The price of land

The always sensible Alan Kohler on debt levels in Australia – but not credit card debt, housing debt:

The combination of rising population, a lack of arable land and artificial restrictions on residential development in cities has led to a six-fold rise in the median house price since 1986, from $93,000 to $550,000 now. Over the same period, average household incomes have risen 3.5 times.

And now there is widespread terror that house prices will eventually collapse and leave millions with no equity, as happened in the United States. As a result the savings rate has skyrocketed and consumers are on strike, putting money aside for Armageddon.

Debt is making everyone grumpy and hypersensitive. When ANZ put up its mortgage rate by just 6 basis points last week – 0.06 per cent for heaven’s sake! – there was national outrage and attacks in parliament.

The government’s success in dealing with the GFC and holding unemployment at 5.2 per cent is nothing compared to its failure to bring down mortgage rates.

It makes me wonder what kind of a future I’m in for – there’s a lot of people invested (literally and metaphorically) in house prices staying high, but it seems inevitable that, long term, this level of price-to-income ratio isn’t really sustainable. For me personally, I guess I’m interested in thinking about the chances of it eventuating that I spend the rest of my life living as a renter (if prices never fall; or if something tragic happens to my career prospects; or if I simply don’t see the benefit in a mortgage for life…). There’s too many variables, and it’s all speculation anyhow. There are more than a million potential scenarios that could see me owning my own place eventually, and though I’d rather not treat it as an inevitability, it’s certainly a distinct possibility.