Gen X/ Y – Rent don’t buy!

Spirit's Approach
Creative Commons License photo credit: pyramis



Rents up, but house prices down. It doesn’t make sense, but such is life for men and women in their prime trying to find a place to call home.

Land monopoly power exerts its ultimate influence over the rental market. As we have often stated, the final stages of a boom-bust market are that rents jag upwards (up 20%+ last year). This strangles the market and retail stores go first, drowning under high rents, unemployment starts to cascade, then housing repayments falter with foreclosures jumping.

Unfortunately real estate pundits emerge at this time of the cycle tempting first home buyers into the market, just as it is about to crash.

While the biggest savings can be made by buying resource rich areas of Western Australia (in one town it is nearly $4000 per month cheaper to buy a house than to rent it), there are opportunities Australia-wide.

It is simply outrageous that the media can promote stories such as the quote above and cronies for the property ‘investor’ market can be so influential in the information marketplace. Where is the balance to many of these stories?

The reason why it is $4000 per month cheaper to buy than rent in one mining town is that the monopoly power of land owners is still being exerted. Large unemployment cutbacks in the mining industry are seeing such dramatic falls in property prices. This is yet to flow through to rents. It will though in the coming months. The time lag can often be a year or 2 until enough properties get sold for massive losses. The difference between the land price paid and the land value it finally gets sold at is the speculative largesse such monopolists can extort from the market.

The problem is that wages can’t afford these high prices. A few get suckered into believing that they can meet such high repayments, with many miners buying houses at Sydney prices (in the middle of a dust bowl). Once those jobs go, the market tumbles.

To think that the headline states “It’s a buyer’s market, new bank data shows” but yet the suburbs where it is now cheaper to buy than rent are in the most undesirable locations. Yallourn – with your friendly neighbouring power plant, Dimboola – dust storm centrale or Melton West – an hour’s commute, give or take a cancellation/ traffic jam. South Kingsville may be worth a mention, but a saving of $7.42 per month is hardly news.

Lower interest rates are in effect propping up the property market as now more buyers can enter the market. This is delaying the crash we need to have. Throw in first home (sellers) grants, massive infrastructure projects and the occasional cash handout and all we are doing is delaying the inevitable.

Look into the eyes of your friends living on the edge during this panicked era and ask yourself if land based speculative boom-busts are worth it. If you come up with the same answer as we did, then we hope you read these pages, join up for a trial subscription to our cane paper/ veggie inks Progress magazine, sign up to the Renegade Economists podcast or just place a comment in support.

2 Comments

  1. Steven Shaw23-03-2009

    I can’t agree more about those Channel 9 reports of areas where it is “cheaper” to buy than rent. I checked it out of QLD and it was either houses mining areas or apartments in outer areas of Brisbane or Sunshine Coast apartments. Rents are bound to fall dramatically in mining areas. It’s possible that the apartments were new and fetch a premium rent. That doesn’t last beyond say 3 years. In addition, units and townhouses will feel the downward pressure in pricing sooner than houses. Townhouses have been selling at almost house prices!

    However, it hasn’t been just a land-based boom, has it?

    Share values are down 50% or so. Cost of labour is at an all time high – though dropping no doubt.

    What do you mean by the “monopoly power of land” or “land monopoly power”.

    Regards.

  2. Karl Fitzgerald
    K223-03-2009

    HI Steven,

    over 70% of all mortgage costs are land related. Thus if speculators have the monopoly power to withhold the supply of land to the market, they will force prices up and hold the market to ransom. This is possible because we have such low holding charges on land.

    Go for a drive around a new property development to see how only tranches of land and property are sold at once.

    This keeps property prices higher.

    Read these pieces I had published:
    http://www.earthsharing.org.au/2009/02/19/mirvac-land-is-for-hocking-not-housing/

    our I Want to Live Here reports – http://www.earthsharing.org.au/2008/12/08/2008-i-want-to-live-here-report-release/

    Also, check the Secret Life of Real Estate to understand why the land market is the lead determinant of the business cycle. http://www.prosper.org.au/2009/01/20/the-secret-life-of-real-estate/

    keep reading between the lines!

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