Saturday, July 14, 2012

High Quality or just Super-Sized?

Why the Australian Property Bubble is Only the Beginning
. . . The houses they are building actually depreciate. On top of that, the quality of construction is often cheap. So that’s what’s behind the negative equity.’ Say it ain’t so? Aussie homes are built on the cheap? For years property spruikers told you the reason Australian house prices are so high is because of the high quality of Aussie housing.
‘First, the quality of the housing stock is high. Australia has the largest dwellings in the world, and they are of high quality. Estimates suggest that the average Australian dwelling is 214 square metres, and the real expenditure on new dwellings is now 60 per cent higher than it was 15 years ago, reflecting the increase in both the size and quality of dwellings.’

At the time, Kris Sayce didn’t buy the spruikers talk. He told Money Morning readers in his article Another Housing Market Myth Busted, ‘To our mind Bloxham had confused quantity of housing (the size of houses), with quality of housing (how good they are).’
Unless you have intergenerational property investment, the quality doesn't enter into the equation. The general economy can only tolerate some small % (7 or so) of total resources being directed at an economic dead end like housing before the economy in general suffers. That is the key point. Hauling granite and limestone around the world to carefully glue inside them, doesn't matter. Building the ceilings nice and high, doesn't matter. It's shelter. Beyond shelter, it's sucked up more than its share of resources.

If you are going to shift to the European model of concrete, built for 200 years and the next 5 generations will not need to buy, then you can begin to argue quality is paying out. That's not what is happening here. Wood frame houses typically have an economic lifespan on the order of 40 years. I could not find data on Australia's current new housing stock, but it is not poured concrete, so I'm going out on a limb and assuming the number is closer to 40 than 200 and therefore closer to viable for a single generation than inter-generational. So, what you have is extra resources sunk into sector that does not return anything for it. And you are bragging about that.


jesse said...

I don't know about you but granite countertops, stainless steel appliances, and vaulted ceilings make me want to be a better person. That's got to be worth something.

shaun said...

Australia doesn't have straight trees for good lumber, so most construction is concrete and brick.

Double walled brick is apparently the gold standard.