Understanding the high dollar and rising house prices

The Australian ran an above-the-fold front page story today on Pitch to foreigners locks out locals before ‘for sale’ sign goes up. It is a pretty disturbing story, specially when it goes with this one on Our housing costs are out of whack, says IMF and this one, IMF warns over Australian house prices. Let me start with the last one:

HOUSING is less affordable in Australia than in any other country except Belgium, the International Monetary Fund says, warning that rising prices might point to an unsustainable boom.

The IMF is stepping up its analysis of housing markets around the world, having concluded that property booms and busts were implicated in two-thirds of the past 50 banking crises. “The era of benign neglect of housing booms is over,” deputy managing director Min Zhu said.

House prices, rents and incomes should, in theory, all move in tandem.

On this basis, the Australian real estate market is one of the most exposed in the world.

Let’s see if we can work out what’s happening in the property market. Back to that first story about locking out locals:

AUSTRALIAN real estate is being marketed and sold exclusively to foreign investors — including Chinese millionaires — with local buyers not even aware the properties in question are up for sale.

More than 100 real estate firms have sprung up in mainland China, exclusively selling Australian real estate — both fixed and off-the-plan — directly to wealthy Chinese investors, bypassing Australian buyers.

At the upper end of the fixed-home market, prestige Sydney property agency Simeon Manners — which says it has sold more than $100 million of Sydney property to “China’s most astute buyers and investors” — operates a sales site that cannot be accessed from within Australia.

Director Mark Manners said many of the listings on the site — sydneyluxuryproperty.com — could only be accessed from a foreign IP address and were private or off-market listings placed on behalf of owners who wanted a discreet sale to a foreign purchaser.

Even those geniuses at the IMF should be able to work out from this why Australian property prices are so high and perhaps also why the dollar is so high. Our locals are being driven out by money that is flowing into Australian property from overseas. I had a student in my class this year – it’s a graduate class so he was not young young but in his early twenties. And he was telling us about his experience in trying to arrange a loan for more than a million to buy a house. If you are trying to compete for houses with Chinese millionaires trying to park their American dollars, you will have your problems.

This is a genuine issue and it genuinely needs attention. Especially when you combine it with this from The Age a couple of days ago, Melbourne’s tiny flats would be illegal in other cities:

Melbourne is becoming a city of “super-dense” towers, packed with tiny apartments that would be banned in Hong Kong, New York and London.

A scathing report from Melbourne City Council shows some of the city’s newest developments are up to 10 times as dense as permitted by law in some of the world’s most urbanised centres.

Sydney, London and Adelaide all have rules that ban new one-bedroom apartments smaller than 50 square metres. But in Melbourne, 40 per cent of the city’s newest apartments are smaller than this.
The boom in shrinking homes is being driven by a market that satisfies the needs of overseas investors at the expense of residents, according to the Melbourne City Council’s draft housing strategy.

The report warns Victoria’s capital “is in danger of leaving a lasting legacy of poor-quality housing”, because of a lack of enforceable density or height controls.

Bang ’em up and put ’em out, specially since no one cares. They are buying off the plan, sight unseen. This lasting legacy of such poor quality housing is a catastrophe. The trouble with so many in politics is they think all investment is to the good. Their ignorance of what makes a great city great is going to leave this country with a legacy of very poor quality but high priced housing that will remain a blight for decades to come.