On Bloomberg today, there is a long article on why it’s almost impossible to find a place to live in the world’s most liveable cities. Mostly, they’re talking about Australia, and why homeownership in Sydney, Melbourne and the other big Australian cities is so out of reach.
Have a look at these:
The question is: why is this happening?
Home Ownership and Quantitative Easing
I know that I sound like a stuck record to my regular readers – but it is no accident that the steepest increase in housing prices (relative to wages) took place during the financial crisis.
You can’t have the Federal Reserve pumping cheap money into the world without it causing inflation. And there was plenty of inflation: in asset prices.
Here’s a chart from Goldman Sachs:
And just remember that all this ‘cash’ was entering into the economy because the Federal Reserve was buying up asset classes. That is: the Federal Reserve was forcing down yields in the bond and mortgage-backed security markets by buying up those securities. Investors were left with the cash – and investing that cash straight back into US government treasuries looked like a terrible idea. Mostly because the yields were so low (but also because they’d just sold out of them).
Which meant that the cash was forced to find a home elsewhere. And it flooded into equity markets, and property markets in the big cities, and basically anything that would yield a return.
So in terms of buying property in big cities, the actual residents of these cities were competing with, and being outbid by, a global demand for assets to invest in.
And then there are local disruptions. Like Airbnb.
Of course, there are also local factors that have contributed to this phenomenon. In Cape Town, for example, the rise of Airbnb is driving local residents out of the inner city:
And even Sydney can lay some of its housing prices at Airbnb’s door.
[advanced_iframe securitykey=”5cafefb8534b62f444e4a460ac07c2e385bd9308″ src=https://fairfax-data.carto.com/viz/1a46c001-3469-4004-b07f-6631af7a0986/embed_map]
We’re learning new ways to monetise our homes. Which makes them more valuable in the hands of those that already own them.
What this all really means: if you want to live close to the city centre, you can look forward to being a consistent renter.
And future first-time homeowners will have to commute a bit further for work.
Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha. Also, check out the RA podcast on iTunes: The Story of Money.