Comment by thmcmahon | Hacker News Reader

Comment by thmcmahon | Hacker News Reader

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Yes Australia has a higher cost of living than the United States, and recent high commodity prices have pushed up our exchange rate. However, if you are comparing prices across currency, then a lot of what you are seeing is due to a higher exchange rate. If you had moved to Australia in the early 2000s, you would've felt rich. Inflation is not currently a problem in Australia.

See: http://www.wolframalpha.com/input/?i=aud+to+usd

Re: the property bubble. House prices in Australia are high compared to historical levels. However, as this article from Crikey describes, Australian wages have risen too. While median house prices are still at a higher level compared to median wages (see: http://economics.hia.com.au/media/House%20price%20to%20incom...), they have been soft and in some cases reducing this year. They haven't 'burst' in the way the US housing bubble did.

The differences between Australia and the US where you had a massive house bubble are numerous.

* Australian banks are more heavily regulated and haven't lent 'sub-prime' mortgages.

* Australian housing market has good fundamentals - our population growth has been quite high (due to overseas migration, like yourself!), and in most areas there is an undersupply of housing (with exceptions like the gold coast).

I think you are overplaying the negatives in Australia, in general everything is working quite well as this convincing piece from Crikey shows.

* Australian banks are more heavily regulated and haven't lent 'sub-prime' mortgages.

This is completely untrue. The extent of sub-prime mortgages isn't the same, but it exists nonetheless. As does the existence of RBMS, which the government continues to purchase from the banks.

All of that looks over the fact that the big 4 banks in Australia are massively overexposed to residential mortgages and small business loans underpinned by residential property. In some ways it's worse than the USA because the mortgages are still on the books rather than being sold off into the secondary market.

The differences between the Irish housing bubble and the Australian housing bubble are actually much less. So you're right to say that there the parallells between the USA and Australia are less, but the parallells between Ireland and Australia are few. Ireland has full-recourse mortgages like Australia. Ireland had a massive overinvestment in property, like Australia. Ireland had high immigration, like Australia.

As I've said elsewhere in this thread, I don't think there is ever a time when you take your eyes off the negative.

I agree that Australia shouldn't become complacent, and I agree that housing is historically highly priced in Australia, I just don't agree that we are looking at a catastrophic bubble.

Ireland and Australias' levels of net migration aren't comparable either. See:

http://www.wolframalpha.com/input/?i=ireland+net+migration%2...

> banks in Australia are massively overexposed to residential mortgages and small business loans underpinned by residential property

As opposed to what, though? Historically housing and small business loans were the raison d'etre for being a bank. It is only the last few decades where they have been allowed to invest in other areas.

I think you are overplaying the exposure to housing. Our tier capital requirements were and are much more onerous than in the U.S. We (our central bank and treasury) have been telling the U.S. for two decades that their banking system was broken, and we were proven right. You can't compare a U.S. bank to an Australian one, they are very different beasts.

The reason our housing is so expensive is largely due to supply issues. Australia has some of the most complex land release and use laws in the world. The incentives to liberalise these rules are weak because State governments, who hold the legal power to do so, get higher revenues from stamp duty if land prices are higher.

The high cost of property runs the risk of slowly strangling the middle class. Not a good idea.

We don't always agree jacques, but I'm totally with you on this.

Stamp duty is the most regressive, unfair tax around.

Paying $15,000 or more in tax to move houses? Madness. How on earth is that considered fair, or a good thing for economic development? Particularly when the states agreed to drop stamp duty in return for the GST incomes.

If you take it that demand for housing is pretty much unlimited (everyone wants their own dwelling, and everyone wants as much space as possible) then you must look at supply.

Sure, cities like Sydney are geographically constrained, but this doesn't explain the high cost of housing places where there are no geographic constraints, only planning constraints.

Historically, in Australia, the cost of the land was well below the cost of building a house on it. Now it easily exceeds 50% of the cost in some cases.

The block of dirt under my feet cost 1500 pounds in the mid 1960's. Converted to a modern value, that is about $30,000. That value is out by a factor of probably 15-20 times. Which means, in rough terms, the land is 20 times more valuable now than it was back then. While some of this is attributable to improvement in services, population increase, etc etc, there isn't anywhere where you can buy a house block for $30,000 which is the inflation-adjusted price of the land as it was originally when the subdivision was opened.

The high value of land can only have one factor - restriction in supply. Restriction of supply is caused by a combination of large land-holders drip-feeding blocks on to the market and in collusion with the state government putting major restrictions on the ability to release land for sale.

We don't always agree jacques, but I'm totally with you on this. Stamp duty is the most regressive, unfair tax around

I think everyone agrees with that. Getting it fixed is hard though.

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