It's time for a collective cold shower on house prices: Terry Ryder

It’s a curious factor in 21^st Century Australia that whenever housing prices rise, even moderately as they are currently, hordes of attention-seekers start looking for someone to blame.

 
The first curious thing is that anyone would think “blame” is appropriate. Apparently rising home prices is a bad thing, although two-thirds of Australian households (those who own their homes) have good reason to feel it’s a very good thing. And indeed, given that we’re all required to provide for our retirement and the family home is (for most people) the basis of their ability to do that, it’s also a good thing for the nation.

 
The second curious thing is that the finger-pointers never get it right in apportioning blame. Popular but misguided options are property investors (supercharged by negative gearing tax benefits, apparently), foreign investors (who pay silly prices, according to popular theory) and first home buyers (driven by government grants and stamp duty concessions).

 
The third curious thing is that the many people shouting “crisis” never produce any research data to support their theories that investors/foreigners/first-timers are the guilty parties in creating the outrage of increasing home values. This is because the data doesn’t exist. There’s no basis for any of the theories.

 
The reality is that the bulk of property buyers are next-time buyers – i.e. home buyers other than first-time buyers. Unlike first-timers, next-time buyers have the capacity to pay a top price and, unlike investors, they have the motivation to do so. Next-time buyers are more than half of the market (more than foreigners, first-time buyers and investors combined) and have the bulk buying power to cause prices to rise.

 
Curiously, no one ever blames them – the real movers and shakers in the property markets.

 
But, wait, we have a new contender. The Reserve Bank has come up with another candidate in the blame game: mums and dads who start self-managed super funds and buy real estate.

 
Those of you who thought that you were doing the right thing by your family and the nation by seeking this method of providing for your retirement, think again. You’re naughty boys and girls because you’re pushing up house prices. The RBA wants you to have assets in your SMSF that don’t grow in value, apparently, if that makes sense to anyone.

 
I think it’s time for the whole nation to take a collective cold shower on the issue of house prices. Since mid-2010, the last time we had serious price growth in the capital cities, we have had two years in which prices generally declined.

 
In the past 12 months the weighted average across the eight capital cities is a rise of 5% to 6%, depending on which research source you prefer. That is moderate growth only, roughly in line with the rise in incomes.

 
Keep in mind that the weighted city average in the ABS House Price Indexes in June quarter 2010 was a rise of 18.4%. Every city except Brisbane was in double digits, headed by Melbourne’s annual rise of 24.3%.

 
Growth of that sort might justify the current frenzy of comment about booms, bubbles and blame. But, right now, rather than the “white hot” markets that some are screeching about, we have lukewarm markets only.

And no one deserves to be blamed for that.

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Terry Ryder is the founder of hotspotting.com.au and you can contact Terry via email or on Twitter.