Tables like the ones below take my breath away when I see them for the first time–because the story they tell is worse than any I would have dared make up. As I noted in the interview with Kerry O’Brien on the 7.30 Report, real wages have increased since 1990, and since Australia’s last election in late 2004. However, mortgage debt has increased by far more.
My apologies in advance that the data here is shown in links to Excel files, rather than as a native table. I’m using an old version of WordPress, and its importation of tables is flaky; once I update, hopefully I’ll be able to post a table directly into the blog, but for now the fastest way to get the data up is via a link to an Excel File. So here we go:
Real Mortgage Debt Per Capita 1990-Now
Real Mortgage Debt Per Capita 2004-Now
Real Mortgage Interest Per Capita 1990-Now
Real Mortgage Interest Per Capita 2004-Now
Real Mortgage Interest Per Capita 2004-2008
The punch line in the data is that real wages have increased substantially, but not by anywhere near as much as has debt. Real wages have risen 25.6% since 1990, and 4.7% since the 2004 election. Real mortgage debt per Australian has risen 526% since 1990, and 18.3% since the last election. Given the increase in interest rates since 2004, the real interest repayment burden rose by 35.1% between the 2004 election and the start of 2007–and it was up by 45.7% before the rate rise this week.
Given the rate rise, the real interest burden on the economy has increased by 50% since the 2004 election–and much of that burden is falling on the western suburbs of Sydney and Melbourne. It’s no wonder that the slogan “you’ve never had it so good” isn’t really resonating with the entire Australian electorate.
For parts of it, that is undoubtedly true: Western Australia and Queensland are booming, those whose make their living from credit are doing very well, and those in the Eastern Suburbs are still enjoying rising property values. But for those in NSW, Victoria, South Australia and Tasmania, working for a wage, borrowing rather than lending, and living in the Western Suburbs (or Adelaide’s North and South, I believe) and regional areas, rising debt has more than countered rising real wages.
I’ll add more data once I’ve installed an updated version of Wordpress!
November 8th, 2007 at 3:54 pm
Steve, there is a commonly stated idea that there is a rental crisis.
Although I agree that this may exist in some high demand areas, city centres, mining towns, I feel it could be argued that the crisis is in ‘houses available for rent’ not ‘vacant houses’.
Much of the housing boom has been generated by speculation, the fact that RE prices are rising faster than interest rates has resulted in a large number of properties being bought and sold, being renovated, or held while owner occupiers complete their move to a new residence.
It has been pointed out many times on GHPC that the total number of vacant houses has increased at a greater rate than the population growth (from ABS data). This I feel is a hidden factor that will not cause rents to rise with interest rates as stated in your recent debtwatch – housing is NOT at full capacity.
Added to this are the factors involved in speculation on existing realestate – why buy a property that you expect to grow in price by $50k per year – and then rent it out (with wear and tear and the associated hassle) for $15K per year. I believe many speculators are ‘holding’ vacant properties and an interest rate rise is more likely to bring more ‘for rent’ properties onto the market.
I have not gathered any data to support this theory yet, but I fele that it is a factor that will come into play in the near future.
November 10th, 2007 at 4:41 pm
Hi Cray!
Your theory is worth investigating. Assuming that it is true, then interest rate rise will have an initial pain impact on renters. But in the long run, I think it will have a beneficial impact:
1. Initial impact: landlords may raise rents to recoup their increased loan servicing costs.
2. But sustained interest rate hikes, combined will slowing economy will result in deflating house prices.
3. Investors holding vacant houses will have no choice but to (1) liquidate their investment properties because falling house price + no rental income is uneconomical or (2) attempt to rent out their houses at lower rental rate. This puts further downward pressure on house prices/rental rate. Of course, if house prices deflate faster than rental growth/fall, it will gravitate investors to dump their investment property.
4. As house price deflate further, it will come to a point where renters who previously could not afford to buy houses is able to afford one now.
5. This result in the number of renters leaving the rental pool, thereby reducing the size of rental demand.
6. As a result, then this will put downward pressure on rents.
The government can certainly help by (1) remove all CGT exemptions and (2) Close negative gearing loophole. But this is political suicide for any government to do that.
November 10th, 2007 at 5:21 pm
That’s an interesting observation Cray–I might be lazy and ask if you can tell me which ABS data set has that information. If correct–and I’m sure you know what you’re talking about–then it’s yet another “Catch 22″ element to our housing system. A “rental crisis”, while the number of vacant properties has risen faster than population…
Joseph Heller, where are you? -:)
November 12th, 2007 at 4:09 pm
I’m not Cray, but the issue of more houses and even more empty dwellings has been discussed extensively on GHPC. One relevant ABS Sensus set: http://www.censusdata.abs.gov.au/ABSNavigation/prenav/ProductSelect?newproducttype=QuickStats&btnSelectProduct=View+QuickStats+%3E&collection=census&period=2006&areacode=0&geography=&method=&productlabel=&producttype=&topic=&navmapdisplayed=true&javascript=true&breadcrumb=LP&topholder=0&leftholder=0¤taction=201&action=401&textversion=false
(2/3 down).
I even wrote a rather long Memo about this and possible solutions to the politicos and among others the 7.30 report …. no reaction of course.
Anyway, my intro was:
The first fact that jumps out when looking at houses is that according the census 830.376 private dwellings are not occupied. So 10% of the Australian dwellings are vacant. How is this possible when everybody talks about housing shortages? Another striking number is that the population (and number of ‘families’) increased almost 6% between 2001 and 2006 while the number of dwellings increased over 8%. The average number of people per dwelling remained constant at 2.6. How that is then there is a housing shortage?
What/where are these unoccupied dwellings that even increased in numbers from 717.877 in 2001 (9.2% of all dwellings) to 830.376 in 2006 (9.9% of all dwellings)?
IMHO the issue of a lack of ‘available’ housing and even so more about ‘available’ land is an issue about hoarding for capital gain. Even the states keep (semi-developed) land from the market as they cannot sell it for their ‘wish-price’. This appalling attitude can be translated as that state governments want to play the speculation game and prevent land prices to come down.
See e.g. http://www.news.com.au/story/0,23599,22070844-2,00.html
The only way to force such land on the market would be to make hoarding and holding without building punitively expensive. There are ways to do this, but I won’t hold my breath as the opposition to such measures would be fierce.
November 13th, 2007 at 12:25 pm
Thanks for the link. I’ll check that data out–it is ver intriguing.
I’ll be putting out an “election housing promises special” of Debtwatch tomorrow, once Rudd has delivered the ALP’s election launch speech.
I’ll also be on SBS Insight next week (Tuesday).
November 14th, 2007 at 12:26 pm
Hi Steve, Cray and Dutchie!
I’m intrigued by the theory of vacant housing and hoarding. I think we must be careful here due to the definition of ‘vacant’. If you look at this page at the ABS, it says that:
November 14th, 2007 at 12:29 pm
Correction: The last sentence on my previous post is not part of the quotation from ABS (i.e. they are my own words) and should not form part of the quote.
November 14th, 2007 at 12:56 pm
Cray is correct and you only have to look at the US housing market to see his theory played out in reality.
When prices were rising from 2002-2005 there was a large rental shortage in many of the ‘Hot’ markets in the US. Vacancies were at 1 %, with people lining up to rent properties. But as the market turned south in the last 12 months, the investors tried to sell but were unable to because of overleverage.
These investors were just sitting on the properties rather than renting them for the reason Cray described, but because of their poor cash flow they were then forced to put their investment houses up for rent and the amount of available houses to let has risen considerably. I have seen some statistics of vacancies going from 1 % to 3 % year over year. Some suburbs are hitting 7 % vacancies, with some RE agents offering 1 or 2 months free rent to get someone to sign a long term lease.
This proved that the theories ‘they are not making any more land’ and ‘housing rental crisis’ were false and there really was no housing shortage.
The question is will Australia follow a similar path? The only way to alleviate the rental crisis in this country is to see a sustained drop in the value of investment properties so that the owners see rental income as their main source of income rather than 20% a year capital appreciation.
November 14th, 2007 at 1:15 pm
Hi Contrarian. It’s true that there might be some level of error in the ABS census data, but this error should be expected to remain relatively even between censuses.
Regarding US overbuilding, Hired Goon (GHPC) did a little digging and came up with the following figures:
- – - – - – - – - -
US:
Population growth 01-06 : 4.97%
Dwelling growth 01-06 : 7.18%
US Overbuilding 01-06 : 44%
population: http://www.census.gov/popest/states/NST-ann-est.html
dwellings: http://www.census.gov/popest/housing/HU-EST2006.html
From the census, 2001 – 2006 Australia increased:
Population growth 01-06 : 5.78%
Dwelling growth 01-06 : 8.17%
Overbuilding: 41%
- – - – - – - – - -
Now that’s population, not households. Household formation depends on age distribution and social trends. So let’s look at dwellings versus households. From the ABS census, we have:
Total private dwellings (2001) : 7,790,079
Total private dwellings (2006) : 8,426,559
Change 2001 – 2006 : 636,480 (8.17%)
Occupied private dwellings (2001) : 7,072,202
Occupied private dwellings (2006) : 7,596,183
Change 2001 – 2006 : 523,981 (7.41%)
And we can extrapolate:
Vacant private dwellings (2001) : 717,877
Vacant private dwellings (2006) : 830,376
Change 2001 – 2006 : 112,499 (15.67%)
Now onto households. From HOUSEHOLD COMPOSITION – OCCUPIED PRIVATE DWELLINGS, we get the following totals:
Households (private dwellings – 2001) : 6,744,795
Households (private dwellings – 2006) : 7,144,097
Change 2001 – 2006 : 399,302 (5.92%)
Now that doesn’t seem to tally perfectly with anything above, but take your pick of Occupied private dwellings or Households, and it’s clear that building has exceeded household formation, hence the rapid growth in the number of vacant dwellings.
We can also look to the construction and building permit statistics from the ABS, but it’s just more of the same. We’ve built plenty of houses right through the boom, and despite the cries of doom from the HIA (“building insufficient houses for underlying demandâ€), there is no evidence this is true. Even the recent low of 150,000 dwellings per annum (annualised) would exceed the requirements of our current population growth.
Cheers, F.
Look forward to Insight next week Steve. What’s the topic (please tell me it’s household indebtedness!)?
November 14th, 2007 at 1:22 pm
Oops, I meant to preempt the question “why then is there a rental shortage?” by saying that:
a) Vacancy stats are supplied by REIs and are wrong
b) Spatial distribution of vacant dwellings doesn’t match rental demand
c) Quality/price distribution of vacant dwellings doesn’t match rental demand (as a result of recent trends towards profligacy)
d) Inner-city apartments used for ’serviced apartments’
e) ‘Cray theory’ of speculative house hoarding
Just a few guesses, I don’t have much to back them up.
November 14th, 2007 at 1:31 pm
Shit… sorry, just one more thing. Regarding “assuming that it is true, then interest rate rise will have an initial pain impact on renters”, if history is any guide real rental costs are pretty impervious to external pressures. I think prices would crack before rents broke out. You can borrow your mortgage but you can’t borrow your rent! Here’s a bunch of charts I whooped up:
http://img91.imageshack.us/img91/4893/realrentsvsrealinterestax1.png
http://forum.globalhousepricecrash.com/index.php?showtopic=24062
It shows real rent costs have remained incredibly stable over the last 34 years while the real costs of ownership have varied wildly. If landlords truly were able to pass their costs on to renters, I think these charts would be different.
Okay, I’m done now. Seriously!
November 14th, 2007 at 2:24 pm
Gee, foundation and Dutchie, thanks I have not had a lot of time recently to fiddle with this sort of stuff – so its good to see someone else ‘grab the baton’.
Steve, looking forward to next weeks ‘Insight’ usually a good show – I may even send a reminder around work.
November 14th, 2007 at 3:45 pm
Thanks for all this discussion guys–useful information and perspective for me. I agree that a large part of the rental crisis may well be apartments being kept empty prior to anticipated profitable sales. When that expectation reverses, then forced rentals may well be the first step before forced sales.
On Insight, the program isn’t solely on household debt–it’s on the election, which it has to be given the timing of the program. But you can be sure I’ll raise it as the “elephant in the living room” of the electoral debate–and I suspect that’s a major reason why SBS approached me as well.
Finally, couldn’t agree more with Yohan that “The only way to alleviate the rental crisis in this country is to see a sustained drop in the value of investment properties so that the owners see rental income as their main source of income rather than 20% a year capital appreciation.” I’ve put precisely such a recommendation at the end of an opinion piece that will run in The Age (and perhaps the SMH) in the next couple of days. It will form the gist of this week’s blog (which I’m delaying a bit till The Age piece comes out) entitled “Both Are A Plague on our Houses”
November 15th, 2007 at 10:51 am
[...] in mainstream thinking (we need to thank the people discussing at Steve Keen’s Debt Deflation blog site for shedding light on these [...]
November 15th, 2007 at 11:51 am
I believe it is true that housing shortage is a myth. In one of the western Sydney suburbs, developers (e.g. Skyton, Mirvac) are building plenty of apartments and houses. In one of the apartment blocks, it is 3 years since it was first sold off the plan. Until today, there are still apartments unsold in that block alone. Worse still, other developers are building more and more apartments in the surrounding area. One of the developers ran out of money and was refused funding from the bank- the result was that apartment block’s interior was unfinished and the project abandoned. Elsewhere, in a nearby suburb, Mirvac is building a lot of houses, but there are hardly any demand because there are still plenty of vacant houses. It’s obvious why- Mirvac is still pricing these houses at above market value and refuses to cut price. Worse still, you can see even more houses under construction!
So, we can see that there are over-supply of unwanted new houses in parts of Sydney and over-demand of housing in other parts.
November 15th, 2007 at 1:52 pm
IMO there is one other aspect that often is missed in the discussion, and that is the link between credit cost for companies, hoarding and the availablity of land for building. The housing building industry is no level plying field anymore (not in finance, not in release size and not provided infrastructure).
I think there is enough land available, but this land is in the hand of developers or landbankers which can finance their purchases and carrying costs very cheap with international financing. They can afford to carry the costs of owning this land without any development for a long time. It is in their interest to hold or slowly release in order to prevent a price decrease. Scarcity will generate huge capital gain…. for which you can buy more land with low holding costs to grow the portfolio.
I think you can see this in part in the land sales on the internet. Sets of small pieces of subdivided land for sale for months and months without any price reduction. Look around Cairns and Mackay where whole cane farms are bought out …. and sit as deserts waiting to be built.
I would love to see hard data which parties hold how many titles.
This is why IMO releasing more governmental land available is a farce. It will be snapped up by those ‘developers’ who have the cheapest financing and they will just hold it. Also the size of the releases make it impossible for private parties to buy anything. So in the end the developers/hoarders will benefit.
As said before; IMO the only way to solve the situation is making holding land unproductive prohibitively expensive. There is more to it, but to get the gist: e.g. introduce a yearly penalty of 20% of the purchase price (larger than the expected capital gain) for owning a third property title if that block is not being built after three years.
I think the the discussion needs to shift to the question if you want as society that essential resources like land and housing are hoarded for capital gain. If not, than have a look how you can force such ‘hoarded’ properties back on the market. As a temporary measure I can even imagine you will allow property to be sold to the government for purchase price indexed for CPI and then have the government auction 10% of their stock.
And BTW Steve,
if you get a chance on Insight pls. let them show that ‘debt vs. GDP’ graph … and the also graph with the low percentage of money being used for new building (which undermines the whole negative gearing argument).
These graphs tell more than 1000 words. Most shows have too much discussion and spend no time on the objective facts.
The problem is not high interest rates, but ridiculous record debts that people have taken in chasing houses and capital gain.
November 15th, 2007 at 2:27 pm
Dutchie wrote: What/where are these unoccupied dwellings that even increased in numbers from 717.877 in 2001 (9.2% of all dwellings) to 830.376 in 2006 (9.9% of all dwellings)?
The ABS figures don’t show how many of these unoccupied dwellings are even intended as ‘investment’ properties. I wouldn’t be surprised if a large proportion of these are holiday houses/second dwellings. There has been significant growth in the wealth of the top 20% of Australian families and second housing is fairly popular in that segment. Speaking of which it would be interesting to see how the real mortgage interest/real wages breaks down in to the various quintiles.
November 17th, 2007 at 4:30 pm
Hi Peter M, I do agree that holiday houses would account for part of an increase in vacancies. It is not noted on the census whether the building is a holiday home or not, but I think it is a reasonable assumption that most holiday homes would be outside of capital cities.
The ABS data is grouped per state and per city, and while the increase in vacant houses is larger for the country overall than it is for the capital cities, the major cities did register an increase in vacancies.