House buying strike!

The above headline can’t have escaped the attention of many Australians yesterday. It sat at the top of the SMH, The Age, Brisbane Times and WA Today websites all afternoon. I can’t remember the last time I saw 500 comments on a Fairfax story (I literally can’t remember so it may not be that long).

I have been aware of the buyer strike campaign for a couple of weeks but haven’t moved to support it. I haven’t moved against it either because I’m seriously ambivalent.

I can imagine how the powers that be view it. If they bother taking note at all, they probably conclude it’s some renegade act of economic vandalism.

But it isn’t. And I’ll tell you why. Australian housing doesn’t have anything to do with economics. It long since ceased being a “market” at all.

Rather, it is a political complex – a quango – that represents the single largest page in the socio-economic contract between the government, the Australian financial system and an ageing baby-boomer population.

Why do I say this?  It’s bloody obvious.

When the baby-boomer generation first took power and reshaped Australia in the 1980s, the promise was for a new kind of meritocracy. The old “Australian Settlement” described brilliantly by Paul Kelly in the End of Certainty - a protectionist social contract between unions, industry, government and the people – was swept aside in favour of a neo-liberal vision. The new world demanded an open, more dynamic Australia. An Australia that rewarded entrepreneurial effort and flexibility. A productive Australia.

For a while it worked. Australia dropped its tariffs, deregulated government enterprise, most especially the banks, and after a false start at the end of the eighties, embarked on an historic productivity boom.

But at some point a distortion began to grow at the heart of the new vision. It’s dark seed was sown by the original architects of the new world when they back-tracked on the removal of negative gearing tax policy for housing in the 80s.

By the late 1990s it had become a cancer eating away at the achievements of the baby-boomer generation and a second wave of bipartisan supporters of the new vision took power only to further deregulate finance and install fabulous capital gains tax privileges on property investment.

As we entered the 2000s, the new vision threatened to stall and the same baby-boomers that had convinced us all to embark on their neo-liberal journey deployed new, more direct subsidies for houses, in the form of first home buyer grants that sought to co-opt the baby-boomer’s children in the same now rapidly distorting vision.

Through the 2000s, the neo-liberal vision became virtually unrecognisable. The dynamic and open Australia mutated into a speculative abomination based almost entirely on houses. Our precious capital, freed in the 80s to find the most productive outlets possible became instead the key stone in a system of offshore borrowing and asset inflation.

The final death knell of the new vision surely came in 2003 when the old national good luck arrived in the nick of time. As the housing quango lay dying in 2003, along came a commodities boom the likes of which nobody has seen in century. The transformation was complete. The entrepreneurial vision of those pioneering 80s baby-boomers replaced with happy-jack dirt salesmen and a bloated entitlement state that now had the money to keep its most hideous progeny, the great, quivering housing sack that hung from its belly, alive.

In 2008, when the world woke up and the mutated vision was revealed in all its horrible form, the government deployed every available mechanism to keep the thing alive. Unheard of guarantees across the financial system, moral hazards like leaves in the wind, wholesale immigration, massive direct subsidies, huge general stimulus.

This might be forgiveable if it was at least honest and openly declared. But it wasn’t and isn’t. Instead, those that had sat outside the system, hoping for a house or sagely planning to swoop when the bubble burst, are insulted with blandishments about how robust the system is, how they missed out on the “market”. Even though this so called “market” long since ceased to bear any relation to laws of supply and demand.

Rather than let it be a market, and fall, authorities insult them again and again with “affordability” programs. Just yesterday, a reader sent me a link to a Victorian government program that is running a lottery for first home buyers to win a new home at 25% off. The discount is used as equity capital to finance the project. A lottery. For a home. For younger Australians, that is beyond insulting. It’s insane.

I feel sympathy to my bones for those that are running the buying strike campaign and those that participate in it. I understand completely where they are coming from. A buyers strike is an entirely appropriate and justifiable response to the Australian politico-housing complex. It is a political act targeted at a political system that lies to their face.

Yet, I can’t bring myself to support the campaign.

The reason is simple. I don’t think two wrongs make a right, and the buyers strike, if it were to succeed in bringing about a crash, which can surely be it’s only goal, would cost the nation very dearly.

In my view, it is a near certainty that Australian housing will lose value in nominal and real terms for the next decade. Either the China boom continues and rates stay very high or China stumbles and…well… you know the rest.

While the hope of a steady deflation remains, at a pace that the nation’s banks can handle, then I will embrace it, albeit uncomfortably.

Disclosure: I own a home but am not highly leveraged. If house prices fell I would benefit because the next bracket up would be within my reach.

77 Responses to “ “House buying strike!”

  1. janet says:

    What can’t be sustained; won’t be sustained…..

    • Big P says:

      Well said Janet. In a free market that would be so, however, as H&H so eloquently illustrates above…it isn’t a free market.

  2. michael says:

    AND WHEN THE U.S.A TAKES US TO A WORLD WAR TO GET THEM OUT OF THE MESS THAY ARE IN ALL THE YOUNG PEOPLE WILL BE OF TO WAR.NO MORE EXPORTS TO CHINA.

  3. Hard to be Zen says:

    Well written HH.
    I support the ‘strike’, not because I think it will be the catalyst to crash the market – people that are ‘striking’ are probably not financially able to enter anyway – but because it is concentrating opinion on an ongoing and worsening problem, the benefactors of which (not least of who are our governments!) are so obviously ignoring.
    Those not playing the game can see how greed is blinding.

    • Wil says:

      I wholeheartedly agree! It’s pretty naive to think that the strike itself will work to bring down the market. What it does succeed at however, is raising awareness. And a resounding success it has been so far even scoring a spot on the Sunrise show.

      I’m all for it!

  4. Jerry says:

    THIS IS THE SAME SITUATION IN NEW ZEALAND. YOUNG PEOPLE HERE CANNOT BUY THEIR OWN HOMES IN THEIR OWN COUNTRY BECAUSE OF THIS GREED, AND THE PROPPING UP BY THE GOVERNMENT. IT WILL NOT GO ON FOREVER, BUT THE LONGER IT DOES THE MORE PAIN WE WILL FEEL. THE CRASH HAS TO HAPPEN IN ORDER FOR US TO MOVE FORWARD, WE HAVE TO FEEL THE PAIN FIRST, THEN WE CAN RECOVER.

  5. With the unfair methods that Real Estate agents, the government and other invested parties have used to peddle property over the last 24 months (and longer) it’s about time someone struck back. It’s the FHBs that have been directly targeted with increased stimulus from the government and deceptive advertising from the RE industry (such as the use of RE agents who are first home buyers to push how great it is to buy right now).

    Personally I don’t it likely the strike will cause any damage to the market, because the correction is already well underway with volumes well down, inventories up, new housing sales down, lending down & prices already falling.

    Further to this as per one of the first comments on the above article (I didn’t have time to read all 500):

    “The only people making this “pledge” will be the ones that already can’t afford to buy property and so wouldn’t be in the market anyway. Real market effect = Zero.”

    That said the sentiment surrounding coverage of the strike could create some waves I guess. It was only the other day that another property writer was criticised for their accurate reporting of poor property figures and how they were affecting the market by doing this:

    http://smh.domain.com.au/home-investor-centre/blogs/domain-investor-centre-blog/property-market-slump-blame-me-20110329-1cdzx.html

    I’m hoping the strike at a minimum sees the housing affordability issue bought to the table for serious discussion, because it certainly hasn’t been addressed (Note to government: introducing more stimulus will NOT help affordability).

    I support Keen’s proposal:

    http://www.debtdeflation.com/blogs/2011/03/29/getup-proposed-campaign-against-negative-gearing/

    Let’s use this opportunity to push for property reform!

  6. Jake Gittes says:

    A very good contextual survey. Moral outrage at housing and moral hazard are in great supply, perhsp the strike is wrong, but perhaps it’s s sign like many protests of the utter frustration at the status quo. As a sidebar, I note more real estate agents desperate get my busienss with free offers attached to their mailbox flyers.

    • Kate says:

      The unit next door to mine has been on sale since late December by a seller who ‘has purchased elsewhere and must sell’. It’s got a long-term stable tenant, is in a leafy suburb, with wide streets, all the amenities you could ask for within walking distance and around 5kms from Adelaide’s CBD. It’s asking price is in the early 200k+ mark.

      This unit, in this suburb, at that price, in the market the real estate industry’s PR people keep telling us exists, should’ve been sold by the end of January.

      Yet it’s still there, not yet even under contract….

      Sure, it’s only one example across the whole of Australia. I’m choosing to consider it to be a telling sign the market may perhaps be stalling.

  7. Not A Buyer says:

    Nice work with the article. But like others, I actually agree with the campaign because it seems to be the best way of raising the issues with the broader public from people who haven’t been listened to before. The government isn’t going to blindly remove current incentives. I’m just hoping they realise that the purchases of houses that have been brought forward by FHBG, lower interest rates, etc means less demand now does not require more support but instead needs a gentle let down.

  8. Endrortsonhousing says:

    ”Politico-housing complex’ – brilliant!
    I’ll be using that (with attribution of course).

  9. Anon says:

    H&H,

    A Buyer’s Strike might have kept some of the 200,000 people Steve Keen guesstimates bought into the most recent first home buyer incentive scheme.

    If a buyer’s strike encourages even one young person not to put their head in a noose, to prop up the banks and their allies in the FIRE sector, I fully support it.

    Recent posts at this blog disclose that the banks are still selling debt at high LTV to unsuspecting victims. If not a buyer’s strike how else do you stop them? Withdraw our support by removing our savings from the banking system? That base is covered with our own tax money or a printfest and currency debasement.

    Perhaps we could encourage the bondholders to reassess the creditworthiness of Australian banks? Doh, that base is (implicitly) covered too. Regulation? By whom, for whom? A huge chunk of tax revenue is tied into this ponzi scheme.

    Your prescription in this post seems to amount to a slow loss. I see it as nothing more than a continuing wealth transfer from the younger generation to me and my baby boomer cohort.

    Let’s bring this self-delusion to an end.

    • BurbWatcher says:

      Just thought i would re-post a great quote from the above comment:

      “Your prescription in this post seems to amount to a slow loss. I see it as nothing more than a continuing wealth transfer from the younger generation to me and my baby boomer cohort.”

      Echoes my thoughts, down below.

  10. Christian says:

    I chose which side of the fence to sit on long ago in this debate – moreso out of my personal position than anything.

    I refused to buy into a highly inflated housing market – even though I could afford to.

    I hope the spruikers and other pro-bubble goons (especially those in government) get whats coming to them – although if the USA is anything to go by, we know they will get off scott-free.

    The shortage argument is laughable as I can go out on any given day of the week and buy a house – FACT!!!

    I lack compassion for those that will suffer in the coming crash – sure there are those that had to buy out of necessity, and for those people alone I do feel genuinely sorry. However, if you are stupid enough to get in, highly leveraged with the idea that prices only go up, then boo-F*cken-hoo, life wasnt meant to be easy.

    Learn from your mistakes, and you become stronger for it.

    • AnonNL says:

      Exactly, I voted for this campaign only to raise the awareness of young people looking to buy a house. For me personally it doesn’t change much, I decided quite a while ago I’m not going to buy at these ridiculous prices.

      Some call it a strike, some call it market mechanism… the result is the same in this situation. The only thing which is different is that the word ‘strike’ has a huge political sentiment around it and that’s just what’s needed to get people to notice.

      I think it’s a very clever campaign and it’s Gen Y doing what it does best: leveraging it’s new found consumer and political power thanks to a more balanced ownership of information, gained by using the internet. It’s democracy at it’s best and I think it’s absolutely fantastic to see people voice their opinion and stir things up.

      It’s just a shame it seems to be turning into Gen Y vs Baby Boomers instead of someone (politicians, community groups) facilitating the discussion to find a solution which works best for everyone. Then again, maybe I’m just to damn Dutch and used to our precious, though a bit overhyped, ‘poldermodel’ http://en.wikipedia.org/wiki/Polder_Model).

      The generational divide in this country is enormous. Shame because something tells me no one has their grandchildren or grandparents in mind when they’re throwing abuse at the other group.

      • BurbWatcher says:

        “It’s just a shame it seems to be turning into Gen Y vs Baby Boomers instead of someone (politicians, community groups) facilitating the discussion to find a solution which works best for everyone.”

        Unless the Boomers et al start deliberately selling at greatly depressed prices, the only solution is for everyone to deliberately buy into a deflating market and accept negative equity (ie. distribute the losses); will flow onto future gens as well. This isn’t really fair.

      • AnonNL says:

        I was more thinking along the lines of introducing gradual reform.

        Abolishing negative gearing cold turkey will mean crash is a sure thing. However, gradually getting rid of it means no one has to be afraid of their retirement (isn’t that what this is all about?) while the housing market will become healthy again over the years…

        A decent size rental housing scheme would be nice as well. Great way of keeping cost down and making sure everyone can get a comfortable home.

        Compromise… best for everyone, not just for one group/individual. We’re all in this together, whether we like it or not.

    • MattR says:

      Your points are all valid. However:

      “I lack compassion for those that will suffer in the coming crash –”

      We are all going to suffer for the mistakes of others. Just as in other countries, if/when the housing market crashes the economy will suffer with it.

      What’s worse is, rather than learn the lesson and regulate correctly, we will see a massive expansion in government which will weigh down the markets recovery and see merely cosmetic changes to the regulatory framework. It will all start over again, just with a big government debt and defecit.

      Fun times ahead.

      • Chris says:

        I agree that we will all be affected, some moreso than others obviously.

        As Nigel Farage said in his speech to the EU;

        “If you rob people of their identity, if you rob them of their democracy, then all they are left with is nationalism and violence”

        Taken in a different context I know – although apply that to how much our government is willing to screw us over and I think we could see some interesting times ahead.

        Sure our society is hardly thrid world – yet! But there is only so much you can take from the populace before they will say, enough! When more and more people are faced with life-destroying debt after losing everything, I think its inevitable the an escalation in violence is inevitable.

  11. The Lorax says:

    From When the baby-boomer generation first took power… through to …the great, quivering housing sack that hung from its belly, alive. is some of the best stuff you’ve ever written.

    Work on it some more, get it published somewhere more widely read, I it may become your “vampire squid”.

    Well done.

  12. Flawse says:

    Great article H&H with wonderful imagery as commented by others.
    Transfer of wealth? Maybe! I see it more as the destruction of the wealth of a nation with us older generation perhaps getting away without too much loss. Who knows what we could have become as a nation if we had genuine savings and had rowed our own boat?
    The younger generations have bought into this thing big time. Sometimes i think they are greedy and stupid and then I realise they are only acting rationally within the parameters set down by the ‘politico-housing complex’(WOW! You ought copyright that!!)
    I remember about 10 or 12 years ago doing an IRR analysis on some alternate investments. I calculated that, given the tax benefits and leverage attached to houses, if house prices rose even just 2 or 3% above inflation, you had to get a 26% return elsewhere to match the return!

  13. David says:

    I think people are missing the point of this strike (or maybe I am). It’s not really about trying to crash the housing market. That is going to happen anyway and I doubt the strike will have any impact on it. It’s about helping would-be buyers understand that they don’t HAVE to buy into this ridiculous pyramid scheme and hopefully stopping some from being in a nasty negative equity situation when the music stops as it inevitably will(probably soon).

  14. D says:

    Some thoughts on why the FHB Strike may actually be more effective than all of us realise.

    http://www.simplesustainable.com/topic/3829-some-observations-regarding-the-psychology-of-fhbs/

    It looks like it’s written by a psychologist or drug counsellor and parallels the process of getting someone to stop drinking with convincing them to buy a house. Quite interesting and worth a look.

  15. janet says:

    Is it any ‘realer’, when the (NZ) Government institutes an enquiry?
    “Productivity Commission’s first tasks to investigate housing affordability…”

    http://www.treasury.govt.nz/publications/informationreleases/productivitycommission

  16. Crocodile Chuck says:

    Epic post, David. You’ve summarised the whole stinking resi real estate racket – with a red ribbon ’round it: ‘Politico-Housing Complex’.

    Well done!

  17. Al says:

    Great article. There should be another more specific strike to stop easy credit and regulate banks. In Australia all you need is a job and hardly any savings to bid on a 400-500K property. And they call this a ‘market’?? What happened to the so called ‘rules’ announced beginning of the year for more responsible lending. You can still get a loan with only 3% deposit.

  18. Vaughan says:

    Great writing, HH. I’d support the lorax in encouraging you to publish this somewhere more mainstream. Housing bears are usually too easily dismissed as self interested would-be buyers, we need more balanced bears speaking out.

  19. raveswei says:

    I think you misunderstood the goal and the purpose of this strike. In my view, goal of this strike is to send strong political massage to the government, not to intervene again. People do not want their tax money to be used to make even harder for them to afford basic human need – home.
    This strike will not cause prices to crush; almost nobody has illusion that strike can crush the market. Besides, prices are already in a free fall (speed at the beginning of a free fall is very low but with the constant acceleration, speed is increasing proportionally to the time).
    I support the strike, because of a huge moral hazard going on. Whole generations are suffering because of property investors, bankers and real estate agents. Owner occupiers may feel richer because of high house prices, but actually they are not benefiting at all from high house prices.

  20. MattR says:

    Good article. I will always be ‘on strike’ while prices are too high. When rental payments cost half than JUST interest on a home, it is nowhere near worth purchasing one.

  21. Mav says:

    Great post! I have a long comment to add to this:
    .
    But I think you omitted to mention the propaganda arm of the Australian politico-housing complex – the mainstream corporate media.
    .
    Honestly, I would be perfectly happy if the spruiking is confined to the RE lift-out section of my daily newspaper. But the toxic poison has seeped onto the editorial/news section and into our minds via “articles” practically ghost written by RE spruikers.
    .
    These articles/op-eds basically try to establish a narrative that house prices are fair and those who think otherwise are in loony fringes of the society – the gurrilla bloggers.
    .
    A well-known spruiker recently confessed as much when he said “when they write about housing, senior journos often complain to me about the nutters that seem to dwell in the shadows of this most emotive topic”
    .
    Coming to the FHB strike itself – it is the first of the “sound bombs” thrown by the gurrilla bloggers. Its purpose is to establish a counter-narrative, not to bring down the world. The MSM have no choice but to report on it – they are damned if they don’t and damned if the do.
    .
    So I have something to say to the mainstream media pundits and their ghost writing spruikers – Suck it up and get used to the fact that you don’t control the airwaves anymore.

  22. scott says:

    haha… as I’m sure you’re aware, your article has been published in The Age.

    http://www.theage.com.au/business/beware-a-buyers-strike-in-property-20110331-1cgwh.html

    Nice work!
    Lets hope Macro Business gets an even greater following.

    • Nick says:

      The fact that this is front page on the Age shows how far sentiment has moved in the last 18 months.

      I started blogging on the Age property articles about a downturn in A/a housing about 18 months ago – back then you were considered the worst kind of crank.

      There’s still tons of name calling now, but it’s just fascinating to see the palpable shift in articles published in the MSM.

      In Melbourne at least, I think we’ve now reached the inflection point.

    • Bubblelicious says:

      Congratulations H&H.

      Not just for this article, but for you and your fellow bloggers in providing an alternative view and voice for those of us that have been subverted by the mainstream and vested interests for so long.

  23. 3d1k says:

    Yep, terrific article H&H. The strike I am no so sure about and a crash I would not particularly like to see. Would hurt a lot of people, young and old, who simply believed the myth. Certainly know that a couple of years ago I drew down on my new found housing ‘wealth’ and I never believed it could go on forever, primarily because of the obvious limit to the ability of the first home buyer to enter to market. A gradual correction of some 20-30% over time perhaps.

    MSM are getting there – housing price bubble imminent!
    http://au.news.yahoo.com/thewest/a/-/newshome/9101416/house-buyers-strike-attempts-to-cripple-the-market/

  24. Dally says:

    Got a question to ask you.

    Why would a house price crash bring down the economy?

    As long as the mortgagees still have their jobs and pay their mortgage bills, the banks’ books will not crash. If the banks’ books don’t crash, then the economy will not crash.

    Am I missing something?

    • BurbWatcher says:

      Asset crashes cause massive unemployment, as the status quo adjusts to a massive change in the economic landscape.

      ie. unemployment follows asset price corrections, not the other way around.

      The thing just collapses under it own unsustainable weight…

      • Dally says:

        Oh I see…

        Can you elaborate more on that? How does house price crash cause a spike in unemployment?

        Will it cause unemployment directly or indirectly?

      • Nick says:

        There are a bunch of extremely well qualified people here to answer this, but I’ll put in my amateur 2c.

        You’re correct that most people can still service their mortgage even if housing dips substantially.

        However, in an environment where home prices are droppping, people are much more likely to cut right back on discretionary spending. This is basically the opposite of the ‘wealth effect’, where rapidly rising house prices make people _feel_ wealthy, so they also leverage up to consume – cars, holidays, expensive furniture / electronics being the staple.

        With discretionary spending shrinking, retail & travel / leisure will be the first to feel the hit. So layoffs come next.

        What happens now is the economy is in a ‘positive feedback loop’ – ie, the lowering of consumption leads to more job losses in secondary industries. People are saving more and spending less, which in turn puts less money into the economy (at this point the banks will be bearish as well, and won’t be lending freely), which perpetuates the downward economic cycle.

        Have a look at Japan circa 1989 for a good example of this. Here’s a link: http://www.imes.boj.or.jp/english/publication/edps/2003/03-E-15.pdf

        What you’ll note from the charts on pp 19 & 20 is that while housing stock prices took an absolute beating between 1989 – 1992, unemployment didn’t start to significantly rise until 92 / 93.

        I can’t offer a comprehensive explanation of this, other than to say, for the first couple of years (89 – 91) there was probably a feeling that the housing price drops were a minor blip, and that they would return to previous levels soon.

        As soon as it sank in that in fact, it was a massive bubble, and long term growth prospects were poor – well, you can see for yourself what happened to unemployment from there (and the Japanese economy in general).

      • Gripper says:

        Check out the UK 1990, crash followed by years of recession as everyone reassessed their ‘wealth’

    • Al says:

      My understanding is (and I am no expert so others can correct me) less borrowing could shrink the economy. When you get a loan you have pumped almost the total of the loan amount into the economy. i.e. the vendor who sold you the property gets CASH which didn’t exist in the economy (effectively printing money). During the past decade level of private debt (mortgages and credit cards) has been growing and demand and economy expending on this debt money. Now if this trend stops and there are more people paying debt off than getting new loans, level of money and demand drops and economy shrinks. I think this is called deleveraging and what most good economists fear as it is a long and painful process to get things back to normal.

    • Mav says:

      Well, we don’t necessarily need it to be an official GetUp! campaign – when it is reported as such all over the news media and the social media :)
      .
      Come to think of it, an official GetUp! seal to the campaign may make it less popular among the right-leaning FHBs.

    • Mav says:

      ..Though I must commend your effort to put the genie back in the bottle. :)

      • Chris says:

        Precisely, the fact that it is getting attention is enough!

        Keep bashing your head against that wall Shadow, for all the good its doing you. ;-)

    • Mike says:

      You’re right Shadow. And even if they did it’s highly unlikely to have any effect.

      The house price correction has started anyway. Buyers are on strike, but not because of any campaign. It’s because the bubble has run out of suckers.

  25. BurbWatcher says:

    I get the idea of slow deflation, but people who advocate this have to understand one thing in particular: this is just a market-version of “socialising” or “spreading” the losses.

    ie. everyone needs to buy into what is clearly a deflating market, until the whole thing slowly, slowly, ratchets down to a “reasonable level”.

    Who in their right mind would do such a thing? It is not “market rational” thinking, and it simply won’t happen, as a long-term deflating market is a pretty clear thing! Who wants to deliberate end up with negative equity, or deliberately lose it?!

    That’s why bubbles, when in the hands of markets and not govts, tend to burst badly, rather than just “deflate slowly” – people want to get out…and so they should want to!

    The result is a crash, a d subsequent deflationary handgover.

    Govt intervention brings much longer term, much more socialised/spread out/distributed losses, over a much longer period of time – Stagflationary type hangover – transferring the burden from those responsible to those who are not.

    So, distribution is a nice idea, but not when we realise that it is actually quite unfair – and evena little immoral, if “forced” by govts, “in the interest of the nation” 9except for those who didn’t make any mistakes, and their children, and their children…..

    What is the lesser of evils, perhaps?

    • AnonNL says:

      Even though not fair… agree on that one… overall it is the best solution.

      Everyon will be hit badly if the bubble bursts, including FHB of which many will loose their jobs.

      Government cannot always afford to be fair… that’s what’s so crap/challenging about government. It’s always balancing a zillion different interests which means virtually no one will ever be fully satisfied by government’s actions. It’s the very definition of compromise.

  26. BurbWatcher says:

    ..and, a buyer’s strike is not “wrong”, either: it is people simply being informed, saying “I don’t value said asset that much”, and making their choice.

    It’s not illegal, and it’s not unethical and it’s not immoral – so what’s wrong with it? In a market, why is there an onus on anyone to buy anyone, as if they “have” to buy it….or what?

    Market dynamics, people (or what’s left of it…)

  27. Sam Birmingham says:

    Terrific analysis, H&H… Pragmatic and passionate at the same time.

    A couple of observations:

    * I doubt this strike will be a direct success in terms of sucking buyers out of the market and forcing down prices that way. However, it may be an indirect success in that at least it draws attention to the problem.

    If that drives a longer-term change of sentiment then hopefully we can see the sting come out of prices gradually, which will at least not hurt those suckered in by KRudd’s FHOB so badly.

    * Let’s think about “strike” in its traditional labour vs capital context… The purpose is not to cripple the other side but to weaken them to the point that they are forced to the negotiating table with an inferior bargaining position.

    But who is “the other side” here?

    Is Prosper Australia trying to weaken incumbent homeowners? Banks? The RE industry? Politicians? … And even if they do weaken “the other side”, what impact will that have?

    Weaken incumbent homeowners by slashing their perceived wealth, Australia’s over-leveraged household sector collapses and the Government steps in.

    Weaken the banks, they can’t keep feeding debt to Australia’s over-leveraged household sector, which then collapses and the Government steps in.

    Weaken the RE industry and few muppets lose their jobs but then what? People still buy and sell houses, albeit that percentage commissions will apply to a lower base price.

    What I’m trying to get at is that the attention needs to focus on politicians here… And a FHO Strike, whilst attracting publicity, does not necessarily achieve that end.

    To be truly effective, this momentum needs to quickly transition into action for genuine, long-term, sustainable reform:

    (i) The anti-Negative Gearing push seems to be gathering a bit of momentum too, so that is a logical starting point. It also comes with a budget responsibility angle.

    (ii) Bigger picture tax reform would be ideal, but seems an unlikely outcome, in light of post-Henry nonsense.

    (iii) Bigger picture Federal/State reform in the context of addressing supply side constraints would also be ideal, but is (unfortunately) also an unlikely outcome. Refer to GST carve up disputes, proposed health reform, RSPT/MRRT, etc for examples of ongoing nonsense on the Federal/State front.

    (iv) Regulating the RE industry is another worthy and (hopefully) somewhat attainable goal… Yes, their lobby is powerful. But if ever a group needed to be held accountable for its “we provide financial advice without technically providing financial advice” BS then real estate agents are it…

    Oh, and let’s ban unqualified and unlicensed spruikers from hosting “property seminars” for the uninformed masses while we’re at it.

  28. Love your writing… respect your opinion…

    My concern with the slow deflation “aim” is that by necessity it means a lot more young Australians in debt up to their eyeballs this year and next and so on… it means a lot more families committing to massive sacrifices that they don’t quite understand… and, most importantly, it leaves us open to another push by the powerful vested interests to get that sucker (the bubble) going again in another few years…

    Quite honestly, I think it is only a painful correction that rid our society of this curse…

    • Chris says:

      Who in their right mind would want to hold on to their house if prices are going to deflate over the long term anyhow? Would you not want to sell-up, make what you can why you still can (not that this is easy anymore) and then rent and buy in at the new – and much lower entry price.

      Granted a short and sharp crash will screw people over then and there, but even the view of a long drawn-out deflation has little to no positives.

      Either way – capital punishment for spruikers is a vote winner for me :-)

      • Yes, that is exactly the problem that they face if indeed that is what the RBA is attempting to manufacture… so many have been promised massive capital gain… it’s just not going to be there… the RBA won’t let it even if market psychology was favourable (which it is not)… so, you’re exactly right, why would you hold on as an “investor”??? (and that includes owner occupiers that see themselves climbing the great mythical “property ladder”)…

      • ericskeric says:

        Why hold on? Because I would need 4 semi-trailers to shift all my junk. Losing $150K on my property is easier to live with!!!!!!!!!!!

      • Christian says:

        And the cost of moving all your junk and then renting until prices are cheaper would come in at a fraction of that 150k, you must light cigars with $100 bills if your happy for that amount of cash to slip through your fingers.

      • Bubblelicious says:

        True Chris, but this is an economic rationalist’s perspective. You need to consider;

        - transaction costs, moving / stamp duty and so on
        - non-financial costs, moving a family, new schools, loss of stability through renting etc.

        Ultimately it will depend on personal perspectives. I think it’s more likely FHBs and those most exposed will benefit from getting out quickly (and perhaps should never have bought in).

        Others with time in the market, sufficient equity, and a view of a house as a home will probably ride it out and not be fussed.

        Investors and speculators on the other hand….

      • Christian says:

        Unfortunately a neighbour of ours just had a FOR SALE sign put up today.

        Apparently his furniture company isnt doing too well, moreso due to his brother screwing their company out of more than $400,000.

        The reason I mention this is that he mentioned a few months back that he may have to sell, but would if possible rent it out off the buyer.

        In a suburb where prices are up around the million average mark, I hope he is one of the final lucky ones to get out before its too late.

        Sad.

  29. CharlieChaplin says:

    Nicely written. I especially like the reference to the politico-realestate complex, relating it nicely to the industrial military complex post war. For this is indeed what it is, mutual self sustaining interests bewteen the baby boomer banking/finance industry and realestate. And you are also right to use references to distortions and cancer. The system as set up takes on a life of it’s own. Once the vested interests become established, they become self perpetuating.

    I do not share your ambivalence about the strike. For years the system, Faust like has been encouraging people to sell their soal to this demonic distortion. And like Faust it is a deal that will ultimaty take so much more than what it promises. It is not an act of sabotage, it is an act of rational self interest not to sell ones soal. The bubble will collapse regardless. but if the campaign can stop one person from recklessly acting in the interest of a distorted system, rather than in the interest of an irrational system then it has been a success.

    How is it responsible behaviour to throw oneself on the fire in order to keep it burning a little longer? We are not the wreckers and vandals.

    Wonderful and eloquent article!

  30. BK says:

    Good article

    Not sure I support a buyers strike though…be careful what you wish for.

  31. MrV says:

    Whats been lacking really is a public/political discussion of what the counterfactuals would have been had all the capital used to bid up prices of each others house had been deployed into other sectors of the economy, infrastructure, business, entrepreneurship etc.

  32. Mike says:

    This comes from the school of “I hope it won’t happen so I’m going to pretend it’s not likely”. Which is frankly stupid thinking. Time for some cold analysis rather than wishful thinking H&H. See (and show) the world as it is not as you wish it to be.

    • Rusty Penny says:

      What are you going on about?

      • Mike says:

        What I’m on about is this

        “While the hope of a steady deflation remains, at a pace that the nation’s banks can handle”

        Says who? A dispassionate analysis would say this is remote at best and that a crash is far more likely. But H&H doesn’t want that so virtually dismisses it as a possibility. UE and DE have far better analysis.

    • Hard to be Zen says:

      Then please give us an insight of the world – according to Mike

  33. [...] House buying strike! MacroBusiness [...]

  34. Dave From Pakenham says:

    If several intelligent individuals can use modern media in places such as Yemen, Tunisia, Eqypt etc despite risking life, family and all worldly possessions to bring about change in their countries, reversing several hundred years of experience, then why not a few thousand independent thinking Australians on something so bland as the value of the roofs over their heads.

  35. [...] factoid: the number of US factories GE has closed since Obama took office. Guess before you look.House buying strike! MacroBusinessIn Debate Over Bank Capital Regulation, a Trans-Atlantic Gulf ProPublica. Good of them [...]

  36. mamikel says:

    Nice article and many good and interesting comments. The pro-growth agenda is still very active in trying to prop up the housing market among other things and one of it’s primary weapons is lobbying the Australian government for increasingly higher-immigration – the Gillard government has set a new record target of 200,000 but is on track to well and truly exceeded this.

    The purpose of this is to inflate demand (not just in housing). What it’s actually doing is driving wages down, destroying industry, prostituting Australian assets and our education system, increasing poverty, exacerbating skills shortages, threatening Australia’s food and water security – pretty much bankrupting Australia ecologically and financially.

    What we need are more people to recognise how and why excessive immigration is actually the worst possible thing we can be doing for the Australian people – newcomers and inter-generational inhabitants alike.

    What we need is for people to look more at and get behind parties that seek to balance immigration (in all it’s forms) with emigration levels (or perhaps even less for a few years to ease our overstressed infrastructure and ecological systems) and eliminate the speculation in markets such as the property market. Examples are easy to find but to name a couple there’s The Stable Population Party and the Democrats.