Cameron Murray

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About Cameron Murray

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  1. The problem with the ABS is that they don't continue to compute the old series for a couple of years to see how the baid between revisions plays out. They will simply stop the 15th series and link it to the 16th series. You could argue that this means they have underestimated housing costs on the way up, and may overestimate the reductions in housing costs on the way down. Of course, if that scenario unfolds, it won't impact RBA decisions much anyway because they use a different measure of inflation (described here http://www.macrobusiness.com.au/2011/09/cpi-change-confuses-markets/) Today's post on the topic http://www.macrobusiness.com.au/2011/09/new-cpi-continues-the-housing-deception/ And some primers on the CPI http://www.macrobusiness.com.au/2011/09/cpi-chameleon/ http://www.macrobusiness.com.au/2011/09/how-the-cpi-hid-the-housing-bubble/ http://www.macrobusiness.com.au/2011/09/cash-rate-too-low-for-too-long/
  2. Yes, you can let a house by the room as long as there are fewer than 6 unrelated people in the home. That is how you let a downstairs flat or something separately.
  3. Claw, I think you are still missing the point. Tell me when government has restricted housing development and implemented a quota system for approvals. Never. Yes, they restrict development in certain areas, but not as a total. As I said, you can develop in many areas simply be complying with the scope in the town plan - no approval necessary. If government said tomorrow that there would be no more housing approved, ever, and people believed it, that would be comparable to your example. Imagine if there were 1000 taxi licences in a country. But there were also 1000 'generic transport licences' (akin to development sites) that could be converted into taxi licences upon approval. Currently these generic licences generate a return for their owners. The question is, would these new 1000 licences flood the taxi market, or would the owners choose to keep them and gain their existing returns? Well, that depends on the difference in return between taxi and generic forms, and the sensitivity of price to supply. Say many do convert them, there are now 1300 taxi licences, the price has dropped, and there are 700 remaining as generic licences. For the remaining people there is no incentive to convert now because the value as a taxi licence already exists in their generic licence ie. they could sell it as is to another person who wants it as a taxi licence and this person would be willing to pay the value of a taxi licence. As the value of a taxi licence goes up, so does the value of their licence. The rate of conversion from generic to taxi then falls back to rate at which people are willing to pay the taxi price to the generic people.
  4. It seems Houston has many land controls that restrict density (minimum lot sizes etc). http://www.planetizen.com/node/109 - "Houston's land use regulations have historically been nearly as meddlesome, as pro-sprawl, and as anti-pedestrian as zoning in other American cities -- and have yielded similar results." http://findarticles.com/p/articles/mi_m1568/is_n9_v25/ai_15143280/ - "All property owners must adhere to 18 land-use ordinances, largely dealing with issues of health and safety, and most homeowners are bound by additional private restrictions written into their deeds. Owners of private residences, for instance, might be obligated not to use their property for commercial purposes or multi-family dwellings; they might be forbidden to make exterior alterations such as the installation of satellite dishes. Deed restrictions are enforced by the city." @ The Claw - the fact that house are cheaper on Houston is not evidence that a supply factor is the reason for the price. Prices are relatively low in many parts of the US right now. I suggest that the reason Houston did not have such a bubble this past decade is due to the fact that the region was still recovering from the last price bubble which was particularly severe (which shouldn't happen with responsive supply - right?) Also, windfall gains occur when planning rules are changed (relaxed - eg you can build 7 storeys now instead of 3), not that windfall gains are the norm under a planning scheme that is arguably more relaxed than another - under both developer will make normal profits.
  5. My most recent blog post (although I was meant to retire from this) It begins..."The housing bubble debate often leads to claims that town planning controls and approvals processes are a contributing factor to the price boom. It is argued that such controls can constrain the rate of housing supply during periods of high demand, allowing prices to ratchet up. But there is no case for the argument that planning controls can influence the general price level of housing." Read it all http://ckmurray.blog...nd-housing.html Highlights - "Lesson 3: The rate of land and housing supply is determined by the rate of sales of new stock (known as the absorption rate). It has nothing to do with the rate of development approvals or even the price level. The supply curve for residential land and housing is vertical, and shifts to the right at a rate commensurate with sales of new land and housing stock. " "We can use this example to demonstrate Lesson 4: There is no price competition in land markets. Value is derived from the highest and best use, and there is no incentive to compete on price. " " Lesson 5: Relaxing planning controls does not change the supply of dwellings, but provides windfall profits to land owners. Such windfall gains can also lead to gaming by landholders. Knowing that the council is very keen to increase density, the next landholder with development potential has an incentive to wait and see if the council will boost allowable densities once again. Why sell now when it is likely that the council will provide you with massive increase in land value in the near future? This why developers land-bank in fringe areas."
  6. Interesting that Chris Joyce produced a similar graph at a national level but used mortgage interest rate and rental yields. Tells a similar story though. In your case we expect the blue and pink lines to be close, and high blue lines represent periods of speculation. My thought on CJ are here http://www.talkfinance.net/f32/chris-joye-writes-reasonable-analysis-9180/
  7. For those who sometimes worry whether the little decisions they make each day really do contribute to making a difference to the environment, you may be on the right track. The rebound effect describes how conservation and energy efficient behaviours and technologies lead to flow-on effects that offset the intended environmental outcome. I have an article summarising the main points to the argument here I would appreciate any comments, thoughts and ideas. Cameron
  8. Hi all, Just thought some readers might be interested in this presentation from property bull Chris Joye http://www.rismark.c...df/Macsec_5.pdf He categorises Steve Keen as a Roubini wannabe, and highlights pretty much every housing myth around - shortage (like California/Florida), low defaults (p42, just like the US in 2005) population growth (like California), and so on. Cameron - Observations of an economist environmentalist
  9. Nice thread. Nice graphs. Good work.
  10. In areas of Brisbane I am familiar with I'd say most places are looking at around a 30% decline in real prices (in real terms). For apartments and outer suburban areas, potentially more (maybe 40%). For well located houses, probably less. But I'd suggest that with a little bit of luck nominal prices with will stagnate to that point over a number of years. Unfortunately, if they really crash, prices might go down past that point (dur to credit tightening). This may mean a significant decline in home ownership in this country (credit will only be accessible to few already wealthy people). Negative gearing and CGT reductions completely distort the market here (Australia, NZ and Canada I believe are the only countries that maintain this regime). If there was a politically palatable way to phase these out we would all be much better off in the long run. Until next time. Cameron
  11. Thanks Solomon. My current real world job is, would you believe, reviewing/overseeing the calculation of developer infrastructure (headworks) charges by local governments. Previously I have worked for a government department involved in water reform (but got the sh*ts with the bureaucracy). Before that I worked for small industrial developer, and prior to that for a large developer in their residential development area. (I also have invested/speculated in property since 2001) I was shocked at the extreme cowboy attitude of most people in the property industry. Bizarre bidding wars would eventuate. One interesting story. A development manager at my old company was in charge of the tender for a particular site being sold off by the government. He came up with a bid of $32mill. The site sold for $49mill. His abilities were then questioned - how could he be so far off the mark? He argued his assessment of risk, and that was his number. Would you believe that 6 years later the new site owner is realising they probably significantly overpaid (underestimated the risks) and is looking for creative ways out? Yet the guy who put in a reasonable offer probably had his reputation suffer. (There were 6 bids - $49 and $46mill, and the others around the $32 mark - what were those two guys thinking?) Anyway, it was that kind of detachment from reality - property people living in a little property bubble - that lead me to academia (then the insular academia bubble made me realise I should be out once again) I really do appreciate that you've taken the time to read my thoughts and opinions, and I will definitely be keeping in touch with this forum to gain some insights from the members here. Cameron
  12. Solomon, Interesting questions and comments. I'll try and answer some directly to get started. I only started thinking of myself as an 'economist' after a masters degree completed in 2008 (From Queensland University of Technology). My undergraduate degree was in property economics, which was quite diverse - dealing with land and property valuation, property development, planning, and law - completed in 2005). I started the blog to raise some ideas I had during my studies. Probably the most relevant modern macro theories relevant to the current situation is Paul Romers micro driven theory that is heavily based on expectations - we see one pattern, and behave as if this pattern will continue. Steve Keen dynamic differential models are also highly relevant. To be honest I don't see what is happening now as so much different from previous crashes. In the previous recession, the share market peaked in 1987, while the property market peaked in 1991. Economics typically assumes perfect information, and instantaneous decisions. But reality is much slower than that. I'm also a bit of a believer in supply contraints (oil) keeping a lid on global output for a few years to come. Unfortunately, what the future holds is very dependent on government policy. If policies were unchanged (eg, RBA fixes interest rates, government provides no further stimulus or changes to taxes and incentives) we would expect debt deflation (Japan style) for many years. The alternative is for governments to try and inflate the debts away - although due to the scale of debt held by Australian households this may no be palatable. Before 2008 I was thinking that the oil price, and commodity prices in general would cripple the economy. Consumer prices had no chance of being stable for long. But what I failed to realise back then is that demand simple cannot 'exceed' supply for very long (talking oil here). It took a while for my thinking to become much more dynamic and consider flow on effects through the economy. I thought that absolute scarcity would be reflected in prices - much like in the Ehrlich -Simon Wager (google that for an overview). I've since seen the reasons for Ehrlich being wrong. Also, I was tutoring in the property economics degree in 2007-08 and found it utterly compelling how all the students expected double digit growth in property values to continue. We would construct DCF models to estimate market price and worth of commercial buildings for example, and students would be shocked if I suggested they consider that rental growth may be stagnant for some time. In my experience in the property industry, developers and investors saw that the boom couldn't continue and kept pushing it back in their models. In 2005, they still had 3 good years of strong growth (in rents and prices), in 2008, they had pushed the peak back another 3 years. You always think a drastic turn in the market takes time - it is never imminent. Many of the myths of economics had been debunked for years. They were just ignored. It is far simpler to assume the market is in perfect equilibrium at all times, and that the supply curve is upward sloping, amongst many other fundamental economic ideals. But the alternative - complex adaptive systems - while it can provide insights, is so sensitive to initial conditions it typically doesn't provide an explanatory power anyway. Where to from here? I think if the government and RBA make some lucky moves the decline in real value of Aussie homes will be slow. There will be an extended period of tough labour markets and tight credit. This is hardly a surprising prediction. To be honest, I keep thinking back to the saying that markets can stay irrational longer than you can stay solvent. Thanks very much for you questions/comments, and please feel free to comment on the blog. And please spread the word to anyone you think may be interested. Cameron
  13. Hi all, I am new to this forum, although given my interest in the property market it may have been wise to get involved a little earlier. My name is Cameron and I am an economist. I apologise for that up front. My areas of 'expertise' are environmental economics (specifically the rebound effect - overview here) and property economics. I am also a property investor. Since 2001 I have bought and sold numerous properties, and have recently made a point of paying down my debt by selling. I just want to introduce simplesustainable members to various articles I have written that are highly relevant to the property market. Most are at my blog - http://ckmurray.blogspot.com Topics I've covered in the past include the route to affordable housing, the impacts of population growth on housing markets, the winners and losers from a housing market crash, why climbing the property ladders doesn't work, why housing investment does not improve productivity, land taxes, and the similarities between investment and gambling amongst other things. Links to these topics follow. Affordable housing from a market crash (and here) Housing and population growth (and here) - (and general economic arguments against population growth) Housing investment does not improve productivity How not to climb the property ladder Investment or gambling? The impact of land taxes Other topics of interest at: http://www.onlineopi...hor.asp?id=6022 http://blog.bus.qut....trading-furphy/ Various rebound effect articles here I would appreciate any comments or thoughts on the various topics covered and look forward to some interesting discussion at this forum. Thanks in advance. Cameron