Let’s face a home truth – the elephant in the room – population: Mal James

GUEST OBSERVER 

Ferocious bidding on the right homes – despite this being the largest auction start to a year in Melbourne auction history – the market lapped it up, spat out a few and said ”feed me, feed me, give me more.”

At 6.00 pm the James Clearance Rate on Inner Melbourne Homes was close enough to 90% – yep 90% and that was on a Super Saturday (a big test).

James Bidderman was 2.6 bidders per auction, which means that whilst around 170 bought –  an incredible 270 didn’t  – and those 270 wounded underbidders will be back next week to fight it out, against a new wave of buyers; which in turn means the market will be going up, not down, ceteris paribus (all things being equal) over the next little while.

Absolutely no surprises – the market is strong and rising.

What else would you expect the Melbourne auction market to be doing?

No really, what else would you expect of the Melbourne auction market in the current environment.

Hands up if you are expecting the market to fall in the near future?

Can we ask why?

Not because we know for sure it won’t, we just want to know why you think the market will fall anytime soon?

Why will the market bake a different cake, whilst the market ingredients remain the same?

Demand=buyers=people=population is going up and not likely to stop, until change.

Supply=homes=land is going down and not likely to change.

This is a Demand, Supply and Price Interaction outlined by economists a few centuries ago (stood the test of time), tweaked as it applies to Inner Melbourne Home Market today.

Here are the major political parties increasing Demand/Buyers/Population policies. Google was the search function.

Liberal Party: We could not find a population policy among their key policies. 

Labour Party: We could not find a population policy among their top 100. 
At least they were attempting to address the housing issue.

Greens: We found a population policy – well, it’s a commentary. But let’s be fair – at least they recognise that population is an issue. 

One Nation: They do not appear to have an easy to find population policy – they do have a migration policy that states a zero net migration. Dick Smith supports this part – No, not the boat people and Muslim commentary – the population management policy of zero net migration and infrastructure. 

None of the above is designed to be a criticism of politicians, we believe most are sincere and trying and that is not our role at James Buyer Advocates, as we see it.

Anyway back to the Demand=Buyers=Population side of the Home Market.

We hear you – what about interest rates and income and debt?

Yes, they affect (mainly at the lower levels), but the real driver is population demand, mainly from overseas.

Our belief, at the higher level, is the Inner Melbourne market has moved through the phase of infinite demand and supply interactions to a more finite one.

Our belief, at the higher level, is the Inner Melbourne market is slowly moving away from income, debt and interest rates; to an asset wealth exchange.
In our opinion, assets not income are now beginning to steer the Inner Melbourne High End market.

Meaning the Inner Melbourne home-with-land market is moving to finite asset to asset transactions within any given time period and an increasing number of the interactions will only involve wealthy overseas investors, local intergenerational wealth and the occasional new-to-the-scene successful entrepreneur/very high salary earner – rather than banks, interest rates and anybody can buy a home.

Melbourne through the internationalism of its market, through Australia’s population and immigration policies (particularly the 2009 FIRB change) is in the process of becoming like Mumbai, New York, Inner London – where homes are exchanged on a different basis and with different players to mum and dad, rolling up to a bank, out to an auction and sign a contract, after they had a idea they wanted a nice house in Hawthorn last week.

Those days are well and truly gone for many and getting that way for others.
That is not to say that another GFC would not have a significant effect on the Inner Melbourne market, of course it would, as debt is still involved.
However, in our opinion, it would need to be as serious as that, for there to be a significant drop in prices.

Economic cataclysms are not that common and the buyers and sellers that recover best are usually the bricks’n’mortar asset rich anyway.

Our point – the logic of an Inner Melbourne homebuyer waiting for a meaningful drop in prices is, well, seemingly illogical to us.

Why will prices drop when the government and the opposition have no obvious focus on demand=buyers=population policies except full steam ahead – meaning more and more population (read more and more buyers, read more and more demand)?
That is the demand side.

On the supply side it’s also just as simple.

Land and Infrastructure – they are not making it any more.

There will be no long lasting significant increase in supply in Inner Melbourne (ever again).

In fact we are losing more and more land to make more and more apartments.

As well, many buyers (local and overseas) are buying and holding and not selling – further reducing supply.

Many of these apartments are being bought by buyers on no stamp duty – so no contributions to infrastructure in the form of new taxes.

And whilst it was a bit of a joke, they are not making anymore infrastructure – it’s actually unfortunately sort of true (governments are not focussing on keeping pace anyway – they are more concerned about welfare and refugees, than new railways and regional living and immigration control).

We are not looking to suggest there should be specific changes on anything, that is for our leaders, whom we support.

All we are trying to do is outline the real issues – the real situations – so as our buying clients can make informed decisions going forward.

Noticed the increased traffic lately?  

That is demand=buyers=population increase and supply=land & infrastructure decrease.

So back to the question we ask our clients/buyers – why do you think prices on good quality homes in Inner Melbourne will fall any time soon – unless there is a major change in …….. something?

Is waiting a good strategy?

Is buy-now a better strategy (if it’s the right home long term)?

Unless you see a major change in population policies, such as immigration and/or a big push to regional infrastructure or ….. something else we can’t see now, then, in our opinion at James, good homes with land will continue to rise and rise and rise in price, in the longer term future (yes of course with hiccups along the way)…….. and interest rates……Mmmm – not sure what affect they might have………. some yes……….but………. that may be history, the game may have changed?

Macro Change – will it come?

Our leaders current assessment is business wealth, turnover, profits, trade and so on is of greater community importance than owning your own home, village atmosphere, culture and so on.

They may be right, maybe its a pipe dream – personally we feel sad about that.

There is talk around the Inner Melbourne home buying market edges like monetary policy tweaking, but there is silence, a vacuum of policy about immigration and population (the real drivers) – and many buyers are just hoping things will be different, so they are not speaking up – population increase is the elephant in the room.

Hope is great, but it is action that changes things.

Are there any signs of action and change coming on a macro level?

If the Melbourne market was Canberra and buyers were kangaroos, there would be some calls for a cull – eg their would be noise in an attempt to reduce the problem – if there was going to be widespread action and change.

If the Melbourne market was the environment, many would be up in arms protesting about overgrazing and looking for strategies for change – there would be noise if there was going to be widespread action and change.

There is no noise on population issues – there will be no change in demand without you hearing the noise.

The macro noise is not there.

So Micro Change – yes you – you still have options.

1) Lie in the foetal position and give up on buying a good home.

2) Keep thinking the same ingredients will bake that different cake for you – knowing that almost every quality home has between 3 and 7 bidders up against you – and that number is increasing and your opposition is becoming better resourced (they are being forced to).

3) Or act now – do something about it – engage with a different idea in a different way – you need to make it happen. You may need to understand there is no magical wand coming from above. Maybe get some professional assistance – just a thought.

James Buyer Advocates – 5 from 5 this February month so far (for normal people/buyers) – but we were very, very picky on which properties we went after.

Suggestion to get you rolling on the MICRO.

Consider making an immediate mindset change in dealing with the population and home buying issue.

Consider moving away from focussing on saving money in the deal and buying cheap to focussing on doing what you need to do ($ prudently of course) to secure a good long term home (for you), that will last you 10-15 years and longer.

Your solutions may well be micro (you) – as macro ones simply ain’t happening anytime soon.

MAL JAMES is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes auction reports, advice and in-depth market analysis on James' website.