The Oversupply of Housing
I had some mates over on Saturday night, and the topic of property came up. I was half pissed at the time and lost my cool at one of my mates who decided to antagonise me over my opinion about house prices and the oversupply of housing in Australia.
You know those debates that you just can’t win? I don’t cope when having them. It frustrates me how you just talk to a brick wall and there is no give in their argument whatsoever. This particular argument was with someone who has never taken an interest in property or economics, and bases all of his opinions off of what his family has done in the property world (another speculator family).
The issue is, people rely on statistics and charts and newspaper articles to believe everything nowadays. From a statistical point of view, in 2006 (the last Australian census) 10% of Australia’s dwellings were unoccupied. The stats prove my point in a very basic sense, but are they really unequivocal?
When I go anywhere I see for sale signs all over the place – houses, cars, even things like sofas sitting on the foot path! I think garage sales have gone through the roof, and on the whole people are trying to free up their cash. Times are tough for a lot of people. If you are one of the lucky ones who has escaped the bad times, good luck to you, but make no mistake that there are a lot of people are out there hurting very bad.
Talking to friends in real life, or reading forums – people ARE losing their jobs. Some are working part-time now instead of full time, others just suffered a few grand pay cut. Statistics don’t prove this that well, and when you need to take averages into account, it’s often very hard to prove a lot of the things that you argue for.
…in 2006, 10% of Australia’s dwellings were unoccupied.
When you suggest to someone that there is an oversupply of housing in Australia, they absolutely scoff at the idea. It’s hard to get your head around something that goes against everything that everyone had told you when it comes to investing.
The most direct situation is when a tenant loses their job, another tenant will move into their house. As far as the landlord is concerned, there couldn’t be an oversupply in the market, otherwise he wouldn’t be able to fill his property with another tenant. While this can be true for a lot of people, if you look at it from a “whole of Australia sense”, the number of tenants decrease, while the number of properties stay the same.
When in dire straits, people will lower their standards – maybe sleep two to a room. You might find a family home with 10 people living in it. They split the cost of the rent and in the mean time two other investment properties sit empty.
In a deflationary environment rents can back peddle. After all, if people cannot pay your price, they simply cannot pay your price. It’s not a decision, it’s just blatantly not possible. As rents re-adjust and come back down to a reasonable level, the oversupply problem eases and people start to rent on their own again rather than sharing. It’s a very similar situation with the house values themselves.
When faced with this oversupply argument, most people just say that it’s not possible. When you link it to a house price crash, it’s just disregarded as a conspiracy theory or something along those lines.
As always, I just ask for people to consider the fact that I (and the others hundreds of thousands of people), may be on to something here. I don’t have a crystal ball, and I don’t need people to take my word as gospel, I just want to see my friends and family consider it and do their own research, before committing to a rather large uneducated decision.