July 12, 2004


The Age’s unerring ability to detect the clouds corroding every silver lining is expertly displayed in Saturday’s front-page lead:

Australia's six-year property boom has opened a huge financial gap between the richest and poorest Australians, and a seemingly permanent divide between home owners and renters.

The headline? "Property boom splits nation". The piece is co-written by James Button, who bought his first house when he was, I think, in his late 20s. Divider! Nation splitter!

Posted by Tim Blair at July 12, 2004 11:32 PM

isn't there always a divide between 'owners' and 'renters'?

like, one owns, and the other rents?

Posted by: Mr. Bingley at July 12, 2004 at 11:38 PM

So how big is this gap between rich and poor. As I have been hearing about this ever increasing chasim for the last forty years, how rich aer the rich and how destitute must the poor be by now.

Posted by: Le clerc at July 12, 2004 at 11:57 PM

Tell me how the hell anybody who is in their late twenties earning an average salary can save 100k for a deposit on an average Sydney home. Add to that any sort of HECS debt and you have a recipe for a wealth chasm between the generations

Posted by: Juan at July 13, 2004 at 12:16 AM

I was astounded recently to hear that the 'average' first home buyer takes out a mortgage of around $200 000. That doesn't include their deposit, it's simply the mortgage.

Obviously if that's the average there are a lot of people starting out towards home ownership putting themselves in a lot more debt. What chance do most people have to be buying their own home and afford to eat at the same time?

Posted by: Rodney Olsen at July 13, 2004 at 12:26 AM

Rodney, if someone gets a $200,000 mortgage from a bank, they've probably put down at least $20,000 (meaning they were able to save up $20,000, so they're starting off on a sound footing). Also, your payments on a 30-year $200,000 mortgage may work out to less than rent on a smaller property.

As far as the "home ownership vs. eating" dilemma goes, if someone's going to make the jump from renting to owning, they need to take a hard look at their budget. If payments on a $200,000 mortgage are going to cut into the grocery bill, maybe they should think about the $175,000 home instead.

$200,000 is just an average. That doesn't mean there aren't plenty of cheaper properties available. Honestly, I don't see what the problem is.

Posted by: Joe Geoghegan at July 13, 2004 at 12:46 AM

Of course, that comment is based on the U.S. market. Maybe Australian banks demand a 50% deposit and peg their mortgage interest rates at 23%, in which case I would be wrong.

Posted by: Joe Geoghegan at July 13, 2004 at 12:48 AM

It's a simple matter of supply and demand. The fact that demand for single-family homes is strong indicates that more people now than ever can afford the down payment and mortgage. Higher home prices is an indication of greater prosperity overall.

If the left is so terribly concerned about housing prices, they can help increase the supply by reducing the barriers to hew home construction (restrictive environmental laws, zoning regulations, labor featherbedding, workman's comp boondoggles, etc.)

Posted by: mongo78 at July 13, 2004 at 12:51 AM

What is never clear from these headlines is the "wealth gap" doesn't come from poor people getting poorer, but from rich people getting richer. Given that the practical upper boundary of wealth is in the billions, isn't this a good thing. I mean how about a headline that says "Rich, successful people still living in hovels due to progressive taxation."?

Truly these articles are exercises in projection from pathetic, poor journos who are sore because they didn't become investment bankers or lawyers. Fooey on them!

Posted by: Fresh Air at July 13, 2004 at 12:53 AM

Here in California we're riding the skin of a home-buying bubble that is going to burst shortly. Low interest rates are letting thousands of homeowners run up large amounts of debt to purchase home at inflated prices, while current homeowners are refinancing their homes and encumbering their equity with further debt. It will be the situation we faced in the late 70's, early 80's, when homeowners find themselves with properties whose market value cannot support maintenance of the debt they've incurred. Wait a couple of years and you can send all your poor renters here to buy cheap houses.

Posted by: richard mcenroe at July 13, 2004 at 12:55 AM

Richard, don't count on the "bubble" bursting anytime soon. The current housing stock is about a 1.7 month supply in California. In order for the situation to change there must be about a 20 month supply. The population continues to grow and demand is not likely to slwo. This is all good news for renters like me. As more people are able to purchase a home, demand for rental properties is lower and I can actualy find a place to rent that is affordable.

Posted by: Patrick at July 13, 2004 at 01:02 AM

The article: "Inherited inequity, which is probably the thing we've fought hardest to cut down over the past 100 years - to try to give everyone a reasonable chance at birth - is really going to increase very greatly."

Nevermind the strangely termed "inherited inequity", which sounds like something I would politely turn down if bequested to me. But, does Australia actually have policies in place to minimize inheritance for philosophical reasons?

And, how is giving everyone "a reasonable chance at birth" undercut by people doing well in life? Do these critics also want "equality" in outcome, as well? Perhaps the opposition can campaign on promising a six-year property bust to unite the nation-

Posted by: c at July 13, 2004 at 01:17 AM

c, I don't see either how some other guy beng born rich reduces my "reasonable chance."

Posted by: R C Dean at July 13, 2004 at 01:21 AM

Guess you weren't properly taught class envy at a young age, RC!

Posted by: c at July 13, 2004 at 01:25 AM

I live in Texas, am 40 years old and we are building the very first house we have ever owned. My husband has been in the military for 20 years and we never stayed in one place long enough to buy a house, we always lived in small, cramped military housing...we are building a 2800 sq ft house..cost? $150,000.00. I recommend coming to the Killeen area where housing prices are extremly low.

Posted by: KellyW. at July 13, 2004 at 01:27 AM

Maybe the poor can all go live in trailer parks. Oh, wait. The sale of the trailer is how we started the downpayment for a "real" house. My bad. I forgot we weren't supposed to work and save our way up!

This kind of socialistic crap just sets my teeth on edge.

Posted by: Rebecca at July 13, 2004 at 01:27 AM

Back in the good old days renting, for many, was the first step on ones economic journey in life. If one worked hard and saved he/she/it could aspire to own his/her/its very own housing. Much like working at McDonald's as a teenager this was just the beginning on ones road. Now though, I suppose it's too much to expect that one should have to toil a little to earn the right to own housing.

Posted by: Wallace-Midland, Texas at July 13, 2004 at 02:29 AM

If Germaine Greer gets elected you'll have to leave the cities and become hunter-gatherers in an "aboriginal republic". That'll bring your house prices down, you bastards.

Posted by: Harry Hutton at July 13, 2004 at 03:05 AM

In the States, mortgage interest (for mortgages up to $1 million) and property taxes are deductible for income tax purposes. So, the real after-tax cost of buying here is lower than the nominal cost.

I'm not sure the mortgage and tax deductions are fair - after all, not everyone wants to buy a house, or plans to stay in an area long enough to justify it. But what the hell, I take the deduction.

Just doing my part to split this great nation.

Posted by: Butch at July 13, 2004 at 05:40 AM

Rebecca - Amen. Though I don't live in the Deep South anymore, I do get aggravated with the term "trailer trash," because owning a trailer is a perfectly respectable step on the way to owning a more expensive and permanent home (a path that plenty of my family members have followed).

You buy a trailer, rent a spot in a trailer park, then buy some land and move the trailer there while you build the house, then you sell the trailer. It's called working your way up in the world. To socialists, this is unacceptable - we're all supposed to be given houses of equal size at birth, and so what if we trash them?

(And, btw, I'm in a rowhome outside of Philly, in 1500 square feet that I got for only 66,000. And it's in great shape. It's basically the "trailer park" of this area, and I don't mean that as an insult. I'm in a safe, convenient neighborhood with a bunch of other hard-working families who are enjoying the pride of home ownership without having to go hundreds of thousands of dollar in debt. I may not ever make it onto the Main Line, but there's a definitely a satisfaction I never got from renting - a satisfaction that sets socialists' teeth on edge, I suppose.)

Posted by: Kimberly at July 13, 2004 at 08:42 AM

Patrick -- I'd like to think you're right, but I think a lot of people are going to catch it in the shorts, especially if we ever get a Dem administration back in Washington. California already has trouble finding water, fuel and electricity for its current residents, three very basic quality of life ingredients, and given the way Sacramento works, that's going to get worse before it gets better. Case in point, the current initiative to simply criminalize high utility prices, rather than putting the same effort into building new power generation. Given that so much of our power generation is now out of state (our air is better because we've been exporting our polluters to neighboring states, basically), making us an unattractive market to sell to is not the way to keep up the property values.

Posted by: richard mcenroe at July 13, 2004 at 11:49 AM

The article has it exactly ass about. They should be praising the current state of affairs for keeping people out of the market. (Richard McEnroe stated this above.)

The widening gap is protecting those who would be most affected by a crash.

Until now, people have mortgaged themselves to the eyeballs with no room to spare. When rates rise, as they will, there will be pain.

Anyone kept out of the market will be extremely grateful to have been spared the pain, will have saved further in the interim, and will be less exposed to further rate rises, with finance providers building in extra protection.

Whether there is a 'crash' is immaterial. There will definitely be mini-crashes in some areas that have seen prices skyrocket. Other areas will feel less pain because prices have not risen to the same degree.

Those who have purchased conservatively while building plenty of slack into their mortgage should be OK.

On the other hand, anyone who has gone for the absolute best they could possibly afford in a 'boom' suburb, leveraging every last cent of income - and there are plenty in that boat - start panicking now.

Posted by: ilibcc at July 13, 2004 at 02:41 PM

What is it with these economists? Methinks that they are just like mediaeval scholars who argued about how many angels could dance on a pin head, but who didn't know that the earth revolved around the sun. It doesn't matter if there is a gap between rich and poor. That is life.

The poor lefty half-wits like Julian Disney (and isn't that name so apt) who seem to think that economics is a zero-sum game are really starting to get on my nerves. The fact is that evryone is richer than there ancestors were 100 years ago. Everybody in society now has access to more goods and services than ever before, and still the bloody lefties want to pretend that there is a problem because some people can afford 6 houses while some can only afford one.

Posted by: Toryhere at July 13, 2004 at 04:12 PM


Posted by: Jeremy at July 14, 2004 at 12:43 AM

Oh, wait a second, the ban's expired?

Whatever. The point I was going to make is that, despite the "but wealth can be infinite" argument put by some posters above, the property boom did not create wealth. Prices rising simply transfers wealth from those who didn't have property before the boom to those who did.

That extra $80,000 hasn't been magically created out of thin air, it simply comes from the person who's now forced to pay $80,000 more for the same property by virtue of the Howard government's "economic" policy, which artificially makes property investment more attractive than, say, shares, and shovels all that investment money into a field which ought primarily to be about actually housing people.

And now I'll nick off again before the comment nazis on this site ban me again for disagreeing with them.

Posted by: Jeremy at July 14, 2004 at 12:51 AM

That extra $80,000 hasn't been magically created out of thin air, it simply comes from the person who's now forced to pay $80,000 more for the same property

People are now forced to buy houses? Why, because they'd otherwise be living under a bridge? Get real, please.

It's called supply and demand. If people are willing to pay $80,000 more for a property than it cost some years ago, they're doing it because they think it's worth it for them. Not because the previous owner is holding them at gun point to buy the house "or else". And if they're not willing to pay $80,000 more, then they don't get a house and continue to rent instead. It's that simple. There's no universal right to owning a house, you know.

Not to mention that this $80,000 (or however much) increase in value isn't anything but a paper profit, until you actually find somebody to sell to. I honestly can't fathom how you got the idea that this unrealized profit "hasn't been magically created out of thin air", because it has. Or do you honestly think if I buy a book for $10 and then claim it's really worth $15, somebody else just lost 5 bucks?

Posted by: PW at July 14, 2004 at 02:15 AM

Good god, Jeremy, you are an idiot. How do you find your way home at night? Ban you? I would never deny the other readers here the opportunity to laugh their heads off at you.

Posted by: Andrea Harris at July 14, 2004 at 12:22 PM

now now please be nice to our mentally disabled vistor jeremey who clearly believes in the mythical tale of real value which is obscured by those nasty capitalists lead by the devil incarnate John Howard

Posted by: Just Another Bloody Lawyer at July 14, 2004 at 11:47 PM

Gosh, Andrea, you have got a short memory, haven't you?

PW, I'd love to have this argument with you, but I'm not going to do it here, because just when we get somewhere, the site owner will ban me. You can debate me on my blog, if you like, or on another forum. I believe in free speech, unlike the owner of this site.

Posted by: Jeremy at July 15, 2004 at 04:23 PM