fall as they know of someone that has lost a lot in property, and people start to get a bit more cautious and discretionary spending falls.

I've said this before, but I hope in a strange way that we keep a Coalition government. They seem to be hopeless, but my current theory is that small business owners get twitchy when Labour is in power and it leads to less investment and then a slowdown. I would rather everyone think its raining tax cuts for businesses than the economy slow down.

Select to expand quote

eppo said..
Land is NOT capital.

Land has been capital for thousands of years.

Select to expand quote

FormulaNova said..

Paddles B'mere said..
You're right FN, that's called "substitution". "Elasticity" is where the quantity demanded changes with price. "Substitution" is where someone will settle for Kirks lemonade if Coca Cola gets too expensive and therefore the demand for Coca Cola drops. It's a complex, interconnected, economic web like AUS1111 has indicated with his comment of "circularity". High property values mean high repayments for the owner which translate into high rents. Low rental demand in an area will reduce the rent price the market is willing to pay and this will in turn drop investor demand and property prices.

If the housing market softens massively and the costs of housing fall by a lot, I'm interested to see what the effect will be of all these first home buyers and tenants having extra money to spend. Will a reduction in property prices cause an increase in consumer spending?

Are you sure that is substitution? I don't agree. I would see replacing houses with apartments or vice versa as substitution, but in my suggestion, if people move in with others to a share household, then its demand drying up.

I guess this time around the softening of the market could be different, but in the past investors will hang on if they can and hope to ride it out. I don't think that a softening market is going to leave the rest of the economy untouched. Consumer confidence will fall as they know of someone that has lost a lot in property, and people start to get a bit more cautious and discretionary spending falls.

I've said this before, but I hope in a strange way that we keep a Coalition government. They seem to be hopeless, but my current theory is that small business owners get twitchy when Labour is in power and it leads to less investment and then a slowdown. I would rather everyone think its raining tax cuts for businesses than the economy slow down.

Bit of a myth that the coalition is for small business , it was the Liberals who gave us GST and its small business that has to be an unpaid tax collector for the government and the paper work they created is in conflict with the less red tape model they go on about , consumer spending makes up 60 percent of the economy , however disposable income is falling due to housing costs and general cost of living coupled with stagnant wages , I wouldnt call the coalition small business friendly in my opinion .

^ Sure, but they say they are for small business, and they wear suits and ties all the time, and the ties are blue, so they must be about business, and everyone knows a country should be run like a business, and smart people run businesses, so they are smart, and therefore if I am smart I will vote for them.

Select to expand quote

evlPanda said..

eppo said..
Land is NOT capital.

Land has been capital for thousands of years.

Capital can be construed in many ways.
From an accounting view Capital is the balance left after deducting the Liabilities from the assets whereas in simple terms working capital is the excess after deducting the current liabilities from the current assets.
Land can be classed as a fixed asset or current asset depending when you plan to sell it. HOWEVER economists use the word in the context to suit their argument . So don't use the word Capital .

Select to expand quote

evlPanda said..
^ Sure, but they say they are for small business, and they wear suits and ties all the time, and the ties are blue, so they must be about business, and everyone knows a country should be run like a business, and smart people run businesses, so they are smart, and therefore if I am smart I will vote for them.

Is that why they have this "big stick" they're about to wield against the power companies - because their about business?

Ahh, I see...

I found this interesting reading today.

www.abc.net.au/news/2018-12-10/how-hard-has-australias-property-downturn-hit-your-suburb/10588960

^ LOLz. I'm still in the +20% Sydney suburb. I must have expensive taste.
...shame I'm renting

It's all very gloom and doom, if you look at only the last 12 months. Anyone that bought even just five years ago will likely be able to take a 50% drop, and still be "even-stevens". The vast majority of home owners are in this category; bought five or more years ago.

(A bit like the recent bitcoin "crash" to only three-****ing-thousand dollars, up 300% the last 2 years)

There will be any number of investors being forced to move from interest-only to principle-and-interest mortgages over the next couple of years. That will certainly reduce pressure on prices.

Real estate values are driven by supply and demand whether renting or buying.
Too many factors to mention drive supply and same with demand. Volatility in either certainly reverberate through the economy.

Confidence, cost to build or own and government zoning (land releases) are the 3 big ones Ive noticed over the last 30 years in the industry...

Select to expand quote

evlPanda said..
^ LOLz. I'm still in the +20% Sydney suburb. I must have expensive taste.
...shame I'm renting

It's all very gloom and doom, if you look at only the last 12 months. Anyone that bought even just five years ago will likely be able to take a 50% drop, and still be "even-stevens". The vast majority of home owners are in this category; bought five or more years ago.

(A bit like the recent bitcoin "crash" to only three-****ing-thousand dollars, up 300% the last 2 years)

There will be any number of investors being forced to move from interest-only to principle-and-interest mortgages over the next couple of years. That will certainly reduce pressure on prices.

Yep. If you're reading HW though, you'd be forgiven for thinking a 50% drop would be the end of the earth.

Snowflakes in the spring......

Select to expand quote

Main said..
Real estate values are driven by supply and demand whether renting or buying.
Too many factors to mention drive supply and same with demand. Volatility in either certainly reverberate through the economy.

I'd disagree with that, I think you'll find more of a correlation between availability to credit and house prices. As for rent I guess there's a bit of supply and demand price correlation but in the end it's really going to be wages that determine rent.

Select to expand quote

Krusty said..

Main said..
Real estate values are driven by supply and demand whether renting or buying.
Too many factors to mention drive supply and same with demand. Volatility in either certainly reverberate through the economy.

I'd disagree with that, I think you'll find more of a correlation between availability to credit and house prices. As for rent I guess there's a bit of supply and demand price correlation but in the end it's really going to be wages that determine rent.

Higher availability of credit = higher "demand". So yes... you can still argue it's all related to supply and demand.

Select to expand quote

Krusty said..

Main said..
Real estate values are driven by supply and demand whether renting or buying.
Too many factors to mention drive supply and same with demand. Volatility in either certainly reverberate through the economy.

I'd disagree with that, I think you'll find more of a correlation between availability to credit and house prices. As for rent I guess there's a bit of supply and demand price correlation but in the end it's really going to be wages that determine rent.

Credit is one of many factors that drive demand. It can also impact supply!

In Brisbane, we've seen a credit squeeze on purchasers (demand) first and then a credit squeeze on developers (supply) 6 months later resulting in apartments dropping in value and then holding there value. This was after all the experts were predicting a massive oversupply and subsequent crashing of the apartment market - which didn't happen.

Select to expand quote

evlPanda said.....Anyone that bought even just five years ago will likely be able to take a 50% drop, and still be "even-stevens". The vast majority of home owners are in this category; bought five or more years ago.

Check out the hysteria in HW in the ScoMo topic. Some claiming it would be a "catastrophe". LOL

Yeah, nah.....this, is a catastrophe!

Select to expand quote

Main said..



Credit is one of many factors that drive demand. It can also impact supply!

I think you've just said that credit is "The" major factor in demand, leverage yourself up to take increased profits, all great in a rising market.

Housing is just Ponzi scheme, buying somewhere with the hopes that when you sell someone will take on a bigger debt than you did, so you can take your profit. This all stops when people can't take on increasing debt due to economic circumstances. It's not a simple supply and demand situation, we are in bubble.

Im calling 20% median value drop in Sydney this time next year. I really can't see anything else happening, but maybe a dead cat bounce? Or maybe some crazy government policy, $100,000 first home buyers grant? Who knows?

^^100%. It's far, far from simply a supply and demand situation.

Australia's income to housing debt ratio is so much higher than the OECD average it's beyond ridiculous.

In Sydney and Melbourne it's now a massive bubble that requires serious correction.

Here's more hysterical nonsense about Labor's NG policy. Of course sane observers without a vested interest acknowledge the policy fully grandfathers existing owners and only affects new buyers purchasing existing stock, but it won't stop propagandists like Symonds from spouting rubbish about economic recession.

Expect a hysterical fear campaign from the usual suspects...

\\www.abc.net.au/news/2018-12-12/housing-industry-insiders-issue-negative-gearing-warning/10602484?section=business

Does the negative gearing controversy arise because housing has a "public good" component? Presumably no-one has an issue with deducting costs from any other form of investment.

Yes I understand the argument for restricting NG in future purchases to new properties is to cool off the rampant speculation on ever increasing property prices for rental portfolio owners and to slowly, over time, inject some balance back into the market in favour of everyday home owners. The policy is calibrated quite astutely I think to take effect over a long period of time.

All as a form of social responsibility - yes.

But also as an incentive to invest in new property rather than established property - which has no net benefit to anyone or the economy at large other than individual landlords.

But let's be honest, these proposals will not create an economy-wide recession as Symonds and others are claiming.

That's hysterical.

Brisbane/Goldie 21% clearance and a typical week. 2012 was the last time I remember low 20s

Does anyone know what the price "adjustment" for US housing prices was that occurred during and after the GFC ie 2007-2010 ish ??????

I believe panic is now setting in...

APRA to remove cap on interest only loans: www.abc.net.au/news/2018-12-19/apra-to-remove-interest-only-benchmark-for-residential-mortgage/10633748

RBA imploring banks to lend more: www.businessinsider.com.au/rba-philip-lowe-bank-credit-crunch-risk-royal-commission-2018-12

Labor are already capitulating with their negative gearing policy, delaying it one year (they'll probably just delay it indefinitely if things continue downwards): www.afr.com/politics/oneyear-delay-to-labors-negative-gearing-changes-20181205-h18qla


The banks have been pulling back lending to stay within the law (and generally be a bit more ethical). APRA and RBA seem to be saying "nope... go back to unethical / illegal lending standards". There are some who say the bubble was popped 6-9 months ago. What do you think now?

Wasn't the "cap" imposed by APRA as being up to 30% of all mortgages can be interest only and the actual quantity is 16% at the moment. Interest only is at a higher interest rate than interest/principal to pay for the increased risk/liability of the lender.

Select to expand quote

Paddles B'mere said..
Wasn't the "cap" imposed by APRA as being up to 30% of all mortgages can be interest only and the actual quantity is 16% at the moment. Interest only is at a higher interest rate than interest/principal to pay for the increased risk/liability of the lender.

Yes, you are correct. It will make no difference at this stage. I guess we all see what our own internal bias tells us... and mine says "panic underway".

Select to expand quote

Adriano said..


But also as an incentive to invest in new property rather than established property - which has no net benefit to anyone or the economy at large other than individual landlords.

No one will know the true impact of this policy until or if it is imposed.

One thing you are forgetting is that a significant number of small business owners (which make up and in turn employ a large portion of Australian workers) leverage and often run their businesses off the equity in their principal places of residence.

if there is a fall in the value of peoples homes this will in turn impact peoples LVR positions on funding their small businesses. this will have far reaching side effects

The best thing a government can do is do nothing. But they won't. Too many have vested interests in land prices and the speculation of capitalised economic rent.

All gains will be taken by the land. and if you allow these economic rent gains to be capitalised and then traded you get the boom and bust cycles. Easy.

Land has only been considered capital in economic terms recently (last 60 years or so) before there was land, labour AND capital. Then they cleverly put land into the capital bracket and really put a sky rocket under the land game.

Alas as some of you need to read history more.

Ever wondered why the gap between the rich and the poor has increased.

Anyhow read some more get back to me. I can only try ....