Bubble

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The debate over Sydney’s property price bubble (Yes there is! No there isn’t!) sits smack bang in the middle of one of the most fascinating economic questions of our time: how risky is sudden asset price inflation?
And if the risk is judged to be high what, if anything, are policymakers to do about it?
In the 24/7 world of US and European bond markets, traders’ Bloomberg screens have bleated dire warnings since bond yields went negative last year for the first time in modern economic history. In China, speculators watch equity markets in Shanghai and Shenzhen that have risen more than 150% in the past 12 months. And in Australia, Australian_property_bubble is its own Wikipedia page.
As my former boss Saul Eslake pointed out last week in the Sydney Morning Herald, to use the term bubble in relation to asset prices is “emotionally laden”. It has no definition in the academic literature, other than a generalised notion of a sudden and upward acceleration in asset price movements that poses the risk of a violent crash.
Alan Greenspan’s famous term “irrational exuberance,” was another expression of emotion. Bubbles – the endgame of a bull market – are not as well defined as a bear market, which generally refers to a 20% or more fall in equity prices, or an economic recession, which is two consecutive quarters of negative GDP growth.
What is a bubble and other tricky definitions
One of the big challenges in defining a bubble is in establishing its start. Sydney property prices are a case in point. In 2014, the ABS residential property price index for Sydney indicated a 14.7% rise for the year. That’s strong growth, and was at least double the rate of growth seen in other capital cities. But extend the starting point back five years, and Sydney’s property prices have increased by 39%, roughly on par with Canberra (36%) and Melbourne (35%). Go back 10 years, and Sydney’s property price growth of 57% is significantly less than the national weighted average of (85%) and less than half that of Darwin (168%) and Perth (133%), or even Melbourne (113%).
So are Sydney property prices in bubble territory, or are they just catching up after a period of flat-to-negative growth in the early 2000s? What of other factors such as the underlying dynamics of supply and demand, housing density, urban planning and land value?
When policymakers are staring in the face a potential bubble, their real concern is the underlying drivers of that sudden, rapid surge. Is the bubble a symptom of systemic risk?
Growth in credit and foreign investors
In Sydney’s case, two potential systemic risks merit scrutiny. The first is the very rapid growth in credit being used for property investment; that is, the expansion of leverage. The second is increasing foreign investment that is reportedly flowing into the Sydney property market, purportedly from China.
These are, however, two very different risk stories. Of the two, leverage is far more pernicious. Excessive household leverage in particular walks down a well-worn path toward financial instability - as the global financial crisis amply reminded us - where it can take years for families to repair their balance sheets after a hit. “Buyer beware” is a theoretically correct construct, but not a particularly practical one should a government have to face down armies of homeowners sinking under negative equity.
Rising capital inflows hold much less risk, particularly in an Australian context. A sufficient magnitude of outflows would dampen market prices, potentially cause the Australian dollar to weaken somewhat and ultimately require some current account adjustment. One could argue that this outcome may be an upside risk for growth, not a downside one.
Reserve Bank of Australia governor Glenn Stevens’ comments last week in Brisbane make it clear that his focus is square on the risk of leverage. He notes pointedly that Australian households already have a high debt burden taken on in the years leading up to the 2008 financial crisis; the point of the speech was a plea was for government to shoulder the burden by getting on with a boost in useful (non-mining) infrastructure investment while cheap finance is so plentiful.
Macroprudential actions
Should Stevens’ concerns on household indebtedness move from words to action, the policy response would be to temper leverage. The most targeted and effective approach is to make borrowing more expensive through more stringent customer debt-to-income tests.
The RBA and Australian Prudential Regulation Authority (APRA) could also reduce the allowable maximum loan-to-valuation ratios (LVRs) thereby requiring higher deposits – following the example of the Reserve Bank of New Zealand – or, in a nod to recommendations in the Financial Services Inquiry, increase the Big Four banks’ risk weights on capital held against mortgage loans.
These types of measures are often called “macroprudential”– that is, regulations applied to maintain financial system stability by directly addressing perceived underlying risks. Macroprudential regulation is a term that has come back into vogue in the post-GFC world. In reality, the concepts are not new.
As Luci Ellis and Paul Woolley pointed out in an RBA paper back in 2012, a macroprudential policy stance is more a state of mind around monitoring and acting on systemic risks rather than a specific set of policy measures or tools.
Lower stamp duties, increase capital gains tax?
A second course of action would be for the federal or state government to shift market dynamics through tax incentives. Lowering stamp duties would reduce transactions costs, potentially freeing up more supply in the existing housing stock. So could shifting the pension asset test to increase the incentive to downsize from the family home once it is no longer needed. Introducing greater capital gains tax on properties sold within a short period or reducing the benefits of negative gearing would go a long way toward discouraging investor-driven acquisitions, while imposing new levies on purchases by non-residents could dampen capital inflows.
The problem with changing property-related tax policies for residents is twofold; not everyone will be happy, and the need for gradual introduction to allow for adjustment means impacts may be slow. An additional issue with trying to limit property purchases by non-residents through tax is that its target is a great unknown.
Hong Kong’s failure to deflate
As will be discussed in depth in a paper released by the Australian Centre for Financial Studies and Finsia this week, there continues to be a remarkable lack of comprehensive and reliable data on both the source and ultimate destination of foreign investment into Australia, and particularly into the residential and commercial property market. With such thin evidence as to both the total size and the source of these anecdotal flows, policymakers are shooting in the dark.
Beyond this, it cannot be guaranteed that raising borrowing costs and shifting tax incentives would deflate a perceived property bubble. Hong Kong and Singapore have both tried it, and arguably failed. In 2010, Hong Kong moved to simultaneously require a significant increase in deposits for investment properties while also adopting additional stamp duties on investment properties, with higher penalties for non-resident investors. Singapore followed suit in 2013.
The impact on Hong Kong has been negligible. Despite concerns of market disruption in 2010, property prices continued to climb and hit an all-time high last year. Singapore did see its property prices flatten in 2013, then fall by 4% in 2014.
However, there has also been a significant decline in the volume of both existing and new home sales according to the Urban Redevelopment Authority, suggesting that these measures may not have had the desired impact of increasing housing affordability or supply. And although prices have not increased, they remain high relative to Singapore household income.
Crazy indeed.
Amy Auster is Deputy Director at the Australian Centre for Financial Studies. She can be contacted <a href="https://www.australiancentre.com.au/AboutUs/Staff/AmyAuster" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

Blowing bubbles: the tricky task of tackling Sydney's property market 

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The Satterley Property Group has seen no indication of softening demand or an impending price correction in its Victorian operations.
Jack Hoffmann, general manager of Satterley Property Group Victoria, noted the land market and the established market "were two very different beasts.” 
“We’re hearing all this talk of ‘is there or isn’t there a bubble?’ and that the established housing market, particularly the inner city apartment market, is in serious trouble.
"But this simply isn’t the case for the land market.”
 Satterley lay claim to around eight per cent of the Victorian land market with its portfolio having included Coburg Hill, Plenty River, Riverstone and Tarneit.
“The median land price grew by four per cent last year, which hardly indicates that we have entered a bubble.”
“While any price correction would inevitably have an effect on the entire market we expect that the land market, barring any unforeseeable event, would be largely sheltered from any significant impact,” Jack Hoffmann said.
He identified a consistent level of supply as a key factor keeping the land market from approaching bubble-like conditions.
“The reason that the land market has grown at a more sustainable rate than the established market is supply.
"The state government has done a good job of approving enough land for development, which is now readily developable, to satisfy demand.
“As a result you currently have around 170 active land developments in Victoria, compared to around 90 in 2010,” Mr Hoffmann added.
In 2013 Satterley Property Group announced plans to secure 10 per cent of the Melbourne residential new house and land market, with its successful bid for Victorian Government-owned land at Point Cook.
The company said in 2013 it believed the house and land package market in Melbourne was then close to the bottom of the cycle.
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No bubble with Melbourne house and land: Satterley

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GUEST OBSERVER
Following the end of the mining boom, Australia’s growth has been rebalancing towards housing and the services sectors. The first part of the rebalancing act involved a significant rise in housing prices and housing construction. 
Housing prices have risen by 30 percent since mid-2012, led by Sydney and Melbourne. Most of the rampup in building has been apartments in the major cities. 
The housing market is now cooling, as a result of tighter prudential settings and the boost to housing supply.
<a href="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.43.29%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.43.29%20AM.png" alt=""> 
Although the housing upswing has been a necessary part of the rebalancing act, it also drove a rise in household debt. The household debt-to-income ratio has risen from 167 percent in 2011 to 186 percent in 2015. Australian household debt levels are among the highest in the world. However, high household debt is not, in itself, a problem, as long as the debt is held by households that can service it. In Australia, the distribution is fairly favourable, with high income earners holding most of the debt.
Institutional features also matter. In Australia’s case, all mortgages are full recourse, significantly reducing the incentive to default. Australia does not have sub-prime mortgages. Australian households also use their mortgage to save, given the tax benefits available for doing so. This has meant that the average mortgage is currently more than 2.5 years pre-paid, leaving households with a significant equity buffer to draw down, if needed. The prudential regulator has also been tightening lending standards over the past 18 months, particularly for investors, reducing the risks involved with the new lending. Loan-to-valuation ratios on new loans have fallen.
We expect housing price growth to remain subdued in coming quarters. We see some risk that apartment prices could fall, given signs of over-supply of apartments, particularly in Melbourne and Brisbane. However, we view these apartment markets as somewhat segmented from the detached housing market. Significant foreign investment in new apartments also limits domestic financial system exposure.
Overall, we see mortgage debt as generally well distributed to households that can  afford to continue to service it and see the financial stability risks as moderate.
Australia’s housing market is cooling 
National housing prices have been broadly steady over the past six months, following strong growth over recent years (Chart 1). 
The slowdown has been most vivid in Sydney and Melbourne, where housing prices have been flat since October, following annual average growth of 10 percent and 6 percent over the previous four years (Chart 2). Housing price growth has been much more modest in the rest of the country at around 3 percent a year over the same period.
Apartment prices have generally risen by less than detached housing prices in recent years, and are slowing down by more than detached housing prices in some of the major markets.
The slowdown reflects a range of factors, including tighter prudential settings, particularly for investors, and rising housing supply. We expect these factors to continue to constrain housing price growth in coming quarters and forecast that national housing price growth will run at low single-digit rates this year and into 2017, following growth of around 10% in 2015 (see Downunder Digest: Australia’s housing market cools, 11 December 2015).
<a href="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.45.21%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.45.21%20AM.png" alt="">
Household debt has risen, but it’s the distribution that matters
The housing price boom has led to rising household debt. The household debt-to-income ratio has increased from 167% in 2011 to 186% in 2015, mostly led by a pick-up in lending to investors (Chart 3 and 4). This makes Australian household debt levels amongst the highest in the developed world (Chart 5). Of course, given the rise in housing prices, the household debt-to-asset ratio has been more subdued: it has actually fallen from 24% in 2011 to 22% in 2015.
<a href="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.46.38%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.46.38%20AM.png" alt="">
High household debt levels can make an economy more vulnerable in the face of a shock.
However, it is unusual for the high debt levels, in themselves, to be the driver of a downturn. The US sub-prime crisis was a rare example of this situation. Importantly though, even in the US, it was not the level of aggregate debt that mattered most, but the distribution of debt. In Australia’s case, most of the debt is held by higher income households. Numbers for 2010 showed that, at that time, around 72% of the household debt was held by the top 40% of income earners (Chart 6). Less than 4% of the debt attributed to the lowest 20% of earners.
Australia’s financial system also has institutional features that help to reduce the risk that household debt could become concerning. For a start, all mortgages are full recourse.
Australia’s tax system also favours paying down mortgages ahead of schedule as interest payments and expenses on owner-occupied properties are not tax-deductible. 
The latest numbers suggest that the average mortgage in Australia is currently over 2.5 years pre-paid, leaving households with a significant buffer in the face of the risk of rising unemployment.
Lending standards were tightened as investor borrowing rose
Despite these factors, the strong rise in lending to housing investors through 2013-15 raised concerns that the new lending could increase the risk to the overall mortgage book. Concerns increased partly because the ramp-up in debt was quite geographically concentrated in New South Wales and, to a lesser degree, Victoria, and because the strong investor interest was helping to fuel double-digit housing price growth in these markets (Chart 7).
<a href="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.48.14%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.48.14%20AM.png" alt="">
As a result of these concerns, the authorities tightened prudential settings. This included: requiring the banks to test new borrowers for a higher mortgage rate than offered; requiring the banks to slow the growth in their lending to investors to below 10% y-o-y; and, requiring the banks to hold more capital (which saw effective mortgage rates rise). Tighter prudential settings have seen a clear pullback in lending to investors (see Chart 7). There has also been a fall in the proportion of lending at loan-to-valuation ratios of over 90% and a decline in ‘interest only’ loans (Chart 8). This should help to reduce the risks associated with recent new lending.
Apartment over-supply presents a risk
To the extent that there are risks, the key focus is on the apartment markets in the major cities. Apartment building has picked up substantially in the major cities (Chart 9). Importantly, our view remains that the national detached housing market is not over-supplied, which means the overall housing market is not yet showing signs of being over-supplied (see Downunder Digest: Australia’s housing supply ramp-up, 9 September 2015). As Chart 9 shows, there has only been a modest rise in construction of detached dwellings in recent years.
<a href="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.49.28%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.49.28%20AM.png" alt="">
The risk of a potential over-supply of apartments is largest in Melbourne and Brisbane, where apartment building has been at record highs as a share of the existing stock (Chart 10). There is also some risk of over-supply in Perth, where apartment building has been strong.
To some degree, the detached and apartment markets are segmented, given the lack of perfect substitutability. For example, buyers of detached dwellings in the suburbs tend to be quite different from buyers of inner-city apartments. So a possible decline in apartment prices, due to over-supply, would not necessarily translate into a matching fall in detached housing prices.
This is particularly the case, given that there has only been a limited pick-up in detached home building in recent years. The tightening of prudential settings and falls in loan-to-valuation ratios also help protect the financial system from any decline in apartment prices as new borrowers would need to see larger price declines before they fell into negative equity.
Strong foreign investor involvement in the major city apartment markets, particularly from China, may also limit the exposure of the domestic financial system to the impact of any falls in apartment prices in these markets. Government approval numbers show that there has been a strong rise in foreign purchases of new dwellings in Australia over the past year (Chart 11).
<a href="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.50.41%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.50.41%20AM.png" alt="">
Many of these purchases are off-the-plan apartments, partly because foreigners are restricted to purchasing newly constructed dwellings.
In its recent semi-annual financial stability review, the Reserve Bank of Australia (RBA) noted that ‘the Australian banking system has little direct exposure to Chinese investors’. Foreign buyers may also have different motivations for purchasing, with some looking to invest in property as a store of value, rather than for speculation. This could limit the willingness of foreign investors to divest, even in the event of some capital losses.
Falling apartment prices could also put pressure on developers’ balance sheets, with many of the apartments having been sold ‘off the plan’. Again, the RBA recently noted that its liaison suggested that ‘settlement failures have, to date, remained uncommon and are generally expected to increase significantly only if housing prices fall substantially’.
Related risk in commercial property
Global demand for commercial property assets has also somewhat displaced Australia’s commercial property market. Commercial property prices have risen well ahead of rents in recent years, as global investors ‘search for yield’ pushes Australian yields down to global levels, which are around historical lows. The ramp-up in commercial property prices (and fall in yields) has come despite office vacancy rates that remain elevated, with particularly sharp increases in Brisbane and Perth.
This could have a bearing on the domestic apartment market as there may be some substitutability between office and apartment buildings. A retreat in commercial property prices could put some downward pressure on apartment prices. However, much like the apartment market, foreign investor involvement in the commercial property sector has been significant, which could limit the risks to the domestic financial system.
Mortgage loan arrears are still falling
Finally, it is worth noting that mortgage loan arrears have continued to fall since their peak in 2011 and are at very low levels (Chart 12). What is most interesting is that arrears continued to decline despite the rise in the unemployment rate over recent years. This is likely to reflect the support from falling interest rates over that period. The recent decline in the unemployment rate should help to support loan servicing and potentially limit concerns about household debt levels.
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<img src="/images/2016/04/22/Screen%20Shot%202016-04-22%20at%208.51.42%20AM.png" alt="">
Paul Bloxham is chief economist (ANZ) for HSBC . Daniel Smith is economist. They can be contacted <a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">here</a>.
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Australia’s rising household debt and should we worry? HSBC's Paul Bloxham

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The Melbourne buyers' advocate David Morrell says he is finding it "incredibly hard to buy because you cannot justify the prices."
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He said most reserves were being passed easily.
"Are we in a bubble? Of course we are. It just depends who is caught with the parcel," he said.
 "But in my opinion, it is incredibly hard to buy because you cannot justify the prices," he suggested in his regular Monday auction roundup in the Australian Financial Review.
He recently blogged "the really bubbling bubble" is at $1 million to $5 million.
He pointed the finger at a June $4.66 million Armadale sale (photo below) at 39 Lambeth Avenue — "a street where anything starting with a $4 would be hard to justify." 
<img src="https://i1.au.reastatic.net/456x342/fbf55072cbb6b761411114c1532d68b13e37f8d41325530b7bec5cf4a47ac81c/main.jpg" alt="39 Lambeth Avenue, Armadale" title="39 Lambeth Avenue, Armadale" data-index="0">
Only a month ago Morrell wasn't calling it a bubble.
"Our suspicion is that this isn’t a bubble, it’s a jumping castle.
"Frenetic leaps until it springs a leak and then a slow deflate."
But another Melbourne buyers' agent Mal James continues finding homes for clients, noting while typically at well above agent estimates, they have been <a href="https://marketnews.com.au/documents/May_Results.xlsx.pdf" target="_blank" style="line-height: 1.3em;">rarely above his own price appraisals</a>.
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Buyers' agent David Morrell says top end Melbourne bubble prices can't be justified 

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The arguments Terry Ryder presents need to be anchored in facts, he urged last week, and we couldn’t agree more. The subject of <a href="terry-ryder/43362-present-arguments-anchored-in-facts-terry-ryder" target="_blank" style="line-height: 1.3em;">Mr Ryder’s piece for Property Observer</a> was about recent GetUp email on negative gearing and unfortunately the facts of the matter were the first casualty. 
Getting into the policy nuances of an issue as complex as housing affordability is challenging in a blog. What we have to do is cut through the haze of complexity, often used by politicians and lobbyists to diffuse popular calls for reform, and get to the heart of the issue in clear language, anchored in the facts. With the luxury of a few more words, let’s go through Mr Ryder’s statements compared to GetUp’s, and see which way the facts fall.
1. Mr Ryder said we were wrong to claim “millions of first home buyers” were priced out of the market, because: “Australia has 8.6 million households, of which 6 million are homeowners and much of the rest (according to the research) are renters by choice.”
Mr Ryder was looking at household data, not individuals - but if you look at individuals, the last census in 2011 <a href="https://www.abs.gov.au/websitedbs/censushome.nsf/home/factsheetshtdc?opendocument&amp;navpos=450" target="_blank">found about 2.3 million people in Australia rent</a> (and that figure doesn’t include the people who want to buy, but are living at home with their parents rather than renting). 
Mr Ryder does not provide any reference to the “research” allegedly showing most of these are “renters by choice.” However, a November 2014 report by the <a href="https://www.ahuri.edu.au/publications/download/ahuri_51002_fr2" target="_blank">The Australian Housing and Urban Research Institute</a>, under a section titled “deferring, not rejecting purchase”, shows renting for longer to save for a later purchase is one of several approaches would-be homebuyers are using to deal with higher prices.
It’s difficult to know for sure how many renters would rather be home owners, so we probably should have qualified it by saying “potentially” millions in our email, but when you look at the numbers and the research there are plenty of clues to suggest millions of renters would rather own their own homes. 
2. He claims, “25% of all current residential sales are to first-time buyers.” 
That’s wrong. The <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5609.0Main%20Features3Apr%202015?opendocument&amp;tabname=Summary&amp;prodno=5609.0&amp;issue=Apr%202015&amp;num=&amp;view=" target="_blank">Australian Bureau of Statistics Housing Finance figures for April 2015</a> shows first home buyers made up just 15% of residential sales. The last time first home buyers made up 25% of the market was nearly five years ago, in October 2009. In fact, this precipitous drop in less than five years supports the proposition that would-be first home buyers are being pushed out of the market.
3. He questions the link between negative gearing and housing affordability, saying, “An 18-month federal parliamentary inquiry … couldn’t provide any definitive evidence that it did.”
Research from the Australian Bureau of Statistics shows housing finance for investment properties rose from 16% to over 40% over the past 25 years, with the proportion of people renting increasing over that period, too. In particular, rental loss reported through negative gearing exploded after the capital gains tax discount was introduced in 1999. All this points to more investors in the market bidding up the price.
4. Though it’s not a key point in our email, Mr Ryder takes issue with the implication that investors are buying a second or third property, referencing ATO data showing “three-quarters of investors own only one property.” 
But that ATO data refers to investment properties. Mr Ryder forgets most people who buy an investment property are also owner occupiers. So when they buy an investment property, it’s generally their second property.
5. Mr Ryder says “the [GetUp] claim about ‘a skyrocketing housing market’ is patently absurd, given that only one of the eight capital cities has a boom market.” 
If that’s true, we’re not sure what all the fuss is about in the media, every single day. But let’s look at the figures and listen to the experts.  
A fascinating article on 15 April by ABC Business journalist Michael Janda quotes:
<ul>
<li>RMIT housing expert Emeritus Professor Mike Berry: "Housing prices more or less doubling over the last 10, 12 years in the capital cities.”</li>
<li>ABS statistics: Australian capital city home prices rose 68% over the past 10 years, and 125% in the decade before.</li>
<li>
BIS figures: over the last 40 years Australia has seen stronger house price growth than anywhere except Norway.
</li>
<li>International property analysts at Demographia: Australia is one of the world's least affordable places to live, with their measure of median home prices to median incomes showing all five of Australia's biggest cities are "severely unaffordable," with Sydney and Melbourne in the world's top 10, along with Tweed Heads.</li>
</ul>
According to the International Monetary Fund, Australia has the third highest house prices, relative to the level of people's incomes, among 24 advanced economies.
Even if you limit the discussion to the Sydney and Melbourne property markets, that’s where more than nine million Australians live. Other capital cities, like Perth and Brisbane, have also seen<a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6416.0Dec%202014?OpenDocument#Time" target="_blank"> dramatic price rises</a> at times within the past 12 years (more than doubling and a 75% increase, respectively) that have made it very difficult for first home buyers. 
6. Mr Ryder disputes this statement: “A massive $4.2B in negative gearing tax breaks per year go to the top 10% of income earners.”
The $4.2 billion in tax breaks for the top 10% of income earners is the combined impact of the negative gearing and Capital Gains Tax (CGT) discount - we should have said this in the email (and have since done so on the web page). That figure comes from the GetUp commissioned Australia Institute report, ‘It’s the revenue stupid,’ released in May this year, which was cited in the email.
The wider issue is how negative gearing interacts with the capital gains tax discount to drive up prices. It is the two policies working together that makes property investment so profitable and means that more and more of it is happening. For this very reason, scrapping the capital gains tax discount is also part of the GetUp/Australia Institute policy recommendations. It is simply too difficult to tell that entire story in one blog (and many in the media have had the same difficulty), though we have information about it online.
7. Mr Ryder then cites ATO data to argue that most Australians who own an investment property earn less than $100,000. 
On this point it is essential to understand that one of the core purposes of using negative gearing is to reduce the investor’s taxable income (i.e. below $100,000, or $80,000, the marginal tax thresholds).
As ABC Business Journalist Michael Janda explains, “the “ATO's measure of ‘total income’ includes net, not gross, rent - that is, rental earnings or losses after deductions such as interest payments have already been removed. The very reason that many housing investors fall below the $80,000 threshold is because they have used negative gearing to slash their tax bill.”
For this reason, both Mr Janda and Greg Mckenna (in an article for Business Insider), point out that the HILDA survey data, used by the Reserve Bank of Australia (RBA), is more accurate. According to the RBA (as cited in Mr McKenna’s piece), “investor households with incomes in the top 20 per cent of the income distribution owe the bulk of the investor housing debt and over a quarter of total housing debt outstanding … The bottom 20% [of the income distribution] account for just 2% of investor housing debt.”
For further reinforcement, Professor Judy Yates, one of the country’s most respected housing experts, who was seconded by the Australian government to work on their National Housing Strategy, said: “the biggest benefits [of negative gearing] go to high-income households, lowest benefits go to lower-income households."
8. Mr Ryder next takes issues with our claim there’s a “consensus among housing experts and economists that negative gearing is one policy area driving unaffordable housing.”
In arguing this, he says only a minority are concerned about negative gearing, and describes highly respected economist, Saul Eslake, as being part of the “lunatic fringe”. (Who knew the chief economist at Merrill Lynch could possibly be considered fringe?) Nevertheless, here are a few other notable ‘lunatics’ who have shown concern about negative gearing:
<ul>
<li>Former Governor of the Reserve Bank Bernie Fraser </li>
<li>Former Commonwealth Bank CEO David Murray </li>
<li>ANZ boss Mike Smith</li>
<li>Australian Council of Social Service </li>
<li>John Daley, CEO of the Grattan Institute </li>
<li>The Australia Institute </li>
</ul>
We’d run out of pixels if we completed the list.
9. Mr Ryder claims “the GetUp campaign is based on the notion that eliminating negative gearing will somehow make housing cheaper.” 
Except, that’s not what we said. The GetUp/Australia Institute policy recommendation was to limit future negative gearing to new properties, which currently represent only six per cent of the value of negatively geared purchases. By driving investment dollars into new properties, the idea is to stimulate the creation of additional housing supply, which can help reduce prices and rents, as well as create construction jobs. This is also an approach that’s been put forward by the McKell Institute and is reportedly being considered by the Labor party.
But, to take Mr Ryder’s point on more directly, the logic is pretty straight forward. Reducing the tax incentives for investors buying second hand property will reduce demand for that property and therefore put downward pressure on prices. 
10. Finally, Mr Ryder takes issue with our reference to the property bubble. He says, “What we have seen throughout history is that boom markets eventually stop growing and prices level out. But we have never seen a crash, not in the history of this nation.”
In fact, RBA data shows several <a href="https://www.rba.gov.au/publications/rdp/1999/pdf/rdp1999-06.pdf" target="_blank">precipitous price drops in the history of the Australian property market</a>, including in 1891 and the Great Depression. And if we go just a bit outside the direct experience of our nation, the entire Global Financial Crisis was triggered by a property bubble and crash in just one country - the United States. As a reminder, that included the near collapse of some of the largest financial institutions in the world (only prevented through massive government intervention) and recessions in most industrialised nations of a scope and duration not seen since the Great Depression (prevented in Australia only by a $52.4 billion stimulus package). So property bubbles and crashes do happen and they can have pretty dire consequences.
Tens of thousands of Australians have signed the petition calling for reform to negative gearing - we’re disappointed to hear Mr Ryder doesn’t support it, but GetUp’s member driven, which means if members don’t support a campaign they are free not to. We welcome constructive criticism, but as Mr Ryder said, it needs to be grounded in the facts. 
Picture this: 43% of Australia’s wealth is held in real property now, compared to 30% of America’s wealth in 2001, just prior to the Global Financial Crisis. Australia also has just four banks holding 75% of all Australian mortgages. So, if you want to talk about systemic economic risks, then the property bubble would have to be at the top of your list. With that in mind, it makes sense why Saul Eslake, the RBA Governor and the Treasury Secretary, among others, have been so concerned.
In the context of so much risk, the burden is on Mr Ryder to explain what magical mechanism would prevent the Australian housing bubble from a price crash.
Mark Connelly is GetUp's Campaign Director. GetUp can be reached <a href="https://www.getup.org.au" target="_blank">here</a>.
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Property market facts are stubborn things: GetUp's Mark Connelly

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Q: Is there a housing bubble?
A: Nationally no, but if we are talking about Sydney, Melbourne and new inner Brisbane apartments, then yes.  That's a YES, in case you somehow missed it.
Sydney and Melbourne have been distorted by an influx of 'grey' money coming from China. Many don't like to hear this, but it is happening. No hard statistics, but our groundtruthing is looking worthy of a hefty bet.  And of late, some of this grey has shifted north, along with local superannuation funds looking for cheap property &amp; a longish timeframe to settle, in the hope of double digit price growth.
Brisbane always follows Sydney, right?  Property is so cheap in Brisbane, hey! You can buy two in Brisbane for the price of just one in Sydney. Bris Vegas here we come.
Sidebar
I have an internal debate several times each month – it's fun, like talking to an imaginary friend – about whether or not to write on a certain topic. 
Do I let blast about China? Publish my thoughts about smaller apartments?  Call out all those BS artists promising double digit price growth &amp; rental increases?  And this week, it's a yes.  Write something about the Reserve Bank (RBA), Foreign Investment Review Board (FIRB) and how we will all be rooned.
We'll all be rooned
Now, there is nothing wrong with a global property market, nor being in the recovery phase of the property cycle and having closer ties to China – or any of our major trading partners for that matter.
But a housing bubble is a different story.
Property values have almost trebled over the past two decades, while wages have not kept pace. House prices in both Sydney, Melbourne, some parts of Perth and now across inner Brisbane, are often over 10 times household earnings. In many cases, weekly rents also far exceed 30% of a renter's income.
And things can start getting out of hand when the proportion of investors buying accounts for around half of all residential sales – double the 25% of the housing market made up by private renters. This happens every cycle, but its current trajectory is unsustainable.
Got some doubts?
Well this year alone, housing credit and house prices have climbed at, respectively, more than two and three times the rate of household income growth. It isn't the actual rate of credit and price growth that is the problem, but their relationship with our ability to afford this inflation.
It's true that this is mostly a Sydney and Melbourne phenomenon, but we only have a few blunt tools in the back of our ute to temper the times. And besides, we have never been that good at small, fiddly renovations. Slash and burn is more our style.
The good and the bad
Yes, there are reasons for property demand to be improving – we have record low interest rates, relatively low vacancy rates, high population growth and a strong penchant for owning property.
But on the flip side, we have falling commodity prices, an employment baton change which, for the life of me, I cannot see happening smoothly nor correspondingly, little wage growth, ageing demographics, high debt, an increasingly economically wobbly China and a close to epileptic Europe. Not to mention what may or may not happen with the rest of the world.
For those who only hear good news, you might have missed that Australia's federal budget deficit last year (2013/14) was close to $50 billion &amp; yet the Palmer United Party wants to keep the red ink flowing until the early 2020s. 
If that happens, then our prized AAA sovereign credit rating could be at risk, especially if something goes wrong with our economy – or that of a major trading partner.
In short, we might see the vulnerable economic conditions of southern Europe down under.
This article continues on the next page. Please click below to continue.
<hr class="system-pagebreak">
True blue
But in true ocker fashion – it's all "she'll be right mate", "nothing to see here". Those questioning our "property at all costs" mentality need to take a double dose &amp; retire to bed early. Keep on moving on. Bid higher at that auction. Buy something tiny and off-plan. Doesn't property double in value every seven years? You cannot lose.
Too far-fetched?
Well, our real wages are falling. Yes, falling, as average earnings rose just 2.3% over the last 12 months – that's 0.3% lower than inflation. Unemployment is over 6%, without counting the 700,000-plus on disability pensions.
True, the RBA does predict higher economic growth next year, real wage growth in some distant future and lower employment one day, maybe, but this is predicated on the assumption that nothing economic will go bang or that China's economy won't slow down further.
Excuse me for being a skeptic, but trying to predict an economic future, these days, is almost impossible.  I would just love to read or hear one of those talking eco heads say something like, "well, frankly we don't have a bloody clue".
If you ask me what's going to happen, your guess is as good as mine.
But I do like to guess, so here goes.
<ul>
<li>Government will not reign in spending; we (the senate) won't allow it.</li>
<li>No workplace reforms, for fear of a union campaign.</li>
<li>The RBA will continue jawboning and keep interest rates where they are (when looking at the whole of the Australian economy – not just housing in Sydney and Melbourne – they really need to fall).</li>
<li>Plenty of talks about macro-prudential action – like higher investment loan to value ratios; changes to property taxation or minimum product sizes – but nothing done. Maybe that is a good thing?</li>
<li>No enforcement by FIRB regarding illegal overseas buying – and it has almost all been illegal in recent years.</li>
</ul>
And it's the last point that is the most pertinent right now.  If you want to slow down the Sydney, Melbourne and inner Brisbane property markets without stopping the rest of the country, then you must enforce offshore buying laws.
Inert FIRB
An inert FIRB has done nothing to inhibit the grey economy that exists to get money out of China (ironically, helping them deflate their own housing bubble) &amp; into safer overseas havens like Australia.
It's true that the Chinese government imposes a $US50,000 a year limit that can be sent out of the country, but cashed-up Chinese bypass this system via personal relationships rather than transparent bank transfers. Heaps of property – just how much is unknown (but it shouldn't be) – is being bought this way in Sydney &amp; Melbourne, Perth, and now in Brisbane and starting to again on the Gold Coast.
Also, the Significant Investor Visa (SIV) is dominated by mainland Chinese who meet the $5 million requirement. They are paying stupid prices for potential development sites (with site values doubling in the past five years), but property economics do not apply here, as the SIV is really a fast-tracked qualification for a permanent visa. Dual nationality is the want, but sadly, too many Chinese just want an Aussie passport as an insurance policy, not a new way of life.
Lower down the chain – much lower, if you ask me – is another sheltered workshop – property spruikers flogging Chinese investors little high-rise boxes in Sydney, Melbourne and now Brisbane. Entire high-rise buildings are financed, built and sold for the Chinese market, with local buyers and developers rendered irrelevant. Small, one-bedroom dogboxes are the norm. The more the merrier. How divine, indeed!
And all of this should be illegal. If only FIRB would enforce the law!
All of this illicit activity is creating a demand that would not otherwise exist. Well at nowhere near the levels that it is increasing spruiked. Quarterly newspaper lift-outs about Australia's sudden urge to live on top of each other – I mean, come on.
And this, coupled with local superannuation investors – many of whom appear to have been sold a pup – has created valuations that are dangerously detached from average weekly earnings &amp; sustainable owner-resident demand.
But then again, it is Australia mate; stop all this fussing; she'll be right; tyranny of distance and all that stuff.
But seriously folks
But seriously, something has to be done.  We are now entering some serious hot water.
Here's another guess.  Nothing will happen until this gets political; economic sense doesn't seem to cut the mustard around here anymore.  The political wedge, for mine, come next federal election, is overseas buying.
But between now then, I will take Terry's advice – <a href="terry-ryder/36256-headline-obsessed-writers-need-a-reality-check" target="_blank">take a couple of aspirin &amp; have a good lie down</a>. 
Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.  Read Michael's <a href="https://matusik.com.au/missive/" target="_blank">Blog</a> or follow him on <a href="https://www.facebook.com/ThinkMatusik?fref=ts" target="_blank">Facebook</a> and <a href="https://twitter.com/michaelmatusik" target="_blank">Twitter</a> or connect via <a href="https://www.linkedin.com/in/michaelmatusik" target="_blank">LinkedIn</a>.
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michaelmatusik-49YzLvdmNv

Is there a housing bubble? Or should we all take a wee lie down?

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I've always liked the saying "can't see the forest for the trees".
It appropriately sums up so much of the distorted self-indoctrinated bias of opinion pertaining to real estate in Australia.
The debate has never been so fierce – especially when it comes to the definition of that 'bubble'. I am of the firm belief that it is those who are actual historians of the Australian property markets who are the ones with the greatest ability to call the exact path and outcomes.
If you want to end the 'bubble' debate simply ask the question: "So when do you see this bubble bursting?"
It's always the fastest way to draw the debate to a fast halt. History has shown when you closely analyse the property market machinations through the Reserve Bank of Australia (RBA) – Cash Rate Target interest rate changes only then can we see the significant market changes.
That being when the RBA increases the cash rate twice (not once) we are starting to see a new course being charted. Then it takes another two to four years for the affects to be seen given that is when households start to come out of their fixed mortgage periods into the higher mortgage agreements.
Given we are the best part of at least 12 months away from the first cash rate increase – which should send the alarm bells ringing – then depending on the next increase we won't start seeing any noticeable market price corrections until 2016 to 2019.
We also need to bear in mind that when the cash rate increases so does the exchange rate as that goes up in unison, which is the last thing the RBA wants to see given it's presently trying to get the exchange rate down.
We should consider that the RBA is well down the track to introducing its new macroprudential tools as well as waiting to receive (then implement) the findings from the Murray Financial System Inquiry.
No doubt the RBA would be very much looking forward to tinkering the markets with these tools so that (for the very first time) other than increasing the cash rate  it may just be able to manipulate the markets in a way never seen before. For the first time ever (as many would not be aware) we are witnessing history with these new real estate market initiatives.
Again, history will show whether or not they were effective. However, it will be fascinating to watch the outcomes.
So back to those fools on the hill who following this week's RBA decision to leave the cash rate on hold at 2.50% – they even managed to get that wrong. No it was not a record (as some declared). Even though 14 straight months is getting up there, the actual record is 17, not 16 as some would believe. Furthermore, you can only apply consecutive meetings as the RBA doesn't meet in January.
Having said that, when you go back through the history of the cash rate movements at the RBA we start to see fascinating stories evolve.
I have conducted my research on instances where the cash rate remained on hold for 10 or more consecutive meetings:
The first period of RBA cash rate holds started on 30 July 1993 when the cash rate was moved from 5.25% to 4.75%, where it remained until 27 July 1994 – in total 12 holds. Then on 17 August it was bumped up 1.25% to 5.50%.
The next run of holds, which is the equal record 17 holds, happened on 14 December 1994 when the cash rate increased from 6.50% to 7.50%, where it remained until 3 July 1996.
Then it fell to 7.00%. So we are seeing long holds followed by increases and decreases.
On 30 July 1997 we saw another 16 consecutive holds at 5.00%, to then see it drop to 4.75%.
On 5 June 2002 we saw 16 holds at 4.75%, to then see it increased to 5.25% in November 2003.
On 4 February 2004 we saw thirteen holds at 5.25%. When the cash rate was increased to 5.50% in March 2005, that was followed by another twelve holds that was followed by an increase to 5.75%.
Then on 8 December 2011 we had another ten holds at 4.75%, then saw the rate dropped to 4.25%.
We are now in the current hold pattern after fourteen meetings, so based on history it's anyone's guess what or when the next movement might be. I predict the current rate will be set for the longest period in RBA history as it will go well into the twenty something meetings.
So when you see the arguments mounting that many commentators were disappointed that the RBA hardly mentioned that ''bubble" following this week's decision – history clearly shows that the board members may not be that concerned about that "bubble".
Maybe they are more concerned as to why investors have steered clear of the stock market which, by the way, had a few massive corrections this week – although, wait a minute, nothing much was written about that either.
It all depends on what you are looking at – the forest or the trees?
As to be expected stock levels increased significantly this week – so now we finally get to see firsthand just how strong the markets really are.
Watching these numbers will be telling over the period leading up to Christmas, although I don't believe we will see anything that even resembles that imaginary 'bubble'. Time will tell!
 
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robertsimeon-hRNTwJyXkQ

Want to know when the market will change? Keep an eye on interest rates

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Here’s the most remarkable statistic to emerge from the residential real estate industry this year: 32% of people think there’s a bubble.
The remarkable thing is that so few believe in the bubble BS. Media has been running bubble stories daily. Recently a new B word has taken up headline space: bloodbath, now a popular word to describe predictions from the lunatic fringe who subscribe to bubble theories.
But, according to an Investor Insight Survey, 55% of respondents said there was no property bubble and 13% were unsure.
Media, being the strange twisted animal that it is, chose to highlight the 32% who do apparently believe there’s a bubble, with the inference that this number is significantly high. My reaction was quite the opposite: that it’s amazingly low, given that media constantly tells us that one exists.
Among the many unworthy things that Nazi propaganda guy Joseph Goebbels gave to the world was the notion that “if you tell a lie big enough, and keep repeating it, people will eventually come to accept it as the truth”.
That principle, if that’s the right word, is alive and thriving in Australian media today. Most of what consumers believe to be true about real estate – the affordability crisis, the chronic housing shortage crisis, the bubble, the Great Australian Dream is dead, etc – are lies that have been repeated so often that many people accept them as truth.
This week the Australian Bureau of Statistics published its Residential Property Price Indexes, which are the latest figures to demonstrate the lie in the boom/bubble/bloodbath nonsense much beloved by tabloid media.
Sydney’s price index is up 13% and the next best is Melbourne’s 4.7% annual rise. Brisbane has managed 3.9%, Canberra 3%, Adelaide 2.5% and Hobart 1.9%. The price indexes for both Perth and Darwin have fallen slightly. The weighted average rise for the eight cities is 6.9%, but seven of the eight cities are well below that average.
I’ve scrutinised these figures, and similar data from other sources, from lots of different angles and directions. I’ve turned them upside down. I’ve looked at them in a mirror. I’ve examined them through a magnifying glass. And I cannot find a national property boom there. And without a boom, there is no bubble. And without a bubble, there is no prospect of a bloodbath.
Few media outlets reported the ABS figures, as they don’t fit with the pre-conceived story line of runaway markets, blistering price surges and world-shatter<a name="_GoBack" href=""></a>ing bubbles. Goebbels also gave us the idea, much utilised by journalists today, that you never let the facts get in the way of a good story.
The latest “bloodbath” forecast has come from a couple of attention-seeking conspiracy-theory twits who have put in a submission to yet another parliamentary inquiry in an attempt to drum up a bit of publicity for their consulting business.
They’ve predicted a bloodbath. Naturally media had a field day with it. If someone is silly enough to predict a market crash, journalists will be delighted to recycle it as news, regardless of how outlandish it is or how often the forecasters have been wrong in the past.
I’ve added this to the very large list of people who have predicted bloodbaths, bubbles bursting and markets collapsing in Australian real estate over the past 15 years.
I have a heightened awareness of such predictions because I recently conducted a research exercise for a client on the predictions newspapers and other media outlets have made about real estate prices since the start of the century.
Over 15 years there has been a constant barrage of articles making doomsday predictions about the housing market. Subsequent outcomes have proved them all wrong. Not one has been correct.
I recently published a Top 20 list of worst predictions about property prices. For example, in January 2012 visiting US spruiker Jordan Wirsz, seeking to drum up some free publicity, predicted a bloodbath in which house values would fall 60% in 2013. He forecast land values would fall 90%. 
Not surprisingly, this did not happen. There is no precedent, not in Australia nor in any other nation on planet Earth, for such a calamitous decline in values. The actual outcome? Capital city prices, on average, rose 9% in 2013 and 8% in 2014, with most of that growth occurring in Sydney.
But Wirsz’s ludicrous prediction, which should not have been published by any credible media organisation, was just one of numerous doomsday forecasts made over the past 15 years, and all of them have been proven false. They have come from US spruikers, Australian economists and the lunatic fringe brigade of anti-real estate campaigners.
But if Wirsz lobs in Australia again next month and predicts our property values will fall 100% - in other words, every property will be worth zero - newspapers around the nation will publish it, television will rush to do interviews and politicians will call for a parliamentary inquiry.
TERRY RYDER is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a> 
Terry was recently joined by Property Observer editor at large Jonathan Chancellor for a webinar on why research is the key to successful property investing in 2015. You can download slides and audio from the webinar <a href="component/content/article?id=42796" target="_blank" style="line-height: 1.3em;">here</a>.
 
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terryryder-YECXbqmri2

Without a boom, there is no bubble: Terry Ryder

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It didn’t take long for some property commentators to start declaring that the Sydney market was crashing when last week clearance rates came in at 65.1%.
The fools have been released from the asylum when you closely scrutinise this data where Sydney consists of approximately 700 suburbs, so are they all crashing? I looked up Mosman’s clearance rate for last week and it came in at a respectable 87.5% which is hardly crashing as some would have you believe. Don’t get me wrong it is clear that the Sydney real estate market is correcting rather than crashing – this is not a bad thing either.
The problem for some is that intellectually they can’t differentiate between the strong investment market over the owner occupier market, with the investment market cooling at a much more rapid pace due to lending restrictions and consumer sentiment adjustments – which are long overdue.
Many consumers who are chasing investment properties should be quite concerned about what’s around the corner and I’m not referring to banks increasing their respective lending rates. The Reserve Bank of Australia (RBA) can stand aside for the moment because on Melbourne Cup day should it decide to lower the cash rate the major banks won’t be following suit with Westpac, CBA, NAB and ANZ hiking their rates just in the last week. As soon as one moves inevitably the others will all follow although it would be highly unlikely that Westpac will be the next to increase rates.
All eyes should now be on the Australian Taxation Office (ATO) who have now taken over the responsibility of being Australia’s property watchdog. In 39 days the amnesty period for illegal property acquisitions expires and then we will start to see how many have deliberately broken the laws by purchasing Australian real estate – my tip is this will be huge where we can expect 2016 to be the year of the Divestment Order.
This may surprise you that there is a much larger property investigation that will have a significant impact on Australia’s property industry. That being Student Visa Holders who are allowed to purchase a property whilst completing their tertiary studies on the proviso that when they have completed their degrees the subject property must then be sold. The only problem is that Australia’s Foreign Investment Review Board (FIRB) who are entrusted to monitor such acquisitions have never actually followed through so we now have no idea how many thousands of properties this includes.
To make matters worse on 18 December 2008, the Rudd Government changed the policy where Student Visa Holder residents in Australia are no longer subject to a $300,000 limit on the value of an established dwelling as their residence. This then saw some students acquiring multi – million dollar residences. Also temporary residents were not required to notify FIRB of any intended acquisitions for established dwellings that were to be their principal place of residence.
Again we are talking about thousands and thousands of transactions where many will now end up with Divestment Orders.
The RBA this week declared in its biannual Financial Stability Review that “Recent investigations by regulators have revealed that standards were somewhat weaker than had originally been thought.” In that case any significant increase in property volumes onto the market would see prices coming down as these are established properties, so unlike off–the–plan properties where 100% can be sold offshore to non-Australian residents.
We are now seeing the housing price growth at its slowest pace since 2012 – which explains why the ATO have a duty of care when they start issuing Divestment Orders. We can also expect to see many households fixing interest rates on their respective mortgages.
A positive sign for those renting, when last Friday the Australian Bureau of Statistics finally got around to updating Australia’s housing occupancy data (the last release was in 2013), the proportion of those renting has edged up to 31.4% with 63.4% of Australians renting being under 35. To further identify just how big the investment market for real estate in Australia is, 1.5 million households now own investment properties on top of their principal place of residence.
Whilst the finger is clearly pointed at negative gearing (I will address that next week) when it was introduced in the late 1990’s, approximately 40% of houses were owned outright with only 28% renting.
The issues are clear in that we have problems with policy making, and that requires urgent attention although this has not been helped with actual mortgage interest rates falling from 7.1% to 4.7% over the past five years.
Property is all about supply vs demand – supply is what we need to be paying closer attention to, so watch the ATO with great interest. Who would have ever thought the ATO would play a central position with Australia’s property markets.
<h5>MOSMAN – 2088</h5>
• Number of houses on the market this time last year – 104 • Number of houses on the market last week – 61
• Number of houses on the market this week – 64
• Number of apartments on the market this time last year – 65
• Number of apartments on the market last week – 59
• Number of apartments on the market this week – 60
<h5>CREMORNE – 2090</h5>
• Number of houses on the market this time last year – 19
• Number of houses on the market last week – 9
• Number of houses on the market this week – 10
• Number of apartments on the market this time last year – 32
• Number of apartments on the market last week – 23
• Number of apartments on the market this week – 22
<h5>NEUTRAL BAY – 2089</h5>
• Number of houses on the market this time last year – 7
• Number of houses on the market last week – 13
•Number of houses on the market this week – 10
• Number of apartments on the market this time last year– 51
• Number of apartments on the market last week – 32
*Number of apartments on the market this week – 33
 
ROBERT SIMEON is a director of <a href="https://www.rwm.com.au/" target="_blank" title="RWM" rel="nofollow">Richardson Wrench Mosman and Neutral Bay</a> and has been selling residential real estate in Sydney since 1985.  He has also been writing real estate blog <a href="https://www.rwm.com.au/news/" target="_blank" title="Virtual Realty News" rel="nofollow">Virtual Realty News</a> since 2000. 
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Concerns about upcoming Divestment Orders: Robert Simeon

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I think we all need to have a cold shower, a few aspirin and a wee lie down.
Then, having calmed down a bit, conduct a rational assessment of our property markets, without the emotion, the self-serving hyperbole and the publicity-seeking rhetoric.
We seem to have arrived at a point where any price rise anywhere in Australia is deemed a crisis. We're also at a point where the argument (it doesn't deserve to be called a debate) about real estate is driven by the people who make the most noise, rather than those with the most knowledge.
And, saddest of all, Australia in 2014 is a place where few people who work in or use the media give a damn about fairness, accuracy or balance. The only thing that matters is the headline or the political points scored or the amount of publicity achieved.
There was a time when journalists performed a worthwhile role. They were the filters through which information and comment had to pass. Claims were challenged, information was checked and alternative views were sought.
No one got to write about a subject unless they had credentials.
Today employees of media organisations are often mere conduits for propaganda. The public is asked to accept that if it's in a press release, it's valid. If someone describing themself as an economist makes a statement, it's likely to be fact. If an offshore "analyst" makes an observation, it's news.
The outcome is a melting pot of extreme views. The missing ingredients are objectivity, scrutiny and balance.
Many journalists no longer feel the need to support their statements with evidence.
A writer from a major media company (not a property specialist but apparently a "personal finance writer") this week stated as fact that Australia has "inflated house prices" and "surging property prices across the country". And that was just the first sentence.
No evidence was presented to back those big statements; we were expected to accept them as truth, despite the writer's lack of expertise and the reality that all the research data contradicts the notion we have "surging property prices across the country". According to the numbers I see every day, it's simply a lie.
On the same day, a writer from a different media company, with even flimsier credentials, sought to justify a pre-conceived attitude that investors exploiting the tax system drive up property prices. He presented graphs which he claimed showed that "whenever investor activity increases, house prices go up".
He saw what he wanted to see but, in reality, the graphs showed nothing of the sort. They showed, in fact, that investors do not lead price rises – they follow them. In every step along the graph line, a change in investor activity came after a change in prices.
My three decades researching real estate has taught me that investors never instigate property booms - they follow them. The biggest force in real estate, always, is the sector comprising home buyers other than first-home buyers, who dominate most markets numerically and have the financial capacity and motivation to pay high prices.
Meanwhile, another columnist with a bee in his bonnet about Asian investors tried to argue that "an influx of murky money from China" had been distorting and inflating our property markets "for years".
There was little in the way of research evidence, just a convoluted set of statements that led to no apparent conclusion.
So there we had, on the same day, three writers, all of them working for major media organisations but none of them with any real estate expertise, all claiming "Australian property prices" were unreasonably high, but each blaming a different bogeyman – one claiming it was foreign investors, another pointing the finger at local investors boosted by negative gearing, and the third blaming slack lending standards.
The one thing they had in common is that they all got it wrong. And probably don't give a damn because the headline is the thing.
So, setting aside all the ego-driven noise, here's a reality check.
Sydney remains the only city to have produced boom growth to date. The figure so many misguided commentators keep quoting – and describing as "the surge in Australian property prices" – is nothing more than the average increase across the capital cities, greatly inflated by Sydney's growth.
The key thing is this: Sydney's upturn follows 10 years of under-performance. Even with the rises of the past year or so, Sydney's average growth over the past decade is still below par. As a number of the more rational observers have commented, Sydney has been playing catch-up. But, despite the recent increases, it still hasn't caught up.
Here are some examples of what I mean. The median house price for <a href="https://www.urban.com.au/property-observer" target="_blank">Vaucluse</a> has increased 17% in the past 12 months, according to Australian Property Monitors, but the average annual rise in the past five years is just 1.4%. The 10-year growth average is 3% per year.
The median unit price for <a href="https://www.urban.com.au/property-observer" target="_blank">Point Piper</a> is up 17% in 12 months, but the 10-year average is 1.5% per year. In real terms, they've lost value over the past decade.
In <a href="https://www.urban.com.au/property-observer" target="_blank">Darling Point</a>, the median unit price today is lower than it was 10 years ago, despite the recent growth. They've lost money, even without allowing for inflation.
Heading out west to a more mainstream and affordable market, the suburb of <a href="https://www.urban.com.au/property-observer" target="_blank">Blacktown</a> (Sydney's most popular suburb in terms of sales volumes) has recorded 18% median price growth in the past year, but it's 10-year average is just 3% per year.
You'll find similar numbers right across the Sydney metropolitan area. Even when you examine above-average performers, the numbers are still modest. Balgowlah's five-year growth average is 5% per year; its 10-year performance is 4.1% per year.
All the froth and bubble in the media is being caused almost exclusively by Sydney's growth, but in reality Sydney's long-term performance remains decidedly poor.
Take the recent Sydney growth out of the equation and the average growth in the past year across the other seven capital cities is 4-5%. And that follows several years of price decline.
But, amid the prevailing atmosphere that any price rise is a national disgrace, even that number would be described by some as a bubble.
Terry Ryder is the founder of <a href="https://hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can reach Terry via <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email</a> or <a href="https://twitter.com/hotspotting" target="_blank">twitter</a>.
 
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