“No Visible Means of Support”

Keep on Rockin' in the Free World: Part 5 of 5
Creative Commons License photo credit: DrWurm

A term employed in Vagrancy statutes to test whether an individual has any apparent ability to provide for himself or herself financially.

The Law frowns upon people who make their living outside formal employment. Yet it bows deep before land and property.

Irrational confidence has inflated property prices so far they bear no relation to what they might rent for. A nation of speculators, their vision fixed on the gains to be seen in their rear vision mirror, have bought and bought and bought.

The rent-price ratio is a key measure valuers use in more normal times. If a property’s rent covers the mortgage, the owner is bullet proof. If she had to move away for work, renting it out would protect both her and the mortgagor.

The house price boom has separated prices and rents. Gross yields are currently about 2.5 per cent where I live in leafy suburban Balwyn. Subtracting agents fees, rates, taxes and something for depreciation leaves … nothing.

I say, Australian real estate has no visible means of support. It has entered a vagrant state and ought be locked in a jail.

People ask me regularly: When should I buy? My answer is easy: When you have a twenty per cent deposit and rents equal mortgage payments – when the property has the apparent ability to support itself.

They look at me as if I had uttered a heresy: house prices are a million miles from that! Well, that is how much they will change; that is how far they must travel.

Anyone purchasing on those terms is bullet proof, even if prices keep falling.

Don’t Buy Now!


  1. Paul09-11-2011

    I hope you are correct, David. I am 32 soon and I have been deeply upset by our property market for more than 10 years. As I approach 35, the prospect of owning a home seems reserved for fools and the wealthy. More depressingly, the thought of having a child seems like financial murder/suicide/ for my partner and I. I can remember the Australian Government under John Howard investigating “record high house prices” back in 2002. Since then, things have gone from bad, to worse, to downright depressing. The upward spiral has been truly unbelievable.

    Your short article was spot-on, prices must travel extremely far south for a return to normalcy. To be honest with you, I don’t know how this country is surviving. I thought private debt levels would have asphyxiated our economy by now, but people in Australia seem to be very good at working very hard.

    A acquaintance of mine, who is 27-years-old, bought his first home in 2009. He was forced to move out back home with his parents and rent his new place in order to meet the nightmarish repayments. Now, even with renters in his home, he must work 7 days a week to meet his $900 per week obligation ($230 of his repayments are covered by the renters each week). He has to endure this financial abyss for the next 22 years. The home is in Epping, Melbourne, or, as I like to call it, ‘Melbourne’s Heart of Darkness’. And, to top it all off, my acquaintance is an advocate of higher house prices – he sees himself as a kind of Aussie Donald Trump. I see him as a kind of poor, Epping-based Lachlan Murdoch/James Packer during the OneTel days.

  2. Nexus78909-11-2011

    We may have the ‘Seneca effect’ in evidence for the property market – this is where decline is faster than previous growth.

    It is hard to contemplate that we are going to see a gentle downward slope of the housing market. Instead we will probably see a rapid decline so that we may end up calling it a collapse.

    Other factors (debt borrowing restrictions, rising unemployment, other rising costs, rising inventory, etc) may contribute to accelerating a decline that is much faster than the property market grew on the back of land restrictions and ‘cheap’ debt.

  3. David Collyer09-11-2011

    Paul, I couldn’t express it better myself. Young adults are presented with 2 vile choices: buy at these prices and spend the rest of their working lives paying principal + interest or consenting to being a secod-class citizen in a property-owning democracy by renting from some pumped-up rent seeker who thinks his narrow, self-interested opinions should prevail. Bah! Humbug!

  4. David Collyer09-11-2011

    Nexus, bear markets typically take a third of the time to retrace a bull market’s steps away from the long term trend. I see land prices halving over six years, of which about a year and -8.3% have already passed. I realize my prediction probably means a serious recession coming after 18 years without one. Meanwhile, these high land prices are killing people through overwork and stress. I am sorry for those with big mortgages, many of whom will fail, but how else can we get back to normal prices.

  5. Paul09-11-2011

    Hi David

    Nicely put! People who are ‘investors’ need to wake up to the fact that a negatively geared property is a weapon of major wealth destruction with no foreseeable capital gains in the near – medium term. Macrobusiness has done some nice recent work which supports your contention that the primary lead up in prices is attributable to land and NOT larger homes or construction costs etc (which has pretty well been in line with inflation). Eg average block in Brissie where I live has risen from around $120K to well over 200K during the build up of this housing bubble.

    Homes at fair value would be maybe 3 – 4 times the annual median income. So, I think fair price for a unit would be around high 180 – 220K. A house maybe 240K are there abouts. We are a long way from that! And before anyone says ‘impossible’, take a look at the average American home price which I believe just hit 175K after 5 years of declining prices…

  6. Jason16-11-2011

    About three years ago my partner and I realised there was no way we would ever be able to afford a home in Melbourne. The prices even then were completely insane, around 550K-700K for a 3 bedroom weatherboard on 350m2 in Northcote.

    So we decided to move to a regional area where we bought a 3 bedroom brick veneer on 1000m2 for 220K. I still work in Melbourne and the commute is a bitch, around 5 hours a day door to door. BUT, the mortgage plus Vline train ticket is still less than rent in Northcote so we feel like we made a good choice. Evidently so do a few hundred other people given the number of familiar faces on the train.

    There’s a mini prices bubble even out here, our place would probably sell for over 350K based on recent sales in our street.

    This doesn’t seem sustainable, but even if the prices were to drop back to around what we bought for, we’d still feel like we’re better off that the poor sods who are risking everything for a house on the city outskirts with a $900/week mortgage.

  7. Graham18-12-2011

    Five hours a day commute!?? My god that’s crazy to me… I totally understand why you wouldn’t pay the ridiculous price for inner city dwelling but such a long commute seems crazy to me as well. Things are really out of whack :-(

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