| You're either understating (or simply unaware of) the extent of the real estate bubble in the US or you're overstating that bubble in Australia (or both). To suggest the FHOG (which is $7,000 now and only ever got as high as $14,000) is responsible for this is disingenuous at best. What's your argument for this? There are two basic components in house prices: the cost of land and the cost of construction. Land is essentially scarce. Sure there is lots more land that we haven't built on than we have (particularly in Australia) but desirability comes into play here as do infrastructure costs. There is only so far you can effectively live from work centres. The further you have to build out the more roads, public transport (if you even have it), water, electricity, etc cost. Land has certainly increased in value in Australia but a huge component of the increases is in the cost of construction. Nowadays it's hard to build a house for less than about $200,000. That is (IMHO) a huge problem. Building apartments now is in most capital cities prohibitively expensive for the middle class. To give you an example, I pay less for my one bedroom in downtown Manhattan than the apartment I used to live in in West Perth now costs. Manhattan. Conventional wisdom is that property is a good hedge against inflation. The massive inflation in construction costs should tell you something about inflation. Despite what the ABS may say about the CPI, the standard of living in Australia has dropped massively in the last decade, particularly in Perth. This probably mirrors the massive housing inflation and the after-effects you saw in Sydney in the 70s and 80s, which results in those with homes being cash-poor and asset-rich and those left standing when the music stopped just being poor. You just can't compare what's happening in the US and Australia. In the US in many large cities you can still buy a house for <$100,000. Where can you say that in Australia? |
We were recently looking at relocating to Sydney and were blown away by how prices (including rents) had increased since I last lived there (in 2002).
The interesting thing to me is that rents in Australia seem to have skyrocketed while prices have not (they're high, but rents are higher). In the US the housing bubble was characterized by prices increasing far faster than rents (which led to an illusory improvement in standard of living as people borrowed against "equity" and spent the difference). It looks to me as though Australian rents have risen faster than prices, which presumably has the reverse effect.