Globalisation is rigged to force households deep into debt they can never repay. That was the gist of our argument this week about housing. But this applies to the whole gamut of modern economic life. Both partners work in a modern marriage, which seems to be the result of both choice and necessity. To afford the median priced home, a car, insurance, and the basics of modern life you need two incomes, and even that is not enough.
“Australians love their bit of land, but Census figures reveal we’re less likely to own a home now than we were five years ago while the level of household debt has gone through the roof,” reports Nicki Bourlioufas at news.com.au. The census figures also showed the number of Australians who actually own their homes outright declined from 40% in 2001 to 32.6% today.
Before-tax incomes have risen by nearly 24% in the last five years, from AU$375 per week to AU$466 per week. The trouble is, rents and average mortgage repayments have risen faster. The average mortgage payment is up over 50% in the last five years from AU$867 to AU$1,300. The average weekly rent is up slightly less at 31%, from AU$145 in 2001 to AU$190 last year.
“But that’s great,” a real estate agent might say. “Mortgage payments are up because house prices are up. And when house prices go up, people are getting richer. It’s a little thing we in the real estate business call ‘capital appreciation.'”
What’s not up for anyone, anywhere, is affordability. To chase rising home prices, Australians are having to load up on debt. Borrowed money fills the gap between slowly-rising incomes and fast-rising house prices. As a man in a grey suit said on the TV last night, and we’re paraphrasing here, “It’s more accurate to describe Australia as a nation of home buyers than as a nation of home owners.”
And here’s another thing to think about. Housing bubbles are more accurately described as mortgage-lending bubbles. It’s the supply of money, in this case cheap housing credit and grants from the State and the Federal governments – that push up house prices. The affordability crisis begins with an increase in housing credit. But how does it end?
With falling prices. Buying a home only makes sense under the right financial circumstances. Today, the housing market is rigged to make mortgage brokers, real estate agents, and the tax man rich based on high appraisals and sales prices. But for the buyer? Reject the debtor’s bargain, dear reader!
We’re not offering an easy alternative, by the way. It is tempting to try and get rich in housing. But we think it’s more likely that in trying to get rich on ‘capital appreciation’ many people will become much poorer. As with investing, the first rule is to not lose your capital.
Markets and Money