Australia's housing bubble is built on a deadly, about-to-burst credit bubble


#1

Originally published at: https://boingboing.net/2017/09/09/bubblelicious.html


#2

Coming soon to any major metropolitan area near you. Your house is not a piggy bank…


#3

:pray: Come on N’york!


#4

Some illustrative reads:


#5

Deadly? Really?


#6

And Vancouver.


#7

Not the same scenario; you can’t leverage your existing Vancouver property in the same way because the Canadian banks are more cautious. Not necessarily more ethical, just more cautious. There’s also a lot more foreign cash in BC instead of local speculators trying to flip properties.


#8

You might have a point. The Vancouver market doesn’t measure as very “affordable” in terms of ratio to declared income, but there is lots of “grey” money propping up the market. Unless this goes away (no signs of that), the bubble will likely continue. And you’re right, Canadian banks are quite conservative with respect to residential mortgages.


#9

making things worse is Aus tax code you can write off the difference between your rental income and your mortgage cost so buying these “backwards” investment-rentals IS rewarded at tax time


#10

Full stop. We’re a millionaire family if you lump our savings, retirement investments, business assets and in particular, real estate equity together. Real estate alone counts for well over 80% of our net worth, and we’re barely a middle class family. There’s a huge amount of offshore money that’s poured into Vancouver in particular over the last 25-30 years. A townhouse we bought just East of Vancouver in 1990 is now worth 5-1/2 times what we paid for it. Property values in Vancouver have climbed at the same rate.
We have more exotic cars in the Lower Mainland than any other metropolitan area on the continent, including L.A. and New York. This is the only place I’ve ever seen a 4-story Ferrari dealership. It’s alongside McLaren, Jaguar, Porsche, Lamborghini, Land Rover, Bentley and other dealerships, and all just outside the downtown core. There’s so much big money here that people are only irritated at the noise a V-12 makes and don’t notice what the car is.


#11

The minimum deposit required to buy our current house here in Vancouver was more than the total purchase price combined of the other three properties I’d purchased over the course of my lifetime.


#12

I have been looking for an investment property in inner Melbourne and the return is actually pretty good on a one or two bedroom flat. 5% is easily doable, so rent is paying for the mortgage.

I first started looking to buy in the early 1990s and for me affordability hasn’t changed much. Interest rates are much lower now and the total cost of interest is determined by the non-linear compound interest equation. Thats why house prices are so high, because the money was available to spend on them.

Our banks are eager to lend because there is so much money around, and a reason for that is our reliance on savings based superannuation rather than government funded pensions. The money has to be stored somewhere and you can only build so many empty inner city sky scrapers.


#13

Yes, it’s most likely the foreign cash. It’s hard to get actual numbers, but anecdotally I hear from realtors (who are always trying to get us to sell our house, so they may not be completely telling the truth), many of the upper and mid-upper houses are bought all in cash. Sometimes the actual buyer never sees the place and sends a representative instead.

Most of the property flyers we see around town are in Chinese, sometimes there is an English translation, but often now.


#14

Some good friends of mine lived in Australia for 10 years. Before they left about 2 years ago, they purchased an investment property outside of Brisbane. They’re regretting it now and having a hard time selling it for what they bought it for.


#15

This does have the benefit that owners can better afford to rent out their properties for less than they’re paying to own them.


#16

I bought my place in Brunswick in 2000. When I picked up the keys a woman was waiting to buy a house. The real estate agent told her that it was legally impossible to sell her a house on the spot. He had to take her out to see it first. It didn’t matter that she was about to get on a plane to Singapore. Rules are rules.


#17

I have zero issue with whether or not buyers are foreign. But vacant properties are a deadweight loss, and make things worse for everybody. I’d propose a massive increase (3X) in property tax on properties that are NOT a principal place of residence, and make the extra tax directly creditable against income tax. So, if you have no rental income (that you declare), or make no Canadian taxable income (that you declare), you just have to eat the extra property tax. For the rest of us; we either pay enough Canadian tax to get the credit and it nets-off, and/or we live in the house (e.g. asset rich, income poor retirees) and don’t attract the surcharge in the first place. It therefore makes no real difference to those who legitimately own housing, but would perhaps incentivise some non tax-paying people to at least put tenants in their investment properties. Any additional tax collected to could be used to fund affordable housing.


#18

I agree with you about it not mattering whether or not the buyers are foreign and the important part is a vacant house (there are plenty of those around me). Vancouver has recently added an empty homes tax. There was some initial change in prices when it was first introduced. But, now it seems like prices are on the rise again.


#19

Its hard being an absentee investor. Your agent can rip you off for repairs and improvements and you have no option but to use them.


#20

Thanks. That’s pretty much what I was proposing. It’s about the same level as what I would suggest, too. The initial effect that I would expect would be on rental prices, rather than directly on home prices.