Housing links

[erudito]

Why property is a dangerous investment.

The amazing Hong Kong property boom may be peaking.

Chinese banks have been told to stress-test housing loans.

Nice Vanity Fair piece on the Irish housing and banking disaster.

In Beijing, the civil defence underground bunkers are being rented out to give folk somewhere they can afford to live

Comments

[quatrefoil]

I've been watching the Tasmanian market very closely for the last year or so, since I have plans to buy a small hovel. While Tas is probably one of the most sensitive areas to economic distress, prices have dropped around 5% in the areas I've been looking at in the last few months.

Scenarios

[erudito]

One possible scenario is that house prices do not "burst", just plateau indefinitely--a scenario that includes gentle declines. Tasmania has suffered less from the madness, so may also be less vulnerable.

Re: Scenarios

[quatrefoil]

Past experience tells me that if the economy worsens, Tassie will respond to it rapidly and that housing prices will plummet - Tasmanians traditionally leave for the mainland to find work when times are bad. But I figure that if I've paid what I can afford, then it doesn't really matter if it's worth less than what I paid for it - banks are unlikely to forclose while you're managing to pay the mortgage. And I can't afford to buy in a capital city anywhere, despite making more than average male earnings, so it seems like the best bet.

Re: Scenarios

[erudito]

The scenario of folk leaving is part of what happened in Ireland: people drawn to the "Celtic Tiger" bailed when it went bust.

[thorfinn]

For most people, home ownership has nothing to do with its monetary value as an investment. :-) As my financial adviser puts it, "If you ask any financial adviser if property is a good investment, they will all tell you no. But if you ask any financial adviser whether they own their own home or plan to, they will all tell you yes."

As far as how dangerous property is as an institutional (or personal) investment, that's extremely context dependent. Australian mortgages are rather different to the ones in the US. Primarily, we have no "walk away" - if your house is foreclosed, you still owe the money, regardless of how little the house sells for. Bankruptcy is still available, of course, but you have to go there, not simply walk off the toxic asset and leave it for the lender to cry over.

That said, density planning is probably the main thing, at least in Australia. Inner cities need to get much much more dense, if we want to keep housing affordable.

Supply

[erudito]

I am not sure your first paragraph is so true in, for example, Germany where house prices move at the rate of inflation, long term leases are common and home ownership rates are low. But yes, our mortgage laws do militate against the level of dodgy borrowing you had in much of the US. But, then, we never indulged in the madness of Fannie Mae, Freddie Mac and promoting home ownership as social justice: the first home owner's grant is noxious, but small beer by comparison.

As for density: creating "land shortage" in Oz is a triumph of dysfunctional regulation. Making the inner cities more crowded runs up against resident resistance, and they vote. As this post nicely demonstrates, expensive housing is an interaction between (regulatory) supply constraint and credit availability. Just as rent controls have quantity effects, so quantity controls have price effects.