Wednesday, March 5, 2008

What It's Like in a Hot Market

I heard yesterday that there's a plan afoot to give temporary visas to American construction workers, who are suffering from a downturn in new home sales, so that they can come build homes here in Australia, where there is a shortage in all kinds of labor. In fact, I was told that the University of Queensland can't begin some construction projects for which they have received funding because local contractors are booked up months in advance.

For any American readers (or from elsewhere) who live in housing markets where things are slow, you would be quite shocked to see what life is like here in Brisbane as either a home buyer or a renter. For a start, most homes in our local area are sold by auction. In the States, auctions are usually associated with foreclosures, but here they are plentiful because the seller can potentially make a lot of extra money. During an auction a crowd gathers outside the house. After the bell ringer quietens the crowd, the auctioneer begins. The sellers stand nearby looking nervous, not so much because they are afraid they won't get their minimum price, but because their dreams of hitting the big time might be just too unrealistic. My guess is that, in this local market, more often people end up make a rather huge profit when they sell.

For renters, the story is similar. There is a real shortage of affordable rentals, especially for students. It appears that most properties are owned by single investors, who have bought a second home to rent out and for which they receive a tax deduction on the mortgage interest (note that such a deduction does not occur for the first home's mortgage...one of the stranger mysteries of Aussie economics). Because these small-time investors don't want to be bothered by the responsibilities of managing their property, they typically use an agency that specializes in rentals. One of the biggest agencies around here (near the UQ campus) is prorentals.com.au. Because rentals are in such demand, agents from these places typically schedule just one or two 10-minute showings of a particular property each week. This is your only chance to see the property. Last month, when my PhD student from the U.S., Michael, and his wife Erin were looking for apartments, they had to zip around a large area to many of these showings. Each time they would show up, there would be a fairly large crowd standing outside the property waiting for the agent. Roughly half the time, the agent never did show up (and it must be said that prorentals was one of the worst offenders). Another 20% of the time, the twenty-something agent would turn up, but announce that the property was already rented. I saw some people, probably newly arrived to Australia, going from property to property by taxi. It is only after one has seen the property that you are allowed to submit an application (a legal requirement). And, for each property there are many, many applicants. The owner of the property then sifts through all these applications at once and makes a pick. I can easily imagine where some housing discrimination could creep into the process. By the way, it was only when Michael and Erin finally deviated from the major rental agencies' methods and looked at the Saturday newspaper ads, did they find an apartment that was shown to them by someone at a mutually convenient time, and for which their application was successful. The scary thing about all this is that there's talk of opening up rentals to the auction process as well...

So, yes, sometimes being in Australia feels like we have entered some sort of alternate universe. Back in Atlanta, our house is currently being advertised as a rental or a buy, but we still haven't had a bite. There are nights when I have a dream of a riotous crowd gathered outside our home back there, which has divided itself into two groups--one that wants to buy it and one that wants to rent it. Then, just before the auction starts, a twentysomething male with spiky hair and wearing an ugly tie drives up in an agency car and screams, "sorry, but that property is already sold." But then I wake up...

7 comments:

The other Mac guy said...

While it's true that you can make a good profit (the value of the house we recently sold increased by a factor of 2.5 over five years, not counting all of the money and time we spent fixing it up), unless you plan on living in a cardboard box, you'll have to spend that profit purchasing your next house. As an example, the cost of our new place was over three times what we paid for our first house only five years ago.

Dobbs said...

The housing market in Melbourne isn't too bad because the city just keeps expanding but there has been a lot of talk in the papers recently about stopping the growth because of fears of urban sprawl.

I can only imagine what that would do to home prices down here though. It would probably bring housing prices up towards Sydney levels eventually.

Americans living in Australia said...

Technically that tax deduction could apply to your first home as well, as long as you're not living in it. It must be an 'investment property', not owner-occupied.

Yeah, home ownership is a hugely sore subject right across Australia. The 13th interest rate rise has caused a huge number of people to sell off, putting even more strain on the rental market... which, btw, is already going into auctions in many areas. We have lived in our current place for 2 years now and really need an extra bedroom, but are not so keen on fighting the crowds and paying an enormous markup. *sigh*

The Prof said...

Other mac guy, you were still able to move the equity of the sold house into the higher-priced house, so you don't lose out (unless the market were to crash at a time when you want to sell again).

Dobbs, as a former resident of mega-sprawl Atlanta, I sure hope that Melbourne doesn't go the same way.

And, Americans living in Australia, it's still strange to me that there's a tax incentive to invest in rental properties (why, why, why?!), but there isn't one to buy a home that you can live in. Doesn't the present system just encourage wealthy investors to turn otherwise decent homes that could be bought into rental properties, thereby reducing the available stock for buyers and raising the prices of rentals? Oh my!

Americans living in Australia said...

Doesn't the present system just encourage wealthy investors to turn otherwise decent homes that could be bought into rental properties, thereby reducing the available stock for buyers and raising the prices of rentals? Oh my!

Exactly! You've hit the nail on the head right there.

Tracy said...

Do you get to claim the intrest on your primary residence in the US?

Here in Canada you can only claim the intrest of investment properties as well...

Tracy said...

ACK...interest! I really should know how to spell that particular word!