First Home Buyers Strike – Is there a choice?

3 04 2011

Just over two weeks ago a campaign was started urging first home buyers to boycott buying a house in what is considered the most expensive property market in the world. In the last 48 hours, the campaign has achieved phenomenal momentum in both mainstream media and online.

The campaign was started by Tax Reform group Prosper Australia to prevent first home buyers being caught up in what could be one of the biggest real estate collapses in the world. “When the Great Australian Land Bubble bursts – just as land bubbles all around the world have – the freshest buyers are totally exposed. They face financial ruin as house prices fall below their debt. The crippling mortgage repayments become pointless,” Prosper campaigner David Collyer warned.

“We cannot help those who have recently bought, but we can warn prospective buyers – particularly first-timers whose innocence and heavy borrowing leaves them uniquely exposed.”

The Sydney Morning Herald ran a story on the strike yesterday attracting 486 comments. Later in the afternoon, News Limited papers, other FairFax papers including The Age, and a swag of international papers were in on the beat. Today, Sunrises’ Kochie interviewed David Collyer as the campaign hit top gear.

With the market already in a down swing, this could be the knife in the back to finish the job off. Scared Real Estate agents and property investors are on the defensive saying such a campaign is irresponsible and a crash of the housing market could throw thousands into unemployment.

In the Sunrise interview Kochie said “Look the market is already slowing and coming down. Yes, we have the most expensive housing in the world, You don’t want it to crash though, do you?”. David Collyer responded with “We don’t want it to crash in particular, but we suspect it will. Its gone so high and so far, when it returns to norm, it will be quite painful, a lot of people will get very hurt.”

But what are the choices?

Kochie is quite correct. Our housing market is one of, if not, the most expensive in the world and is already starting to cool. Just today, hours after the interview on Sunrise, RPdata released statistics showing National capital city house prices fell 1.3 percent for the three months to February. Darwin is leading the falls, recording a drop of 9 percent in the three months, and 6.7 percent for the single month of February. We have record level of property listings, suggesting everyone is flocking to the exits at once. Housing finance is contracting, along with personal, commercial and lease finance and building approvals are plunging, recording a 21.8 percent fall in February for total dwellings approved.

Reality is, many first home buyers are not choosing to strike – they are forced too. As the property bubble grows faster than wages, many no longer can afford to enter the market – they are priced out. Others have already done the sums and have found it is cheaper to rent. The Economist magazine found based on house price to rent ratios, Australia has the most expensive housing in the world. The glass half fall person, will immediately understand this means we have the cheapest rents in the world, compared to house asset prices.

Banks are starting to comply with new National Consumer Credit laws seeking to achieve “responsible” lending. Under the new laws, banks just can’t give loans willy neally to consumers anymore, they have to actually make sure the consumer can afford them! (yes, I know this is radical). When announcing the bill last year, Nick Sherry, Minister for Superannuation and Corporate Law said “This is a major enhancement to our consumer protection regime and is a decade overdue”. A decade?

“Some families who can in fact maintain a reasonably sized mortgage are often saddled-up with more debt than they need and often more than they can repay. This can lead to losing everything and it just won’t be tolerated anymore. The responsible lending laws will make it illegal for a lender, known as a credit provider, to extend credit for a consumer that is unsuitable based on their needs and their financial capacity.”

It’s no wonder we have quadrupled our household debt as a percentage of household disposable income over the past 30 years, with much of the fat put on in the past decade.

But even if First Home Buyers could continue to access finance to keep the market a float, is it really sustainable long term?

It’s no coincidence that retailers and businesses around the country are going belly up. The Colorado Group is the latest causality, calling in the administrators yesterday. The group owns 434 stores Australia wide under the Colorado, Mathers, Williams, JAG and Diana Ferrari labels and employees 3,800 staff. It follows collapses of Ed Harry, Angus and Robertson, Borders etc with the Administrators of Angus and Robertson announcing the closure of another 12 stores today and the loss of another 102 staff. Retail veterans such as Myer’s Bernie Brookes has never seen the consumer so fragile over his 30 years of retailing. As housing expenses continue to outpace household income, less money is available for discretionary spending among our retailers employing 11 percent of the population and accounting for 19 percent of GDP. Quite possibly the retail and support staff losing their jobs will find it hard to service their mortgages, eventually leading to the collapse of the housing market. After all, the housing market was cooling well before the 15th when Prosper announced the campaign.

Australia’s housing bubble is not based on any fundamentals, but is (was) growing on the continued expansion of credit and immense speculation. Its not sustainable, and will collapse regardless of a strike of first home buyers. As David Collyer warns, Its gone so high and so far that when it returns to norm, it will be quite painful and a lot of people will get very hurt.

» Prosper Calls for Buyers Strike – Prosper Australia, March 15th 2011.
» First Home Buyers – Property Buyers Strike – GetUp! Petition Site .
» Don’t Buy Now! Property Buyers Strike – Facebook Page
» Online campaign targets high cost of housing – The Sydney Morning Herald, 30th March 2011.
» Beware a ‘buyers’ strike’ in property – The Sydney Morning Herald, 31st March 2011
» First home buyers ’strike’ growing – The Adelaide Advertiser, 31st March 2011.
» First home buyers urged to go on strike – The Sydney Morning Herald, 31st March 2011
» Australian home buyers ’strike’ over inflated house prices – The Telegraph (UK), 1st April 2011 Thursday March 31st




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