April 22nd, 2010

Wages need to catch up to house prices, or else…

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WA Today issued an article recently about the ill-effects construction weakness has on housing.

Harcourts WA CEO Andrew Moore said developers are correct when saying that virtually every economic issue is made worse from this point by perpetuating the housing shortage.

“In the big picture however, wage growth has to keep pace with property price growth or people have to spend a greater and greater proportion of their wage funding their housing,” Mr Moore said.

“Growth in house prices without equivalent growth in wages means we have a housing bubble which is fuelled by speculation on further price growth.

“Housing affordability issues are the first sign of a problem, (and the symptom the federal government has been treating), but in the long term the bubble will burst and we will all be the worse for it.”

The smart move would be to build enough properties to meet demand and hold house prices stable while wages catch up. The alternative is a major correction at some point in the future which unlike the US and UK, we have not yet seen.

“This is a point not lost on the reserve bank who are working very hard to slow the housing market.

Their hands are however being held behind their backs on the issue by governments at all levels, who are catering to the short term wants of their constituents, to the long term detriment of the same people.”

The time has come to break the cycle and take a long term perspective.

“The federal government needs to stop incentivising demand with market distorting grants, while local governments free developers from red tape and ridiculous waiting periods to increase supply.

“I am not advocating the creation of a glut in housing, but a little more balance in the market would go a long way to reducing the very real risk of major house price fall in the future.”

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Check out Andrew Moore’s blog: http://blogs.harcourts.com.au/andrewmoore/

Twitter: http://twitter.com/andrewliammoore

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