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NSW Home builders going bust - housing shortage to worsen

Discussion in 'Real Estate' started by Billv, 10th Feb, 2009.

  1. Billv

    Billv Getting there

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    Another three building companies have just collapsed in New South Wales, owing trade suppliers hundreds of thousands of dollars and leaving about 40 people with unfinished homes.

    NSW central coast company Kingstone Homes and Newcastle firm Iconique Designer Homes have been placed in liquidation, while the owner of Pacific Blue Homes has walked away from his Armidale business.

    The companies have gone bust after the collapses of Beechwood Homes last May and Wincrest Homes last month.

    The liquidator of Iconique, James Shaw, says the company was crippled with debt.

    "There's the argument that they probably should have done something earlier because in this particular case, I think the local creditors, the trade suppliers, are owed in excess of $900,000," he said.

    A client of Kingstone Homes, Bryce Conrad, says he was left in the dark about that company's financial problems.

    He says he only discovered Kingstone was in financial trouble when he did his own research after it asked for advance payments a week ago.

    "It was clear that they weren't finished that stage [of building] and they asked for us to transfer some money, actually asked for a cheque and if they could pick it up themselves or if we could drive it across," he said.

    "That's quite bizarre. We said we could do a direct deposit if needed but they said, 'Oh, we changed our bank details,' so the flags went up."

    More here
    Three more NSW building firms collapse - ABC News (Australian Broadcasting Corporation)
     
  2. Chris C

    Chris C Well-Known Member

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    I know how you might interpret "housing shortage to worsen" but the reality is no one is borrowing to build, which is why this company collapsed. What you really should be reading into is...

    What that means is, people aren't buying anymore (aka there is no shortage because there is no demand). So all these builders with these big debts are going to the wall. The unfortunate thing is because we are Australia and we neeeevver have recessions every man and his dog has debt up to his eyeballs.

    Expect a lot more builders to go bust, and don't expect house prices to rise while it happens. I know you disagree with me, but can I suggest that the mass media's continual cries of "there is a housing shortage" may just be a real estate lobbying media companies to push their agenda in exchange for advertising dollars... just entertain the idea.
     
  3. dudek

    dudek Well-Known Member

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    Regardless what media say I would argue that if company producing goods and services collapses there will be growing demand for products and services and at some point prices may (I use word MAY) raise. Growing demand and assuming growing prices will attract more suppliers looking for opportunities to profit. It applies not just to RE industry; it is a rule of free market.

    Business is not a charity. they would not build houses if they don't make profits.
     
  4. Chris C

    Chris C Well-Known Member

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    This is not a situation of one builder goes bust and there is a shortage of supply. This is a situation of builders are going bust because there is a shortage of demand! So it doesn't matter how many builders collapse as a result of shortage of demand, prices are going to fall as builder compete for what little demand their is, and as a result inefficeient and overleveraged builders will be weeded out of the market.

    In the current climate demand is goign to continue to go through the floor (you only need to look at consumer confidence levels to see the trend). Until the future is more certain there is going to be a decreasing number of people willing to highly leverage themselves into property, especially given the already high prices.
     
  5. Jacque

    Jacque Team InvestEd

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    So why am I seeing so many of them out there trying to buy in this climate? Perhaps because their rental payments aren't much lower than their likely mortgage payments (at around 5.5%)- so much for decreased demand. Hey, I'm no economist so what would I know ;) but I am on the streets every day looking at property here in Sydney.
    Sure, builders will go under- there's a glut of them and margins have been impossibly tight in recent years for them to make enough profit. But I think it's drawing a long bow to conclude that just because businesses start to go under in this climate (and it's certainly not restricted to builders) that budding home owners will give up their dream. With a $14K or $21K start and decreasing rates, it seems almost the ideal time to get into many Aussie markets in the lower end.
     
  6. Billv

    Billv Getting there

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    Chris

    It's a combination of not enough orders, low margins and credit being withdrawn by the banks. The orders are now coming in but the banks are not willing to play ball.

    It doesn't matter much because people simply go to the next builder
    and those builders will have a bigger profit but it is another sign of greed by the banks.

    I think the government needs to remind the lenders of their social responsibility and those who don't comply should have their deposit guarantee withdrawn
     
    Last edited by a moderator: 11th Feb, 2009
  7. dudek

    dudek Well-Known Member

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    Chris, some of us already experienced at least two recessions in our life time. I know things are new for you and you are getting exited about reading and studying etc… Good for you.
    I just would like to point that housing market is very closely linked with the economy cycle. Prices are going up as soon as people get more credit available. It happened in 80s and it happened in recent years as well. What is happening next is normal. No one is expecting RE to go up if there is no credit available. Saying that you must assume to expecting unexpected. In 1997 everyone including media painted very gloom picture for RE market. Very logical and solid argument: after Olympics there will be not much projects left and booming building industry was meant to collapse. Five years later houses doubled in price against the prediction of many experts. I am not trying to predict the future based on past but as I said strange things may happen and we don’t have control of it.

    I am ready to argue affordability with you on this forum as I get very touchy when someone who wants all and now is blaming everyone but not themselves for lack of ability to manage their lives.
     
  8. Chris C

    Chris C Well-Known Member

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    Rising unemployment never seems to complement property price growth. I totally agree with you that for those out there that have a secure job and are looking to buy their first place, then now would look like as good a time as any, when factoring the "traditional" influencing factors.

    I just happen to believe that we aren't in a a situation that could be described as "traditional" at the moment.


    Well for credit growth to continue this economical bull run we have seen over the last 16 years you need both people that are willing to borrow AS WELL AS banks that are willing to lend. Short of that you will have contraction in M3, this will lead to recession assuming the velocity of money stays the same.

    I'm actually beginning to believe it is more a sign of the banks being up the proverbial sh*t creek. Not many people are really talking about it, and to be completely honest there is good reason for, with banks being leveraged like 25 to 1 even a minor run on any of the major banks could cripple them.

    Once again, I think there is good reason why they are not lending. Like you said the banks like making money, so if they are knocking bad genuine customers it is for a bloody good reason.

    I totally agree that if credit starts increasing again like it was then asset prices will start appreciating in value again, of course this isn't real growth, this is just growth fabricated by a greater volume of fake money (which is controlled by bankers) being in the economy.

    My arguments centers around the position that there is too much CREDIT in the system. It's not sustainable and more importantly it's not real wealth, and a contraction of credit levels in Australia will force asset prices down amidst a deflationary recession.

    I unfortunately don't subscribe to the belief that "we don't have control of it" because in this situation "control" just refers to whether you have "knowledge" of the likely progression of events.

    Now I'm not suggesting that I have such knowledge, but I do have the belief that the vast majority of things happen for a reason and as such it is completely possible to obtain the knowledge to adequately understand the relationships of the system and as a result make insightful albeit general predictions of the likely economic future. It's with this belief that I pursue greater understanding of the world.

    Well my parents comfortably could afford their first home at 19 years old, by 22 they could afford their home and me, on one income. It is virtually unheard of (at least in my circle of friends) that a 22 year olds could afford to do that these days.

    I won't disagree with you that my generation wants every now, but that is only a transference of character from our baby boomer parents who showed us who all we had to do was rack up massive credit and pay it off later and you could have everything you wanted, and as as silver lining you could take out supper high leverage on a home that was more than you needed and then in a few years time you could just sell it at a massive profit and keep the difference, because there just always seemed to be a bank that had an endless supply of unbacked (aka fake) money.
     
  9. dudek

    dudek Well-Known Member

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    This is the weakest argument you could ever produce. Example of your parents is NOT the best to compare affordability.

    My wages and property raised proportionally since 1997. Yet people today would say they can’t afford 450K house. I say 185K in 1997 looked to me like a wall of money and that is why home loans last 25-30 years.
    I argue how today’s prices are more unaffordable that 10 years ago?????
    There will be always suburbs where no average person can afford to buy in as a first home buyer. That is why people are building their wealth over the years and upgrade their houses and improve their live style.

    As of the baby boomers I get shivers whey I see people pointing finger at whole generation.
    Does it mean I can point finger at my parents generation for causing WWII ??????
     
  10. Chris C

    Chris C Well-Known Member

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    Well then you are the exception because most people didn't have their incomes appreciate by 10 - 15%pa.


    I get the shivers when I see Baby Boomer point the finger at my generation (the generation they raised) yet seem to be able to not look in the mirror to see what they have become, and more importantly, the world they have created!

    Seriously I think Baby Boomers have really let the ball drop. This world is facing so many crisises over the next decade or two. I have already expressed on these forums at length about how I feel about the Baby Boomer delusions on retirement.

    [/QUOTE]Does it mean I can point finger at my parents generation for causing WWII ??????[/QUOTE]What messy outcomes of WWII did your parents leave for you to clean up? Because I have a long list of messes Baby Boomers have left for my generation, and I for one will be refusing to clean them up.
     
  11. dudek

    dudek Well-Known Member

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    Look at the average wage in 1997 and compare with average wage today or even better compare minimum wage. I would safely say it doubled since 1997. Also compare RE prices, not all suburbs will come the same but if you take average you will get very close.
    Eg. 1997 - 185K, 2009 - 450K

    How do I take your question. Lack of knowledge or pure arrogance?
    I give you one clue and you work the rest out=50 years of communism.
     
  12. Chris C

    Chris C Well-Known Member

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    I'd love to know where you are getting your figures from...

    Communism in Australia??? Not that we have communism here, nor was it a product of WWII, but I wouldn't be badmouthing it given democracy is exactly producing the wonders for the world many had hoped it would.

    Rather than giving me a clue, how about you form an arguement on how the generation prior to you has left you high and dry like the Baby Boomers have done for mine, and future generations to come.
     
  13. dudek

    dudek Well-Known Member

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    I live here.... I paid 185K in 1997 market price is circa 450K

    what are you smoking Chris????

    I never mentioned communism in Australia as much I would not say Auschwitz is in Brisbane. However I must say it was my parents generation who did it.
     
  14. Chris C

    Chris C Well-Known Member

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    Here is a 52 page report conducted earlier this year - http://www.demographia.com/dhi.pdf - they have a stronger arguement than "I lived here" to justfied their findings that housing has become more unaffordable over the last couple of decades. I think you will find the graph on page 19 adequately shows the direction of house prices to median income.

    I found it interesting to note that house prices in all capital cities, other than Sydney, were around 3 times median income in the early 1980s, but they are all above 6 times median income now.
     
  15. dudek

    dudek Well-Known Member

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    We can’t dismiss the fact that woman are more involved in professional life. While “times median income” argument is valid it may not be reflected correctly in statistics as we may have added (perhaps not doubled) median income per household since 80s.

    PS. Chris I live here and I know how much I paid and how much I can ask for my place today so I don’t need statistics to tell me what I already know.
     
  16. Chris C

    Chris C Well-Known Member

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    Doesn't even come close to making up for the discrepancy. You can't negate the fact that much of women's incomes goes into expenditures on jobs and services that she would have otherwise done herself, ie, childcare and household related services, plus in the case of families the tax benefits are reduce very significantly.

    I actually watched a report not so long ago, about the number of women opting not to go back to work after child birth is increasing due to the overall financial gain being so marginal. Also the high cost of housing would have no doubt prompted many women to work, who otherwise might have not, because property is so unaffordable these days it would be very difficult to support loan repayments on a single income.

    The report actually makes comment on a number of delusional excuses people use to justify high prices, most of them whilst no doubt have "some" influence, they have not caused 5+ median income high prices to be sustainable in the long.

    The reports major finding was that regulation on land supply and zoning restrict supply to the point where it forces prices up. Now you could argue the point that this won't change anytime soon, but the counter argument is that it can very easily be changed, if citizens lobby government to make housing more affordable, and ultimately they will have to one day because high housing prices stifle economic growth as increasing proportions of incomes are spent just servicing large loans.

    I can appreciate that, but your case is not representative of the Nation, or even Sydney. Your suggestion that your experience is reflective of the market is like choosing one stock on the stockmarket and saying that its earnings and price are reflective of the entire index.

    You have obviously been more fortunate than most, but that doesn't negate that Australia's housing is the most unaffordable housing in the world.
     
  17. dudek

    dudek Well-Known Member

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    Chris,
    People always want things for free no matter what price tag you attach.
    People already addressed housing affordability during the last elections and you tell me if government did anything in last 15 months in office? (besides talking) What we see is market regulating itself and adjusting to economical conditions.

    IMO government solution to build public housing can make things worst. While they build ghettos of cheap houses people who value quality life style will run from it to other suburbs pushing prices even higher. There is a reason why you pay premium for everything including houses.

    No I am very, very down to earth avarage person, taking all with a bit of salt.
    [/QUOTE]

    [/QUOTE].... but that doesn't negate that Australia's housing is the most unaffordable housing in the world.[/QUOTE]

    Chris, once again I do not agree with you. We often misuse the word “world” We think "world" is us. Think about it, if we were the most unfordable place on this planet why we have such a high percentage of people owning houses compare to the rest of the word? I lived in few countries and I can tell you that rent we pay in Austaralia in capital cities is smaller (compare to wages) compare to other places. Try to buy 3br unit 10km away from London or Paris CBD. Or even rent it...... good luck
     
  18. Chris C

    Chris C Well-Known Member

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    Of course nothing has changed, you can't make housing more affordable without popping the housing bubble, which would take the economy with it, you only have to look around the world to see what a housing collapse does to an economy.

    So the government has a vested interest in doing nothing (aka maintaining market inefficients, like the FHOG, stamp duty exemption, regulated urban footprint), but that doesn't mean nothing should be done. The right thing to do in life is often defined by what is the hardest to do, and government have a long track record of opting for the easier solution, but that is ultimately is what flaws democracies and as result great tragedy of commons occur.

    My point was that there isn't really a market system, because supply is regulated. To have a competitive market you need no barriers to entry, but unfortunately government control the supply of land releases and development zoning aka the urban footprint. My understanding is they only update the urban footprint once every 4 or 5 years.

    So in layman's term, even if I bought a block of land that was big enough to build 4 townhouses on it, that doesn't necessarily mean I'm allowed to. Therefore supply is regulated, propping prices up.

    My point is the primary reason there is a housing shortage in Australia is because governments regulate the land releases and zoning. So then intuitively when those inefficient regulations are eased, your housing shortage that props prices up will be destroyed rather quickly.

    I'm not advocating more government housing would be the solution to the problem, it would probably only add to the problem. I'm suggesting that less government regulation in terms of land releases and zoning would alleviate the problem, or at least releasing land and rezone at rates and levels that equal demand rather than result in under supply.

    Yes there is a reason, it is called market inefficiency. Things like the FHOG, etc.

    Regardless of who you are or your personal experience, they are still not reflective of the aggregate or median of the population, therefore they for the large part are not relevant to making broader judgements. I don't make assessments on individual circumstance, I only make inferences based on aggregate and macroeconomics influences.

    Because it doesn't take a rocket scientist to see the inefficiencies in the market and realise that housing prices are skyrocketing and have been for decades, and as a result buying a house ensures you aren't left behind by the inefficiencies in the market.

    Of course the average joe six pack wouldn't describe or understand the housing growth situation in an economic sense, they'd say something like, "Mate housing prices always go up aye! So if I can get a loan now and buy a place then in like 5 or 10 years the house will be worth tons more aye, not to mention that with like inflation and the pay rises I'll get over that time the loan will become real easy to pay. Plus a bloke I was chatting to at a mate's BBQ the other day made a good point, like if I don't buy now, I probably won't ever be able to afford a house in 5 - 10 years time, because I fully don't think my income will double in 5 years time but the cost of housing will - so I better get in before I'm priced out forever."

    Of course market inefficiencies are not sustainable in the long run, and eventually an economically responsible government will make reforms, or the government will forced to cut back its spending on maintaining inefficiencies in the economy, in times of need.

    Like for example at the end of this recession Australia will have a big debt to repay, to do that the government will be forced to raise taxes or cut expenditure. Now if in 3 - 5 years the worst is behind us, do you think the government will continue to spend 10 billion+ on FHOG's a year, when it could be paying back debt?


    That's exactly the point. Prices are too high to justify the rental returns, which is what investments are based on, and before you tell me people don't buy property as an investment, I appreciate that Australian housing is 70% ownership and 30% investment property, but given the rising unemployment coming the declines will actually be prompted by the ownership sector through forced sales, which will encourage astute investors to exit the market before the big unemployment increases.

    Also I'm naive to the fact that rents have been catching up a bit of late, but this poses its own problems. The level rents are getting to are also becoming unsustainable, as Australian unforunately don't earn nearly as much as your average New Yorker, Parisian or Londoner. The only Australian city that even comes close to competing is Sydney, and it is still well short of the mark. Therefore rents and prices in most capital cities should be well short of the the cities you mentioned, but they are not, the are quickly catching up, only because we have yet to see the adverse effects of recession prompting credit contraction and rising unemployment.

    Also have you tried buying in those places of late - I bet you'd find it wasn't nearly as expensive as it used to be.

    Also I just finished reading this article in the Australia the other day about falling property prices over 2008:

    Australian home values dip 8pct in 2008 | The Australian

    That said I don't understand how they got 8% from their figures unless they are factoring that price declines plus inflation equates to a real loss of 8%. Either way the only way is down from here, though on the plus side inflation won't be biasing any figures anymore, the losses will be both real and nominal.

    :rolleyes:
     
  19. dudek

    dudek Well-Known Member

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    Sorry you lost me here. Read your reply back and see if it makes sense. Your answer is totally irrelevant to my question. That question was: if we have such a high percentage of house ownership why are we the worst affordable place on this planet?

    The answer is "WE ARE NOT WORST AFFORDABLE PLACE IN THE WORLD" this is what statistics and media driven propaganda is pushing at us. We had one of the lowest unemployment rates in the world for unprecedented period of time. RE prices went up because people had money. This may change in the future but at this point of time we can afford to buy RE because we still have low unemployment rate and to top it up we have historically low interest rates. This makes RE very affordable.

    Again, I am failing to get your point and is not my English, you just don't answer my question but rather write the whole book of nonsense.
    I made a point that rents in other countries are higher relatively to wages.
    Even if you find smaller town more affordable it is simply because there is not much jobs around. To give you example I have seen towns with 100% unemployment in Southern Spain in 1990.

    You don't need to agree with me but Australia is still affordable place to live and rents aren't high as we may think.

    Point is RE can go down but you have to realise that there is also room to go up. Something that most of the people in this country refuses to even consider.
     
  20. Tropo

    Tropo Well-Known Member

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    Dudek,
    You are correct !!
    For example in France an average wage is approx 1600 euro per month !!.:rolleyes:
    One bedroom apartment (35 sq meters) very close to Notre Dame starts from 700,000 euro.
    Rents are so high....that not many people can afford to rent on their own even small studios.
    Australia (incl Sydney) comparing to Europe is still dirt cheap !!!:cool:

    Paris - Furnished apartments - Page 1