Just over two weeks ago a campaign was started urging first home buyers to boycott buying a house in what is considered the most expensive property market in the world. In the last 48 hours, the campaign has achieved phenomenal momentum in both mainstream media and online.
The campaign was started by Tax Reform group Prosper Australia to prevent first home buyers being caught up in what could be one of the biggest real estate collapses in the world. “When the Great Australian Land Bubble bursts – just as land bubbles all around the world have – the freshest buyers are totally exposed. They face financial ruin as house prices fall below their debt. The crippling mortgage repayments become pointless,” Prosper campaigner David Collyer warned.
“We cannot help those who have recently bought, but we can warn prospective buyers – particularly first-timers whose innocence and heavy borrowing leaves them uniquely exposed.”
The Sydney Morning Herald ran a story on the strike yesterday attracting 486 comments. Later in the afternoon, News Limited papers, other FairFax papers including The Age, and a swag of international papers were in on the beat. Today, Sunrises’ Kochie interviewed David Collyer as the campaign hit top gear.
With the market already in a down swing, this could be the knife in the back to finish the job off. Scared Real Estate agents and property investors are on the defensive saying such a campaign is irresponsible and a crash of the housing market could throw thousands into unemployment.
In the Sunrise interview Kochie said “Look the market is already slowing and coming down. Yes, we have the most expensive housing in the world, You don’t want it to crash though, do you?”. David Collyer responded with “We don’t want it to crash in particular, but we suspect it will. Its gone so high and so far, when it returns to norm, it will be quite painful, a lot of people will get very hurt.”
But what are the choices?
Kochie is quite correct. Our housing market is one of, if not, the most expensive in the world and is already starting to cool. Just today, hours after the interview on Sunrise, RPdata released statistics showing National capital city house prices fell 1.3 percent for the three months to February. Darwin is leading the falls, recording a drop of 9 percent in the three months, and 6.7 percent for the single month of February. We have record level of property listings, suggesting everyone is flocking to the exits at once. Housing finance is contracting, along with personal, commercial and lease finance and building approvals are plunging, recording a 21.8 percent fall in February for total dwellings approved.
Reality is, many first home buyers are not choosing to strike – they are forced too. As the property bubble grows faster than wages, many no longer can afford to enter the market – they are priced out. Others have already done the sums and have found it is cheaper to rent. The Economist magazine found based on house price to rent ratios, Australia has the most expensive housing in the world. The glass half fall person, will immediately understand this means we have the cheapest rents in the world, compared to house asset prices.
Banks are starting to comply with new National Consumer Credit laws seeking to achieve “responsible” lending. Under the new laws, banks just can’t give loans willy neally to consumers anymore, they have to actually make sure the consumer can afford them! (yes, I know this is radical). When announcing the bill last year, Nick Sherry, Minister for Superannuation and Corporate Law said “This is a major enhancement to our consumer protection regime and is a decade overdue”. A decade?
“Some families who can in fact maintain a reasonably sized mortgage are often saddled-up with more debt than they need and often more than they can repay. This can lead to losing everything and it just won’t be tolerated anymore. The responsible lending laws will make it illegal for a lender, known as a credit provider, to extend credit for a consumer that is unsuitable based on their needs and their financial capacity.”
It’s no wonder we have quadrupled our household debt as a percentage of household disposable income over the past 30 years, with much of the fat put on in the past decade.
But even if First Home Buyers could continue to access finance to keep the market a float, is it really sustainable long term?
It’s no coincidence that retailers and businesses around the country are going belly up. The Colorado Group is the latest causality, calling in the administrators yesterday. The group owns 434 stores Australia wide under the Colorado, Mathers, Williams, JAG and Diana Ferrari labels and employees 3,800 staff. It follows collapses of Ed Harry, Angus and Robertson, Borders etc with the Administrators of Angus and Robertson announcing the closure of another 12 stores today and the loss of another 102 staff. Retail veterans such as Myer’s Bernie Brookes has never seen the consumer so fragile over his 30 years of retailing. As housing expenses continue to outpace household income, less money is available for discretionary spending among our retailers employing 11 percent of the population and accounting for 19 percent of GDP. Quite possibly the retail and support staff losing their jobs will find it hard to service their mortgages, eventually leading to the collapse of the housing market. After all, the housing market was cooling well before the 15th when Prosper announced the campaign.
Australia’s housing bubble is not based on any fundamentals, but is (was) growing on the continued expansion of credit and immense speculation. Its not sustainable, and will collapse regardless of a strike of first home buyers. As David Collyer warns, Its gone so high and so far that when it returns to norm, it will be quite painful and a lot of people will get very hurt.
» Prosper Calls for Buyers Strike – Prosper Australia, March 15th 2011.
» First Home Buyers – Property Buyers Strike – GetUp! Petition Site .
» Don’t Buy Now! Property Buyers Strike – Facebook Page
» Online campaign targets high cost of housing – The Sydney Morning Herald, 30th March 2011.
» Beware a ‘buyers’ strike’ in property – The Sydney Morning Herald, 31st March 2011
» First home buyers ‘strike’ growing – The Adelaide Advertiser, 31st March 2011.
» First home buyers urged to go on strike – The Sydney Morning Herald, 31st March 2011
» Australian home buyers ‘strike’ over inflated house prices – The Telegraph (UK), 1st April 2011
I agree with all of this. I am nearly 30 and have chosen a child over buying a home – with the cost of living I don’t see how you can do both! I am fine with that as I don’t want a financial and stress related noose around my families neck! The problem for the market is the combined annual income of my partner and I is over 100 K and we live in Adelaide – so a market that can’t accomodate well paid first home buyers is unsustainable, let alone one that is so inequitable it can’t accomodate single income or young families.
All true and just bide your time Lyndz. Yesterday we bought a turbo oven from a main street retailer. Sticker price – $129. Dear wife mentioned she’s seen it cheaper (true). “We’ll match it” was the welcome response. “Match $59,if you can”. I was going to walk on the basis that no-one could do that deal, even on the net with no GST. “$49, how about that?”. “Hand it over, we’ll buy anything with that big a discount”. Cooks good food too and uses less power.
On the RE front, we’ll keep waiting for the bottom to fall out and thinking what to do with our cash pile. I’ve seen RE booms three times and crashes twice before, where 20% drops happen overnight but I am 55 now, so I’m getting more and more patient. We live in a motorhome and travel as it suits us, living the dream. This means we are actually counted, along with all the other caravan park residents, as part of the number quoted when pundits say there is a housing shortage. What a crock!
FHBs – be very careful, especially of Fed Gov’ts promising you help and money. A lifetime of paying a crippling mortgage is no substitute for the sort of patience that gets you a turbo oven for $49!
I’d like to see the proof of these so called job losses if Housing Prices become affordable again.
“Estate agents and property investors are on the defensive saying such a campaign is irresponsible and a crash of the housing market could throw thousands into unemployment.”
I believe that many people (read renters with savings) would rather be unemployed or under employed for a few years if it meant they could afford to buy a house.
Is it radical to believe that some people would be happier with a lower income and lower mortgage than a higher income and higher mortgage?
The Prosper and Get Up campaigns have been a great success in terms of highlighting the plight of ordinary young Australians as they try desperately to get onto the property ladder. The amount of traditional media and social media coverage has been spectacular, and there is no doubt the politicians have been watching. It’s only a matter of time before the Aussie housing bubble collapses under its own weight, and when it does we’ll see a tsunami of of empty houses flooding onto the market as the specufestors panic and fell for the exits. Too late for them of course. The days of never-ending capital growth have gone forever, and soon houses will be affordable again to decent hardworking Australian families.
Joseph
Aussie Property Crash Forum
Hi Rod – seems you too are another “Grey Nomad” ! The Wife and I are in the same boat, so to speak, however we continue to work on a part-time basis as Relief Pharmacists. Don’t miss the “fixed” lifestyle at all, and with a decent RV (Hino Rainbow A Class conversion) we’ve got everything we need, to live and work from “home” for extended periods. Whereabouts are you right now? We’re halfway between Port Augusta and Warrnambool (heading west). Keeping a listening watch on UHF 18.
All the best, and hope you are enjoying the ability to have a different view from the bedroom windows whenever you feel like it!!
P & T S
G’day Phil. We’re currently NSW Far Sth coast, heading to Vic soon and then NSW if winter gets too cold. We went to WA last year but didn’t linger in Port Augusta, you’ll see why when you get there. SA Nullarbor coast drive is great in a bus as you see more of the view sitting up high.
Can’t work out why more people aren’t living like this. We sold up in May last year and bought a 36 ft motorhome, towing a Sierra on an A frame. Interest earnings are paying for our trip and as long as we’re right about RE going down, we won’t be looking back.
Don’t overlook the underpinning influence of population growth within this situation. It is the purposeful and exponential ramping up of demand, for both housing and for mortgage credit, via population growth that fundamentally drives up prices. This driver has to be genuinely and effectively addressed as a keystone part of any solution.
Greg – population growth does not matter when first home buyers cannot enter the market. That is how a ponzi scheme fails. When people stop entering the scheme. Good luck with your prediction. I would sell up if I were you.
“Scared Real Estate agents and property investors are on the defensive saying… a crash of the housing market could throw thousands into unemployment.”
That’s because if collateral values fall (while the debts against them don’t fall), you get a credit crunch whose effects extend to the wider economy.
But meeting the demands of the strikers (whether the strike is voluntary or not) requires prices to fall RELATIVE TO THEIR SPENDING POWER. That doesn’t mean prices have to fall in nominal terms, or by comparison with debt. A permanent increase in spending power is enough.
For example, if State governments abolish purchaser stamp duty (and preferably payroll tax as well), spending power (in terms of capacity to service loans) increases. And if State governments make up the revenue by imposing a vendor stamp duty on capital gains, they don’t take away the increase in spending power of first-time buyers, but *do* reduce the advantage of repeat buyers over first-time buyers, and *do* tend to prevent the re-inflation of a speculative bubble (because capital gains become less attractive relative to current income).
Such a reform could arrest the unfolding market crash while suppressing new bubbles that would lead to future crashes.
How can the States be forced to act in this way? By a STAMP-DUTY STRIKE: http://is.gd/psd_strike .