Who’s responsible?

In a speech this week, Deputy Governor of the the RBA, Ric Battellino, warned that many first home buyers that bought during the 2009 FHOG scheme were in jeopardy as interest rates rise:

Another potential source of vulnerability in the housing market that is often mentioned is the many first-home owners who were attracted into the housing market in 2009 by the increase in the first-home owner grant. The concern is that some of these may have over-committed themselves financially in order to enter the market, and are now vulnerable to rising interest rates. This group bears close watching but, so far at least, first-home owners do not seem to be disproportionately represented in loan arrears.

Now, it must be noted that delinquencies are still relatively low by world standards and are rising of a low base. However, unlike others, I am aware that this tends to be a a leading indicator not a trailing one. Moreover, presumably the RBA sees the distinct possibility of an accident coming for the first home buyers in question or why raise the point? The latest data from the market certainly supports the premise that recent buyers are in for a rough ride in Queensland and WA.

So, given the RBA has posed the question, as well as implicitly passed buck to the government for the outcome, I thought it might be useful to ask who is responsible?

Back in June last year I commented on the effect of the stimulus environment as its effects began to wear off, at the time I called it a stimulus driven demand bubble:

There is absolutely no doubt that the stimulus environment had a massive medium term effect on the market, you can see from the housing finance figure from late last year that it “kicked the can” for housing, even though the underlying downward trend has now been re-established:

I also recall that the Treasurer was well aware of the effect the policy was having on the market at the time, but did nothing to push against it:

The Federal Government has no intention of ending early its more generous first home-owners grant despite signs a housing price bubble may be developing.

The Governor of the Reserve Bank, Glenn Stevens, last week warned that low interest rates could fuel a house price bubble if supply failed to improve. His warning was backed up by a private survey that showed residential property prices experienced the biggest quarterly growth since the pre-crisis days of late 2007.

The residential construction sector reported two-year high activity with official data showing building approvals surged by 9.3 per cent in June, marking the biggest monthly increase since May 2005.

The Government’s stimulus measure to increase until September 30 the first home-owners grant for new ($21,000) and established homes ($14,000) has been seen as the catalyst for a lift in property prices and building starts.

“To pull that stimulus out now would be to pull the rug from underneath recovery,” Federal Treasurer Wayne Swan told the Nine Network.

You can see from the statistics of 2009-2010 that the first home buyers grant boost was a very big influence on giving medium term relief to the falling market:

But it was always going to be unsustainable, and once the boost ended the first home buyers market collapsed, even before the latest interest rate rises started to kick in:

In their defence some members of the Treasury did at least try and eek out a warning in the dying days of the stimulus bubble but this was too little, too late.

However, the government itself was not alone in creating a hyper-stimulatory environment for housing. The RBA adjusted interest rates down to 50 year lows during this period:

Obviously the RBA had little choice in this, given that the global financial turmoil of the time, but they have done an excellent job of jawboning the public recently, so I question whether or not they might have pressed harder against the government’s housing policy at the time because it was very obvious by early in 2009 exactly what was happening. If the outcome of these dual policies was actually the desired effect then fair enough, but if that is the case, then don’t come back 2 years after the fact and claim that it was someone elses fault.

In the RBA’s favour, Glenn Stevens did make an unprecedented appearance on national television to warn people about the risks of speculating on house prices, and has made many such warnings since,  but again it was too little too late. The first home buyers grant boost had ended 3 months earlier and the damage was already done.

But it wasn’t just the RBA and the government who were part of the stimulus. The banks themselves played a big part and in the boom and in early stages of the 2009 where still offering 100% loans with no deposit except the first home buyers grant boost. Banks were so active at the time that by May 2009, they were actually warned about their rate of first home buyer lending:

Australia’s big banks will join Canada’s major lenders in the single A credit rating ranks and risk copping higher wholesale funding costs unless they pare back lending. Analysts say Australia’s major lenders will lose their coveted AA credit rating – shared by only five other retail global banks – and slip down a notch if their high proportion of loans to deposits is not curtailed.

Finally, there is the first home buyer’s themselves. Many of them young and naive and trapped in a society utterly obsessed with housing that was screaming in their faces that “this is the time to buy”. Even so, they are adults and not 100% off the hook.

So who is responsible in the event that a year’s worth of first home buyers are sacrificed to angry housing gods, as Mr Battellino has mooted? If I was going to rate it, my guess would be  50% government, 25% banks, 20% RBA, 5% borrowers. Anyone got a different set of numbers?


  1. I agree on the numbers.
    Frankly, I cant wait until we hear the words out of Swanny mouth that Australia is actually in recession (Q1 and Q2 11) and for all the stimulus they pumped in, house prices are actually falling.

    We hear the rhetoric every day about them “Saving us from recession in 2008, and supporting the housing industry” But this time they will have nowhere to hide.

    I’m sure Swanny will blame everybody and everything else except his Govt policies.

    • The_Mainlander

      This was “The Recession Australia was supposed to have” but tried to forget… but debt does not forget who owns it.

      Least we forget the great Australian Housing bubble.

      1890 all over again… poor old Melbourne 60 years of no growth flat as a tack… will it repeat.

      Deflation, stagflation, hyperinflation of a trifecta of the new…

      Interesting days.


      • Melbourne property doubles in price every seven years. Our high population growth will put a floor under housing prices. It makes sense to me.

  2. I think you’ve got the numbers about right too, DE. I would only add that in my view the stimulus package was text book, EXCEPT for the FHOG which was unnecessary given the banks had already been bailed out on the liability side of their balance sheets. They should have taken more pain. Let’s not forget either there was a plan for Rudd Bank to bail out commercial property too. Thankfully it died.

  3. Endrortsonhousing

    There is plenty of blame to go around for this, and I agree that the number one culprit was the Government for implementing the additional first home buyer boost, and particularly for allowing it to be used for existing residences. However, I would allocate much more responsibility to the borrowers themselves. When something seems too good to be true, it usually is.

    On a another point, am I seeing things or does that average 1st home buyer mortgage graph track average (total market) house prices and credit growth?

    • I agree – much much much more of the blame needs to be attributed to the buyers. They didn’t do their maths or budget or both.
      Remember these are probably the same sort of people that hate or blame banks, don’t trust the government or are skeptical of the MSM – so what did they do – they bought the Bull S#@t.

      • hahaha! Yes. Excellent point.

        Actually, I have a couple for friends right now trying hard to get into the (housing) market. FHBers. I have tried to suggest as strongly as possible that it might be prudent to wait. But you know… hmmmm… Apparently you cannot lose on housing. It always goes up, even when it goes down so you think it is time to get in and buy. Oddness.

    • Yep, it should have been obvious. I had friends who would look for a house each week only for it to be sold in the following week.

      When you have such frenzied buying, how could possibly expect to get a good deal? I have no sympathy for people who don’t THINK, but choose to live in blissful denial of reality. And then to listen to the same people whinge when interest rates return from 50 year lows… what did they seriously expect?!

      Thankfully the analysis of Leith and Keen were there for anyone who bothered to look.

      • If not for Prof Keen, I would likely have a $300k mill-stone around my neck right now.

        thank God for this alternative medium and the ability to freely read the writings of others.

  4. DE –
    Just figured out that I am a mean person since I would actually blame the borrowers before anybody else.

    It is like driving to fast in a car and get a fine. You don’t blame the government which made up the rule or the Roadworkes who put up the 100 speed limit sign.
    You were driving to fast – blame yourself and pay the fine.

    • Yes but with first home buyers, the situation was more that government hadn’t taught them to read or obtain a license, while the car dealerships (banks) were handing out free upgrades to V8 engines.

      • In Australia, education and public common sense for the purposes of self preservation of ones finances and ones limbs is usually replaced with government regulation: law does our thinking. In this case, however, regulation in the form of the FHOG took the unthinking by surprise as it was designed to protect the government, not the people, even though it was disguised as being a helping hand to protect the social welfare of the first home buying battler.

        History will remember it as the manipulative deceit that it was. The policy of a truly dumb one-dimensional government.

      • This is the, all too prevalent, threat of nanny-state governments that Australia seems to get so much of.

        Time for people to start taking personal responsibility again.

      • Yes. But the problem is “who are the teachers?”.

        There were a number of people at the time warning that the policies where a very bad idea and likely to end in financial misery for many involved.But no one was listening, and in some case the government themselves made criticism of their arguments.

        As Jack’s money says further down the thread, everyone was trying to take their cut.

        In the 2009 hyper-stimulus environment where there was no moral compass on housing and the banks were de-regulated on credit issuance, ultimately the responsibility of the economy goes with the treasurer, treasury and the RBA.

        I am not sure I could point to the particular mandate or legislation that governs them on this point, but I am sure that the financial entrapment of cohort of citizens is certainly not part of their job. I am not saying at this point that that has occurred, but if it eventuates, then in my opinion, they are both responsible.

      • In my opinion its the greediness of people. Its not unique to Australians, but is more visible here due to the “booming economy”. I’m 33 and in the past 8-10 years I’ve noticed people my age talking up their success, and “property” as most put it, is always on the agenda. “I’m investing in property…”, “I’ve just bought a property…” Every body is trying to keep up with the Jones’, to the point were everybody is in debt.

        Property investment was once for the rich only, now everybody, including the poorly paid are on the band-waggon, clearly that is not a sustainable approach.

        The “real” investors sold off at-least 12 months ago and have probably moved on to greener pastures.

        In my opinion, people made their bed, now they should lie in it. Those who overcommitted have no option to default, while those that didn’t will manage to scrape by. If the economy really does turn to the crapper as some say, it will be everybody who gets affected, not only the try-hard investors.

      • I have observed that the two major growth areas for the public, since the 1990’s, has been the growth industries of ignorance and apathy.

        Those and those alone are what makes up the the public pysche.

        Don’t fn well know and don’t fn well care.
        Until now that is. Too little, too late.

    • I put minimum 50% on the borrowers – an individual always makes a decision to not be discerning, and though there are other influences, they never need to simply accept what they are being told.

      The remaining fraction goes, largely IMHO, to a society that actually in effect encourages shallow, herd-like, authoritarian and paradigmatic types of discernment.

      But, nonetheless, the most very large part of it comes down to the decision of the buyer/borrower.

      My 2c

  5. I wouldn’t blame the borrowers. They are essentially the victims. They were targeted, set up and murdered without prejudice by the banks, which are essentially led by sociopaths.

    • Possibly many FHBs were set up and naive but equally, in a society obssessed with housing, and easy financial gains backed by a media that feeds the onsesseion with ‘facts’ that housing is a sure way to make money, greed motivated them too. Some of Boganomics observations here might be accurate.

      • Fear was by far the biggest driver for most first home buyers, although there were a few with grand plans for investment via the live there for 6 months and then rent it out.

      • Fear is the weapon of choice. It’s easy to wield and reaches all it’s targets with great efficiency. Fear has been used for many years to fool millions 😉

    • I don’t buy ignorance as a defence. All the information on the state of play globally was freely available.

      Especially in this internet age.

    • You don’t hear of many first time buyers who end up spending less than maximum amount that the banks are willing to give them. They just assume that since the bank has done their checks, then it must ok. There’s no second thoughts about this. Everyone they know has done, or wants to do, exactly the same thing. If they don’t “keep up with the Jones” they risk social stigmatisation – A fate worse the death for most. This of course is going to change after some of their friends have defaulted!

      As for the FBHG, it’s indiscriminate nature means that it ends up going directly to the buyers, so in actual fact it’s just another way that the government socialises the losses. Something we’re going to see a lot more of in the near future.

      • Slightly offended, being a potential FHB, we ran a number of scenarios (including negative growth) and made sure we could cover up to a 2% increase in current rates without any worries. Both our bank and a mortgage broker told us we could borrow 30% more than we were comfortable with.

        I do take your point that many don’t take out the calculator, not just for houses, how many people buy consumables ’12 months interest free’ and don’t realise the true cost.

    • jimmy squirrell

      who do you blame? The drug dealer, the addict or the lax police? They all play a part. All we know for sure is that its the addict that gets hurt, and its the addict that gets exploited. People make dumb decisions, but you dont expect govts to encourage dumb decisions for their own self itnerests and the interests of the banking industry (well actually i do expect that now)

  6. Loved the article DE, but I’ve got a different set of numbers.

    I’ve been to quite a few housing contract signings over the last 15 years and not once has the faceless public servant been there forcing mine or anyone else’s hand in signature.

    Bottom line is, people have to take responsibility for their actions.

    Rule number one is be sceptical of any scheme involving large sums of money and its participants. This includes Government. If it takes whatever might be coming to educate people on this, they can take their medicine and we’ll all be better for it.

    Bottom line is the borrowers are 100% responsible. Learn to control the fear/greed couple.

  7. Jeez. You’re a tough bunch. What about moral hazard? The politico-housing complex completely distorted perceptions of whether it was a fair market. If it was a straight up up market without interference, sure. But it isn’t ANYTHING like that. More like an asset quango. How many of those first home buyers would have said housing never goes down? And how many would have had that perception in part at least because of decades of increasing government support, bank balderdash and the RBA?

    • Simple maths and physics tells you that H&H.
      What goes up must come down – first lesson in school.
      Second lesson is if house price rises are out stripping increases in my income then situation is not sustainable.
      Everyone is entitled (and receives ?) a free education to Yr 12. That is a lot more than the grade 3 education my parents received and they figured it all out by themselves.

      • School is about teaching people to be politically correct and how to get into uni, They don’t anything regarding life skills and career or financial planning.

        To put peoples ability into perspective, we got to play the stock market game in year 10 (1993). You got to choose stocks based on two week old prices in a rising market, lots of people still lost money despite the fact you could just look in the paper to see what had already gone up!

      • Wow. That is actually a really interesting insight into people’s perception. Personally I think it would be worth looking at doing some kind of controlled or formal study into that sort of behaviour and the choices people make.

        I still have folks tell me. Property never goes down. I ask them to look at the US, Spain, Ireland and some Euro Cities and see what most property for sold in 2006, and then what you can buy it for now. Not uncommon to find prices 60% or less off their previous highs.

    • I agree with you H+H, The situation was more like the vested interest getting a person with no concept of a gun to play russian roulette with themselves!
      Just pull the trigger, nothing can go wrong!

    • H&H I suppose there is going to be less sympathy by readers of this blog. Just being here shows that you’ve had the required skepticism to look at information coming from someone else who isn’t trying to sell you the house.

    • The Federal and State (NSW) grants were offering 50k to a first home buyer to buy a 500k home, more if you could claim (probably unchecked) that your home had significant work done to it before you bought it.

      I imagine a lot of people would have felt that they would be irrational to knock back that sort of incentive.

      I think it’s too cruel to say that the newbies to this game should have known better.

    • So are we to believe that 700 million(approx.) in the West did not know that their houses were undervalued by a factor of 3 to 5 times and beyond?

      Central banking and moral hazard?

      The Western politico/economic nexus through CB’s and their foot soldiers-banking and finance.

      More Anglo-Empire warfare. Any one remember the British Navy strategy called “Shanghai” recruitment? They would throw money around like blazes in ale houses and when people were drunk they put their mark on paper. Or got banged on the head on signed for them. Same result. You woke up at sea, with a document that you signed on for years of service.

      Ship of fools on a debt ship. You and/or your capital have been conscripted.

      The Quisling sleaze empire (Anglo Empire) has locked all down behind the wall of debt.
      Debt is the slavery of the free.

  8. My blame %
    Fed govt = 15%
    State govt = 15%
    RBA = 5%
    Banks = 20%
    Market participants REA’s = 20%
    Individuals = 10%
    Peers and parents = 15%

    Its a bit like everyone has had a crack at making money out of it.

    but if you were to look at the final part of the cycle I would blame more on the fed & state govts say 25% each and more on Rea’s & peers. remove RBA and reduce banks and individuals.

    • The other Johnno

      Good distribution of blame though I’d up Individuals to 20% and Peers down to 5%. Ultimately, if these people can’t figure out their situations and say no – I can’t afford that, then going forward we in alot of trouble as a nation. We’ve raised a bunch of morons. The Real Estate industry also has to take some of blame here to. Through all the open home we went to, the REA spruiking was positively nauseating. The only balance they knew was their commission account. When it all turn to sh1t, watch the finger pointing start. Oh, I can’t wait.

      First to the guillotine for me would be: 1. The banks (they are the ones who lend the money and can say no!) 2. REA (Parasites feeding of the frenzy) and 3. FHB (Why buy something your can’t afford?)

  9. Ex mortgage broker

    The first home buyers have parents and relations that have made hundreds of thousands of dollar on the Real Estate markets. These people have pushed (and scared)the first home buyer into purchasing a home convincing them it’s the only way to make money. I think no more than a 5% blame should be applied to the first home buyer.

  10. I think we are all responsible for what has happened as we supported, through the ballot box, successive government distortions of the market for several decades. Our motivation was perceived self interest.
    I suspect it will have to go seriously pear shaped from here for us to endorse, through the ballot box, an unravelling of those market distortions.
    As far as I know there is no commitment yet from any party to stop interfering in the housing market?

  11. “Who’s responsible” for what? You write as if all the FHBs are regretting their purchases. That RBA speech includes the statement that FHB arrears are no worse than others. Arrears are historically low not just by international standards but by historical Ozzie standards. Fitch reported that the believe “that delinquencies have peaked in the current cycle”. I see little reference to that statement on this blog.

    According to the ABS, cap city house prices have increased 18.6% from March 2009 to March 2011. That’s typically a $100k gain for those FHBs in 2 years. They’ll be very glad that they got on the ladder when prices were so low. Some of those joined at the end of 2009 were not so fortunate but even for those there has been no disaster. Prices are up for the bulk of purchasers since Dec 2009.

    Far from the 2009 FHBs regretting their purchases, there’ll be many potential FHBs who are regretting they didn’t take advantage of the low prices at the beginning of 2009.

    The extra grant cost the government a measly $2b. Money well spent on helping young folk to get their own home and away from being at the mercy of the whims of a landlord. I say well done to the RBA, banks and government. The beneficial outcome was 80% due to the RBA and 20% due to the government. The banks are private enterprises and have no duties or responsibilities other than legal ones. Blaming them, as you do, for lending money to consenting adults is absurd. You’ll be insisting next that Harvey Norman check the finances of cash purchasers of TVs to see if they can really afford it and that it won’t leave the family poor.

    • That’s a kind of warped perspective in my opinion. You imply that the govt and the RBA are better off protecting the hoi polloi from themselves, yet you also imply that the banks have no moral responsibility to the general public whose taxes are effectively backstopping their business and protecting their profits. So you support the govt and RBA “putting people into their own homes”, but you also say those same people need to borrow what they can afford and that the banks have no moral responsibility (even though the banks themselves implicitly demand protection from uncertainty).
      It’s pretty obvious who the winner is in this kind of economic model.

      • There really is a difference of responsibility between banks and the gov/RBA.

        The government is put there by the people and it is responsible to those people. One of the 3 tasks of the RBA is the maintenance of “the economic prosperity and welfare of the people of Australia.” By contrast the banks are public companies and their responsibilities are to their shareholders. Like it or not, that is the system we have.

      • Fair enough but you make it sound so institutionalized as if the poor individual has no say in the matter. Based on the examples of the failed economies of the world’s preeminent liberal democracies, that’s not a good omen for Australia. Furthermore, it also sounds like a good case for nationalizing the banks if the private banks have no interest in your welfare as a stakeholder.

      • If we nationalize the banks, then you build in even more risk.

        You’ll have only one banking system and everyone will be forced into it.

        At the moment, we are forced at the point of a gun to accept fiat money. We can’t use alternative currencies, and we can’t practice alternative banking systems that don’t depend on fractional reserve and endless credit expansion.

        In a free and deregulated market, I could choose to put my money in a bank that doesn’t engage in a ponzi scheme and loan it out 10 times over to other borrowers.

        Sound money and the absence of a central bank would see prices fall over time. But the banksters are scared of this, and they profit off inflation, so we now have a central bank trying to create inflation and cheap credit.

    • Sinbad it is obvious from your comments that you are a property investor or connected with “the industry”. Your version of how it is for first home buyers is total rubbish and nothing like it really is for people like me.

      I was a first home buyer in early 2009. I purchased a 3 bedroom house in Forest lake in Brisbane South for $365,000. I won’t bore you with the circumstances but I was under significant family pressure to get married and buy a house. At the time my parents were full-on shouting at me to buy a house, because “they never go down in value” and this was a great opportunity to get in to the market. I resisted for months but in the end my dad said he would throw in $30,000 and I could really say no. Boy, do I regret that now.

      Since then interest rates have gone up a lot and my repayments are killing me. I am going backwards every fortnight, and my credit card bill is racking up. I am still ahead on my repayments thankfully but not for long. Everything else is getting expensive. Fuel, food , electricity all up so much in just 2 years.

      I just got my electricity bill and had to put it on my credit card. I have worked it out that I think by the time my next rates notice is due I will be stuffed and have try and get another card. I can’t go out, and have absolutely no money for an emergency. If my car breaks down or something like that I am screwed.

      I have started discussing with my parents about selling and already had 2 big fights with them about it. I think it is already too late, and I will probably going to have to hit them up for more cash.I can already feel that this is causing tension and my wife and I are fighting more because of the pressure. I am going to have to sell but I think I have waited too long for that too.

      Your 20% capital gain since 2009, is complete BS. A house around the corner almost exactly the same as mine sold for $380,000 in March, and I think the market has died further since then. If I was lucky enough to sell for that price then I would be about $25,000 down. So there is no way dad is getting his money back !!!

      Basically I am stuffed either way, and to read your rubbish about how happy I should be makes me sick and angry. I know lots of other people my age who are struggling right now. Lots of them have their houses up for sale but can’t sell them because no one wants to buy them.

      I know this is my fault. But that doesn’t mean I don’t think that the government is to blame and don’t get me started on my parents. I just wished macrobusiness was around then so I could have shown it to them and I wouldn’t be in this situation.

      • “Sinbad it is obvious from your comments that you are a property investor or connected with “the industry”.”
        I am neither of those. It always amazes me that people have to seek some ulterior motive to disparage views other than their own.
        “At the time my parents were full-on shouting at me to buy a house, because “they never go down in value”.”
        I’m surprised that (a) anyone was saying that in 2009 and (b) anyone believed the speaker. The ABS reported FOUR straight quarters of house price falls for the 8 city capital average for the 2/2008, 3/2008, 4/2008 and 1/2009 quarters. It was common knowledge that house prices had fallen. Steve Keen was regularly telling people on the tele and radio. No one at that time was publicly stating that house prices never go down. They would have been rightly ridiculed. You only needed to hear the news or read the paper to know that house prices were falling.

      • So after telling me I should have seen 20% growth in my house over the last 2 years so I should be happy. But as that hasn’t actually materialised because I live in the real world you are now telling me I shouldn’t have done it because everyone knew that house prices go down.

        [Edited by DE]

        And for your claim that you are not a housing investor or part of the industry.

        [Edited by DE]

        No one actually knows that

        >The ABS reported FOUR straight quarters of house price falls for the 8 city capital average for the 2/2008, 3/2008, 4/2008 and 1/2009 quarters.

        unless they are following the market. Give it up, your not convincing anyone.

      • John.

        I understand that this may be an emotive topic for you given your circumstances. But I will not tolerate personal attacks.

        Please refrain from insulting fellow commentators. Stay on topic and attack the issue not the man.

      • Endrortsonhousing

        Thanks John

        Obviously a really straight from the gut post. On the positive side you have now learnt a very important lesson and at least you are not holding investment properties or paid $500 – $700k that Melb/Sydney FHBs have been suckered into paying!

        I learnt my investment lessons too the hard way in the dot com boom.

      • I have definitely learnt my lesson.. If I can unload my house I will not be back for years, if ever.

        Thank you for being understanding. At least some people here have some compassion for fellow human beings.

      • Sadly I know a few folks in similar situation. The really sad thing is not the money, but the emotional strain and pressure it is putting on their marriage and family relationships.

        I wish you all the best and I hope you can get out of this with your life intact. Good luck.

      • This really sucks for you…

        …but I can tel you that putting your relationships first – even at the expense of your finances – is a really good move in the end.

        Not easy, but in the end money is just money; relationships are precious, especially your marriage.

        I can say this from personal experience, where I sold my house and left work to care for my physically disabled son (and that was from a salary of $110K/yr).

        It has been hard, but I don’t regret it – it was the right thing to do.

        Hope you find that story encouraging…


    • Funny isn’t it? Some FHB will be winners (RE up 18.6% for some) and some FHB will be losers.
      The losers will be the ones who find themselves in negative equity, thanks to the most ill-timed purchase in their lifetime.
      Timing the purchase of RE can make or break an individual.
      As far as I can make out, if naive FHBs ends up in negative equity then it is in good part the result of the reckless and irresponsible lending by cunning banksters.
      At the end of the day it was banks who loaned the money, not govt.
      Banks are well-resourced, know full well the history of previous asset bubbles and seem to have even engineered maximum damage to some participants in this round by arming borrowers with ‘Equity-Mate’ style loans.
      Why take out only one borrower and his/her property when many more can be skittled like dominoes.

      ‘Equity-Mate’ Loan – talk about weapon of mass destruction.

      How about we refer all cases of FHB negative equity to the lawyers who represented the investors duded by Storm Financials?
      Perhaps they might be able to turn a profit and sheet home the blame to where it belongs with a class action!

    • That $100k gain isn’t so impressive when you realise that if that person bought their property with a 95% LVR loan, they would have paid $75k in interest alone in those 2 years. Chuck in $10k worth of stamp duty on top of that, rates, insurance, and another $10k in RE commission if they want to sell it, and that paper gain has turned into maybe a $10k loss. Start eating away at that 18.6% capital gain with falling prices, and that loss is going to get a lot bigger.

      • There’s no $10k loss. They would have had to pay considerably more than that in rent over two years. And forever more.

      • Whether it’s a loss or gain depends on how much they would pay in rent for a similar type of property doesn’t it? And if we assume they had a deposit of their own…then you have to account for the interest earnt over 2 years on that money in the bank, plus any extra money put to that term deposit over the 2 years….which presumably would/could have been the difference between the monthly mortgage and the monthly rent over that period.

      • Absolutely, you have to compare that with the alternative which is maybe $40,000 over 2 years in rent. I guess the point I was trying to make is that capital gains of $100k are more like actual gains of $30K when you take into account the enormous holding and transaction costs. Relying on those strong capital gains is very risky IMO.

      • If you had bought this time last year, you would have 0.7% capital gains (on average), which is a pretty massive loss relative to renting over that period.

      • “If you had bought this time last year, ”

        Now you are moving the goalposts. This blog is addressing the issue of FHBs who bought in 2009.
        “first-home owners who were attracted into the housing market in 2009”

      • Fair call, I actually didn’t realise the doubling of the FBH grant ran out in January 2010.

  12. Drederick Tatum

    “Many of them young and naive and trapped in a society utterly obsessed with housing that was screaming in their faces that “this is the time to buy”

    …the screams were more like “this is the time to buy and only losers rent”

  13. Sandgroper Sceptic

    Whilst allocating blame is a fun game, what about prognosticating on the various stakeholders’ reactions to the imminent housing slump? ie When the property market is down 15-20% and we are in recession:
    (1) Do you think the Government will double/treble down on the FHBG?
    (2) Will the RBA cut rates to 1%?
    (3) Will State governments cut stamp duties (actually Victoria is already trying this right?)
    (4) Will new land be made available on the fringe of our cities at super cheap prices?
    (5) Will any of these various measures do anything to stop the slump?

    • my veiw of the answers
      1) No (I think they have seen property fall around the world and don’t really want to catch a falling sword)
      2) may reduce in time … but only if they get a royalty regime strengthed (resourse tax)
      3) many lobbying for this, but the govt can make money on falling prices, it just needs transactions – qld also looking at this
      4) NSW (o’farrell) has directed the release of and additional 10,000 lots nsw wide in the next 2 years.
      5) Does it really matter if it stops or slows … someone will claim they made the right decisions and that they should be the hero

  14. The primary reason for getting the Annual Demographia International Housing Affordability Surveys http://www.demographia.com underway back in late 2004, with the 1st edition out early 2005 and the 7th January this year, was to illustrate how Aussies and Kiwis are getting taken to the cleaners on housing.

    So if they elect to believe the government and industry bull and play the bubble game, they only have themselves to blame.

    Bubble or illusory wealth is however hugely attractive to people (the lure of “easy money”). It is though “fools gold” and as the Australian housing bubble collapses, they will learn exactly the same lessons as their counterparts in California, Nevada, Arizona, Florida, Ireland and elsewhere.

    By my rough calcs, there is around $A2 trillion of bubble value to wipe out in Australia. This has been propped up with about $A500 billion of bubble mortgage debt.

    It sure is going to be a very rough downhill ride.

    • Yes, and it AGAIN illustrates how a resources CAPEX boom is still NOTHING compared to a sniffle in the housing market…the boom will stop nothing…

      Housing >>>> resources!

      Can we please all stop pretending otherwise?!?!?

    • So if you were so concerned about a bubble, why were you spending most of the years since 2004 until recently blaming the price level on supply constraints (which, as we all know, is a fundamental). You would have not done those people such a disservice had you backed up the RBA in 2003-04 when they pointed out the speculative nature of much of the housing activity then.
      The people who tried to blame it all on supply factors are also partly culpable.

      • Abel Tasman – good question!

        The Demographia Surveys and the extensive reputable academic literature over the years, clearly illustrate that it is an “affordable supply” problem not simply “supply”.

        There is a world of difference between “market supply” and “bubble supply” and I would suggest you go to the front page of my website for a clear definition of affordable supply and an affordable housing market.

        None of this is rocket science.

        When artificial land scarcities are created on the fringes and demand kicks in – all hell breaks loose as speculative activity is triggered. The sound DEVELOPMENT RATIOS are the first to go and this speculative activity starts triggering the creation of bubble stock. Much of the new stock created in the past years in Australia, because it breaches hugely important conventional Development Raios (something most economists dont seem to have a clue about) should be classified as bubble stock.

        As the Australian housing bubble crashes, this bubble stock really gets a hammering. Much of the overbuilt new apartment market in Melbourne is an example of this.

        Bubble stock is defined as (a) stock built outside conventional development ratios (b) of a type planners want but the real (non speculative) market doesnt and (c) in locations planners want but real buyers dont.

        Assessing supply in bubble markets such as Australia is pretty much a waste of time – although its “interesting” that about 1.5 million new units have gone in to Australia this past ten years where the population has lifted by about 3.1 million. Texas has put in the same numbers of “market stock” ( in contrast to Australia’s “bubble stock”), while its population has lifted by about 4.1 million over the same period.

        The major indicators to watch in bubble markets are the sales stock volumes, sales per month and months of supply, where markets are in equilibrium with six months supply. Im picking the “months of supply” is going to widen dramatically in Australia going forward.

  15. Greedy Old Immature Self-centered opportunistic consensual groups with the power to convince….Bubbled ,All they had,
    Lemons and water’ and on sold Lemonade to a
    Future they had no visions for…
    And we all got Drunk …


  16. Sam Birmingham

    Great post DE – thanks!

    Of all the commenters, I reckon @jacks money is nearest the mark — it’s important to acknowledge the societal pressure (“peers and parents”) and market participants.

    My breakdown:

    Government 40%: Bottom line, they knew what they were doing (or at least ought to!) yet were still only too happy to throw our younger generation to the wolves, rather than address fundamental issues with our economy and the short-sightedness of political discourse.

    Industry Participants (Banks, REAs, Mortgage Brokers) 30%: They would probably be more culpable except for the fact that they operate in a system which is designed for them to do exactly as they did… Keep shovelling the money out, push prices higher, head further up the risk profile, then leave someone else to worry about the inevitable consequences.

    RBA 10% – No doubt record low interest rates contributed to purchasers’ decisions, but let’s not forget that the RBA only has one tool in its toolbox; and they were using that tool for the benefit of the majority of Australians who already had mortgages. Having said that, the RBA should have done a lot more “jaw-boning” to make the risks clear and remind those who were getting mortgages that there was only one way for interest rates to go.

    Purchasers 10%: I’m the first to admit that individuals must be responsible for their own decisions, notwithstanding that they are heavily influenced by…

    Peers & Parents 20%: Societal pressures are a HUGE issue in this sorry mess… Not only do they place unreasonable pressures (and encourage naive optimism) at the individual purchaser level, they are also the majority at which short-sighted and populist Government policy is targeted.

    Until the greater public demand more than short-term bribes and pork-barrelling from our politicians, perhaps we need to apportion more blame to the electorate…?

    • Sam Birmingham

      And *oops*… Forgot to change my “Industry Participants” figure down to 20% and have ended up with a grand total of 110%!

      Oh well, y’all get what I mean 🙂

  17. Should government compensate FHBs 50% of any future loss? If not, what are you driving at by saying that government is 50% responsible?

    I think each individual FHB is 100% responsible for their decision and needs to cop any possible future consequences, just as they would happily be the recipient of any possible future gains.

    Yes, when making a complex financial decision it is extremely difficult to resist the call of the herd “buy! buy! buy!”, but surely in any just world, adults must take responsibility for their actions.

    • +1

      Well said sir. As bonus we’ll have a generation of people that as they get older will be giving some sage advice to the their children about housing markets DO fall and due diligence.

    • 100%. As a great lady once said, “We are each responsible for our own life – no other person is or even can be.”

    • Yeah, maybe I am a harsh task master and getting old and cranky. But frankly I have to agree. it is 100% our own responsibility to manage these thing regardless of what the Government or commercial interest throw our way.

      Banks used to always send me pre-approved credit cards and increased unrequested increased limits in the post. I would always just bin them.

      They also offered us what we felt were stupid limits for a mortgage. Again we said no and kept renting.

      I am not saying we are smarter than anyone else (because we are not). But we all need to take responsibility for our choices. Just because someone offers us lots of cheap candy, it doesn’t mean we should just scoff it all without considering the consequences of our choices. Blaming others is very boganomics. “It’s your fault my choices ended up badly…”

      • Totally disagree with all of you.

        It’s not a level playing field. Not only that, much of the politico-housing complex is dedicated to spreading the lie that it is a level playing field.

        I’ll bet every one you would agree that the banks are enjoying huge moral hazards right now, from a government that at the same time does everything in its power to represent those supports as increased competition.

        Yet you expect a young FHB, who is inexperienced in life generally, before we even get to the question of finance and markets, to go against a rigged system designed to do just one thing – push him into housing. You expect him inherently to distrust this system in the way you do, with all of your experience and knowledge. To be honest, this strikes me as naive as Alan Greenspan and his notion that markets are always perfectly priced. You guys believe in some perfect individual that should be perfectly capable of determining a mispriced asset.

        Fact is, if you believe the banks are currently enjoying government support that constitutes moral hazard then you can’t logically foist all of the responsibility onto the individual. Banks’ role and responsibility is to determine capital and credit flows based upon, among other things, credit assessment. If the government is distorting that process through moral hazard then both are betraying the tents of that role.

        Not only is it ridiculous to blame FHB’s for that, you are complicit in the cover up.

      • So when the FHBs are kneeling at the sacrificial altar cited in your question, they won’t man up and think “I chose my own fate, ït was my choice to buy”??


        Wow. Happy to agree to disagree. Perhaps I give people too much credit. I like to think they would take responsibility for their own actions, if not always immediately, then certainly if they find themselves kneeling before the gods.

      • I understand where you are coming from H&H, but we cannot continue to make excuses for people when they make bad decisions. Otherwise we run the risk of moral hazard across the entire population because if no blame or responsibility can be laid at the feet of those who over reached themselves….then those who have not over reached themselves will be paying the cost, through taxes, subsidies, bailouts if it all goes pear shaped.

      • I often feel we as a society (at least here in Australia) are, for better or worse, moving in that direction.

      • That’s one of the reasons why we’re now the ultimate nanny state and one of the keys behind the perceived lack of risk involved in housing investment.

        You can’t ever go wrong because someone will be there to blame and/or bail you out. Whilst the bleeding hearts reign, don’t expect things to change soon.

      • Regardless of all other influences (assuming the absence of coercion or blatant misrepresentation) when you sign a contract you enter into a legally binding agreement, an act you are prevented from undertaking prior to adulthood. Adulthood, with all commensurate rights and responsibilities. In the case of housing, final responsibility must lie with the purchaser.

        There appear to be a number of readers of MB that declined to fall for the housing-politico spin. Clearly, information was available to them that indicated a decision to postpone purchase was the better option. This information is freely available on the internet, economic history books, etc. If you choose not to pay it attention, so be it.

        Noses in the trough all round: purchasers hoping for big gains; REA’s spruiking for commissions; State Governments tax enhancing; Fed government election seeking; Banks profit taking; RBA MIA

        In reality, responsible behaviour was abandoned at all levels. Jason succinctly captured it:

        “Greedy Old Immature Self-centered opportunistic consensual groups with the power to convince….
        Bubbled, All they had,
        Lemons and water’ and on sold Lemonade
        to a Future they had no visions for…
        And we all got Drunk …”

        The whole country drunk of the spoils of housing.

        Now for the hangover…

      • H&H, someone comes to you with money in one hand, a smile, and the other hand out to shake yours.

        (Not you personally) You don’t about face and run?

        That’s what fundamentally is going on. I kind of see things the way my grandparents and parents generation did when they were quite young, they ran (so they told me), and that’s why I did too. I mean (nearly) everyone I talk to, speaks of this awesome propaganda network in our midst and surround, and yet they shook the hand. Why?

        Cause they wanted too, and they knew the consequences even the predictable consequences of what their actions may become. Who sign off on that amount of money without looking down a few forks in the road like, what if I loose my job, interest rates rise, even more positive, I get promoted, win some money. No! They were all king of the castle when they received the door keys and … another hand shake.

      • No Houses and Holes, you are wrong here because you assume too much naievity on behalf of the FHB…a lot of them knew exactly what the risk was, but were more than happy to make an easy buck. For them to now claim they didnt know houses could down in value is a total lie. People always play the victim when they make a dumb play.

        Further, ignorance is no excuse to breaking the law, nor should it be to making stupid economic decisions.

        They should not be naieve because they should take more of an interest in the world they live in. A lot of these people NEVER read books, NEVER read magazines and rely on one or two news sources.

        These people have created their own inexperience and naivety…they cant therefore be forgiven for being naieve

      • H&H

        I admire your compassion and admit that some (but in my view a minority) of FHBs were faultless in being sucked into the property market. Most FHBs – and indeed most property speculators – had at least some level of complicity, including choosing to ignore common sense.

        In some senses the debate about ‘who is resonsible’ (and how much) is pointless other than as an intellectual wank. ALl that really matters is what changes will be implemented as a result of our impending property market collapse.

        You have written extensively about the need to reform the banking system, and I agree with that.

        However all of this will be for nothing if the great number of citizens who tried to get rich quick in housing end up being bailed out by those who didn’t. Not only will this engender huge resentment in our society, it will also create the mother of all Moral Hazards. Why would any individual in future years not simply follow the herd into any ‘hot’ speculative bubble, knowing full well that the government will bail them out? Why would any ‘investor’ bother to do research and make prudent decisions, if they know governments will come in after the event and redistribute all of the gains and losses?

        You have done a wonderful job in alerting people to the dangers of our nation becoming “houses and holes”, but this line of thinking would put us firmly back on that course.


        PS: I know of many FHB’s who have specifically purchased property to ‘game the system’ – in summary to get the FHOG, get the tax deductions after then start renting the house out (after 6 months), rely on local government complicity in restricting supply, rely on banks continuing to lend to ‘greater fools’ so they can “flip” at a great short term profit. This is not how a productive society with a bright future operates.

  18. DE. Great post. I certainly side more on those who point out that borrowers/speculators need to take a much greater responsibility for the financial decisions they make. Yes the government promoted home ownership, yes the banks pushed mortgage products, yes the RBA helped to lull people into a false sense of security with dodgy stats and a misguided understanding of the market, BUT, individuals in society need to take responsibility for their decisions or else we are bound to keep repeating the same mistakes.

    Our nation has become one of the most interventionist nanny states in the western world. People who took a 97% LVR loan to ‘get rich quick’ made a calculated gamble that they would profit from an inflating property market. Many of these speculators knew that fundamentals were out of line but explcitilty banked on government and other vested interests ‘propping up’ prices for long enough for them to ‘get rich’. They would have taken the upside, they must take the downside.

    Reform of the banking system, reform of the RBA and reform of our government’s slavish pandering to the property lobby is needed – but more than anyting else the Australian people must learn that property can go down just like any other asset class and that we must refocus on building a productive and prosperous society.

    • “Our nation has become one of the most interventionist nanny states in the western world.”

      I agree! Thing is… what happens if you take away responsibility from those that should be responsible?

      Irresponsible behaviour.

    • Precisely which dodgy stats are you referring to? The RBA missed their forecast – they thought unemployment would peak above 8%, but the actual peak was 5.8%. but they started raising rates again the minute they realized the error. I am not sure what more you would have them do.

      • You have an hour of work per week to your name, and your not counted as unemployed, despite receiving benefits.

        Your a reserve bank and you want to lift rates, tell them unemployment is low, and you can count it that way too, and thus speak with honesty.

        What stats are you blessing with credibility? Unemployment Rate? Inflation?

      • Well I don’t know why you blame RBA for stats they don’t compile (ABS does) and that are done according to international ILO standards. Anyway through that period RBA was showing graphs with the broader measures of underemployment in it’s Statement on Monetary Policy. Those data tell the same story. The level is different but the conclusions one draws about the state of the labour market is the same. And where the story was not obvious in the normal unemployment rate, like the number of people on short hours, RBA drew attention to this. How about checking what they actually wrote before trying to pass judgement?
        Lots of misconceptions about the CPI but it is actually pretty good. You just remember the price increases better than the falls and no changes.

      • Forgot to mention- you seem to be complaining about the RBA raising rates because it understates “real” unemployment.

        Sorry, I thought this thread was for complaining about RBA and others artificially boosting housing through things like, well, LOW interest rates.

        I repeat, what would you have had the RBA do differently?

      • I’m not complaining, you’re saying I’m comnplaining.

        And I’m not blaming the RBA, you’re saying I am.

        Repeat the question all you like it is of no relevance.

      • Abel

        The RBA is just as misguided as every other central bank and regulator in the world. They wield enormous influence over macroeconomic policy, not just monetary policy, as you know, and they could have identified the debt-fueled bubble many years ago and taken steps to snuff it out (eg talk to their buddies at APRA). In their attempts to “manage” expectations they have helped the case that the economic “establishment” has pushed for years that there is no bubble.

        History will judge the RBA in a similar way to Greenspan.

  19. There but for the grace of god go I …

    I was a prospective FHB caught in that period too. In the end i decided that I just wasn’t comfortable with taking on that ridiculous amount of debt …

    People are saying that its all down the buyer and it is on simple level,
    however at the time there wasn’t a decenting voice out there.

    The media were saying buy
    Every mortguage broker was telling me it was normal to be paying 2500 a month
    the govt was piling it on with the grant.

    Whoever said that “what goes up must come down” was the first lesson as school is talking rubbish. If you are in your early 30s there has been no lesson or info to suggest that buying property isn’t the best thing ever.

    Now I didn’t buy, because I got sick of going to auctions and being outbid by investors so desperate to buy that they would be happy going 20-30k over anything reasonable.

    So while it might be the FHB who are feeling the pinch because of small margins, i think it will be the investors who bought inthe frenzy who will take the real beating if prices do keep going down.

    • Oh please. Steve Keen was allover the media. The US housing market had melted down well and truly.

      AND … Housing prices fell in most parts of Australia in 2004-05.

      And you claim nobody told you of the risks?

      Fact is that arrears rates in the bad bits of WA and Qld are still lower than in western Sydney now, let alone western Sydney then. That was in a graph in their latest FSR. I suspect what RBA is saying in that speech is that they know there should be potential for a problem, but however they cut the liaison and data, they can’t find it. But they don’t want people to be complacent.

      • Steve keen was represented as a maverick wierdo with 20 people to his one saying he was wrong.

      • At the time, Steven Keen was gearing up for a long hike having lost a bet, housing prices showed no sign of retreating, and the Government at all levels gave the impression they would do anything to keep prices rising.

        Much like zentao, I also was looking to buy back then and in the end it was only my disgust at the whole rip off procedure that I found auctions to be that prevented me from buying.

    • Australian Property crash from the late 1880s was catastrophic. In some cases you didn’t get the same price until the 1950s. Then there is Perth’s tumble in the 1970s after the Nickel boom.

      The information is out there.

      History. Learn from it.

      • And that Sydney in particular fell in 2004 and 2005, and many places in 2008. They didn’t even need to be a historian.

  20. I am a teacher (Ass. Prof) in Finance and “in theory” I agree with what DE said. Interestingly, my colleagues (including well known economists) keeps telling everyone recently joining our school to quickly climb onto the “property ladder” or miss out forever. The fact is education is not the cure for greed and/or fear.

    • Theorm is a good thing, but the market can stay irrational longer then you can stay liquid (buffett) so many who thought rationally jumped in and with timing they may or may not have done OK.
      the mail out of the USA us that the people who bought since 2003 are in negative territory, in actual dollar terms ignoring inflation and interest and rates and taxes and exit costs.
      I think your collegue is in dangerous territory as someone who can influence an investment decision that is not covered by a real estate licence should have an authorised representative of an afsl status. Therefore I would probably think that he could be targewted under an ASIC investigation of not providing full disclosure of his interest in the statements being made. etc.

  21. I often wonder how much blame savers of cash share in this mess. Saving (in deposits, super and perhaps even bonds) are required for banks to make risky loans. With more prudent investments of savings, perhaps the more aggressive banks would have run out of funds long ago. Of course, in the real world, the balance of information is against the retail saver, along with the implicit government guarantees. And the institutions investing on their behalf via super, etc, are either complicit, lazy, fooled by a bubble, fooled by rating agencies or part of all four. None the less, if savers share the blame or not, they will be punished, if not by default, then by the money printers. But how much are they to blame, I do not know.

    • If people aren’t saving locally the banks now just go offshore to borrow.

      Not sure i can see how its the “savers” fault

  22. Albert Pierrepoint

    Here is one aspect of the FHB motivation which may not have been addressed. Renting in a major city like Sydney can be a very stressful and soul destroying experience. In the boom period up to 2010, rental properties were being flipped for huge capital gains and renters could find themselves homeless after 6-12 months. Add to this the sneering real estate agents and landlords who regard renters as more or less subhuman. So.. take a typical small family who rents and try some of these rational arguments on a young mother with children. Is it any wonder that FHBs grabbed any opportunity they were offered?

    • Add to this the restrictions in what you can do, how you can decorate etc – the major motivation for FHB is to have a HOME.

      In european countries where renting is the norm the tenants have many more rights and you can make a home without owning it. here you are reminded everytime you can’t put a picture up that you are a guest …. this is a very powerful motivation.

      • Exactly. Only thing you have to agree on is to restore to the previous state if the landlord requires you to do so.

        Often the landlord won’t require you to do so as renters have improved the place and the landlord is more than happy to leave things as they are.

        Here rentals are run down because landlords seem to be either unwilling or do not have the funds to do proper maintenance…

    • I agree I am looking for a new rental at the moment. Not a lot of fun. Quite a bit more expensive than I had imagined as well.

  23. Good post. I think that it is not a case of dividing up responsibility; however, it is a good way to look at it. An alternative might look like this: it is the buyer’s responsibility 100%; he or she makes the final choice and accepts responsibility.

    But this is done in a context of market distortions: multiple interventions and stimulii by the state – FHBGs, NG, RMBS via the AOFM: http://www.aofm.gov.au/content/rmbs.asp; and then societal pressure (i.e. prices always rise) and relatively cheap interest rates; housing as a vehicle for SMSF (i.e. whether explicit or no, the state is now using property as the prime investment asset for retirees).

    Most of the context, though, is state driven. Think not political but economic socialism (in the guise of democratic socialism under whichever label you choose: Labor or Liberal), whether through the RBA keeping rates below an otherwise higher market rate without such central control; various justifications for subsidies on many distinct first home purchases, both federal and state; the chestnut of negative gearing; and the ongoing intervention of the AOFM to buy government debt and prop up the flow of capital to the mortgage industry, as well as banks reaching overseas for more capital because, funnily enough, there were not enough domestic savings to fund this baby. (That last one lets the cat out of the bag. How can you spend more than you earn?) That’s rocket fuel, folks.

    Most of the context, then, is state driven. In other words, interventionism or economic socialism. And people get on board thinking that this is the housing “market” and prices will always rise.

    So the individual is 100% responsible for signing, but does so without knowing that a great deal of what s/he is signing into is a manipulated market. Most of this comes down to credit expansion and, in this case, in the form of debt. Most commentators are either too gutless (protecting their own reputation) or too stupid (trained in idiot Keynesian economics or dumb mainstream mathematical economics), and, thus, not many have the courage to call the tune on these types of manipulation. This is because, as long as economists are duped by their mainstream models, the public will also be misguided. People do not eat or buy averages or make decisions based on macroeconomic variables. They make decisions based on marginal prices, i.e. the market price operative in the context of that specific (niche) market in the context of good old supply and demand. (And when the supply and demand are manipulated or, in the case of housing, are distorted by a flood of credit, watch out – prices tend to move when demand and supply are altered by folks with cash [read: credit, nay, debt] to splash.)

    End of rant!

  24. All very interesting, and a very stimulating article. It’s ridiculous to blame FHBs 100% and equally so to exculpate them altogether. There’s not even much point to distributing the relative portions of the ‘blame’ to various segments of the economy or society.
    Fact is, we have witnessed a mania based, as one would expect, on greed and fear. But mixed in with that is the nature of our society and history.

    My observations have led me to conclude that the very essence of ‘Australia’, this huge block of land, is the belief in its denizens that it exists for the very purpose of making money. No matter whether you’re a 19th century squatter or a 21st century FHB, the deeply held belief, even if it’s subconscious and unspoken, is that you can take, take, take and in the end ‘the government’ will always support you in getting something for nothing out of real estate. So, today we have mining lords and ladies like Rhinehart on the one hand, and the FHBs on the other, both supported by government largesse: the failure to tax properly the extraction of minerals, and the willingness to make egregiously irrespnsible speculative grants to suckers.

    The phrase – patronising as it is – ‘the deserving poor’, has literally disappeared from the Aussie lexicon; it has been replaced by an over-arching sense of entitlement. While ‘downward envy’ has come to refer to the view of the employed, middle income people that those on welfare or unemployment benefits are parasytes who get something for nothing, the reality is that getting something for nothing from the government is now thought to be the basic right of even the well-off: witness the inane and insane MSM furore over the $150,000 income earners following mild corrections to their entitlements in the budget. It appears that owning a house and/or having a high income is somehow proof in itself that one works hard, and the corollory is that effort and aspiration in themselves make one deserving of handouts in ‘reward’. All this feeling sorry for young people who can’t afford to buy houses is a fig leaf over the benign sounding but ultimately baneful concept of ‘the property ladder’. Upon the rungs of which, of course, one can only move in ascent.

    My futher – possibly harshly cynical – observation is that there are 4 cornerstone phrases which have permeated and sum up Australian ethics and guide ‘self-betterment’:
    1. I’m alright Jack (we all know that one)
    2. Everyone else is doing it
    3. If I don’t do it, someone else will
    4. You’re a mug if you don’t, mate

    So, we have a nation of people, by and large of course, who have come to believe not only that they can all get rich by buying and selling property to each other, but that the government has a duty to assist in this process.

    • I liked Macondo’s post above.

      Australian people are simple people. Not all of us, but certainly there is a theme.

      The Australian economy is a simple economy. To feel rich we sell houses to each other and depend on ever increasing prices.

      Our largest unit of economic activity is simple people exchanging property in an unregulated market pumped with the single-minded profit hunger of the banking sector and continually propped up by a Government that created an amazingly uneven playing field with massive interventionist policy. With very little productivity gains in the economy along the way.

      It is obvious how this will end. Painfully obvious. We look like a bunch of high school kids trying to run a business for the first time as a school project.

      It is the governments fault for letting this get so out of hand for so long.

      However ultimately it will benefit the nation the most of the Australian household sector, the community, shoulders the burden of fault and learns from it, irrespective of whether they were manipulated by the system into the game so deeply.

    • Macondo – pretty much on the money.

      Throw in predatory lending practices and MSM spin, and as Jason and 3d1k alluded to earlier in this thread, Australians became drunk on the housing boom.

      When you zoom out in a macro sense, you see the same formula in play in most other parts of the western world. An old formula derived and applied by the banking elite of this world.

      Isn’t it intriguing that the likes of Goldman Sachs and JP Morgan and Co have made mega profits in an environment that has left many hard working individuals destitute?

      Not only do these parasites of society make money in a rising market, they make just as much if not more on a falling one.

      • Nod, you’re completely correct regarding the culpability of MSM. Where were they in terms of independent and impartial (non-press lease) reporting. Excellent point.

    • I wish I could retract my posts to this blog topic after reading that, very well said Macondo.

  25. As much as I hate defending the RBA, I don’t think they deserve 20% of the blame. Low interest rates during the 1990’s then into the noughties were due to structural changes in the post Volker world, where central banks in the core countries all adopted very low inlation targets. In this environment the RBA had a very low interest rate band to work with.

    Also McFarlane in particular warned about a housing bubble. Nobody listened.
    So they should probably take 10% (if only because of Battelino’s delirious speeches)

    The other 10% should go to the print media.

  26. Just came back from some house hunting. The asking prices are …….. well …….. very very high indeed. Still.
    So me thinks the patient isn’t dead yet( well not in my ward at least) but posters here write as if the funeral will be held tomorrow.
    There hasn’t been a housing crash.
    If there was, some of the lamenting prospective FHBs on this blog wouldn’t be so despondent and vitriolic. They would be out there buying something they can afford.

  27. 20% Gov
    20% Media
    20% Economics establishment
    20% Finance, Insurance and RE industry (FIRE)
    20% Borrowers

  28. Johno…asking prices are high, but falling. No one said the crash had ended – but it has begun

  29. What about speculators (commonly incorrectly referred to as investors) who pushed the price of would-be FHB properties to the moon?

    What about anyone who bought a property over the last decade because a bubble price requires a buyer to pay it?

    What about a tax system that favours property investment over owner occupiers?

    Blame really needs to be 100% on the purchaser/borrower. Their influences can be apportioned but it needs to be acknowledged they are adults and freely made the decision. I feel for those in financial hardship.

    Similar issue with cigarettes – every packet clearly explains that they will kill you or give you cancer yet people choose to joke about it or ignore it or believe it won’t happen to them. Again, the smoker is 100% to blame, and their influences can be apportioned between nice packaging, social pressure, chemicals (esp. Nicotine) and the like.

    Great article & comments.

  30. Great blog.

    I believe that trying to assign blame to any party other than the buyer is futile.

    You just had to answer one question at the time: “If the only way I can afford a house is due to government assistance, is it wise to buy?”

    At the end of the day, you stay responsibile for your own decisions. You make your own choices. Ignorance is no excuse. Almost everyone in Australia can obtain access to the internet. Easy to do some research.

  31. Hey guys I work for a major Australian Bank and I would like to ask if why are we blaming First Home Owners, they are not the only one who were caught up in all of this. I do loans for men and women in their late fifties, buying their third or fourth property have little to no savings and almost no super. These people are doctors, teachers, financial planners, brokers, politicians, publci servants and they all say the same thing, this is a blip the market will come raoring back and we will sell the property and fund out retirement. I am sure they said the same thing in Ireland and the USA and Spain etc etc. These are well educated people (it includes other bank lenders) who are just as convinved by the marketing and spruiking as the FHB. So the poorest, least educated have no chance agains the system. Let’s look at the super well off the men and women in charge of Lehrman brothers, Bank of America, Westpac in the early 1990’s they are suppose to the smartest and brightest and they picked the market wrong, they had to hand in cap to the Government. So telling me FHB should have know better when the super rich didn’t does not sit well with me.
    The head of this bank has access to information that none of us in the public are privvy to, they can talk to other financiers and govt officials and make back door deals and they should know the future direction of the economy and yet they didn’t! I can tell you that the lending figures for this bank in all states are in strong decline, the figures in Qld and WA are very bad but NSW and Vic are falling strongly. Sinbad, Sarah P or who ever you are. So your stating the period from 2002 to 2008 is representative of the housing market in general correct. So tell me why did the property I purchase in an inner city suburb (Cooparoo)of Brisbane in 1992 renovated and sold in 2000 only rise in value by 20%. The house my parents purchased in Hamilton in 1981 renovated and expanded with a new bedroom to make it 4 beds only rise by 15% when sold in 1990. Seems to me the market rises but not the level you would have us beleive. So who is to blame, not FHB.

    • +1 to that.

      Only a fool or a property spruiker would describe this as only a FHB issue.

      The same goes to fools who looked at America’s housing crash and thought it was confined to ‘sub-prime’ borrowers.

      Luxury property prices will fall just as hard as poorer suburbs.. the entire market was overvalued.

      Pundits should be careful not to obsess on FHB, no matter how much of an effect the FHOG boost in 2009 may have had on the market.

      The structural problems in the housing market should have been visible in 2006/07, where prices got beyond reach and were becoming ridiculously high multiples of our incomes.

      The first decade of this century saw a spectacular credit expansion by the banking system. Housing prices were being driven by nothing more than borrowed money.

    • IThe example of your parents, is that 15% nominal, or real gain?

      Seems awfully low to be nominal considering the rates of inflation through the 80’s.

      Back to your main point, I also sit uneasy with blaming first home buyers.

      Msss marketing is a sophisticated business, definately more sophisticated than much of the FHB demograph.

      The simple point is the FHOG was intended to draw them in, it served no other purpose than to draw them in. If it was a completely ineffective policy with RE activity remaining inert, then perhaps the grant could have been enlarged.

      But the story remains the same. A policy designed to increase activity, had the outcome of increasing activity.

      It’s not a bizarre outcome.

      With high paid professionals, well they are conditioned because with lax money policy, we measure prices in nominal, not real terms. Their terms of reference is the ‘prices double every 7-10 years’.

      Well there was a significant window when it did, but at the same time so did wages.

      When the wage/inflation nexus was re-adjusted, asset prices should have followed, but considerable change to money policy (inflation targetting) and tax (CGT discounting) created a feedback loop that re-asserted the “doubles every 7-10 years” meme.

  32. There has been a lot of blaming FHB’s but not a whole lot of discussion on bubble psychology.

    The psychology of bubbles has been witnessed time and time again. It matters not what the underlying asset is, all that matters is that a perception of indefinitely rising value is created. This is true whether it is stocks, houses, gold or tulips.

    Once that has been incorporated into the psyche rational decision making goes out the window and the bubble takes hold. Its a simple matter of trying to get in before its too late. Anyone who was looking to buy a house in past few years will know about this: you to an open house, and within hours the house is gone. You put offers in and you always end up in a bidding war. everything about the market says “you will miss out” and wont achieve that ‘dream’ of ownership.

    Its because of that psychology that i cant blame the FHB’s. It is a weakness of the human condition that people go mad in herds.

    However, the underlying factor in all bubbles is always the availability of credit/money supply. When you have the combined forces of RBA rate cutting, relaxation of lending standards and govt assistance you create the perfect storm of bubble conditions. As credit availability increases, the ability to pay increases and people will naturally desire that ‘dream’ home instead of the crappy POS they can ‘afford’. We can afford the dream home now, after all the bank wouldnt be lending to us if we couldnt pay it back right? Prices are going up, wages are going up, we’ll be fine!

    Add to this the media layer. Constant reminders of ‘the Australian dream’, how Aussie lenders havent followed the big bad Americans in dropping lending standards, ‘undersupply’ of housing (yeah, right).

    Lastly, we have what is a consumption culture. Everything from GDP measures (consumption 70% of the economy? I dont think so) to lax credit card standards to advertising educated the average Aussie from a young age to be a consumer, not a saver. Saving is bad, we were told. Either spend or have your money work for you in housing (dont worry about other investments, your super takes care of that).

    All of this contributed to the attacks on the psyche of the average Australian who, lets face it, never really had a chance in the face of all this. So IMO blaming individuals is too harsh when they were set up to fail.

  33. This has been an excellent post, one last pointer, that I feel is often overlooked the CGT exempt status of the principle residence, which does encouraging flipping. So my view Treasury, govts at all levels, the Australian property pyche and the FIRE industry. Giving a percentage blame is a bit difficult, but people are basically given a shit sandwich, renters are losers , restrict supply etc all herding people into property owneship, tax treatment both incentivising and punishing, and lets face it if you can get the bulk of the population in debt, you have a pretty servile bunch of people who have to put up with it or lose their residence.

  34. Feedback from Melbourne market. My sister sold a place on the weekend in the inner east. Took a 12% haircut to get the deal done. Realistic vendors are selling but most are still in noddy land. Hence the low clearance rate.

    Anyone expecting this to play out overnight is kidding themselves. It will take time and financial pain for vendors to comprehend the long term change that has taken place.

    One more thing if you want/need to buy now make sure you buy from someone selling at auction. The agent wants to get paid (is struggling with the lease on their imported car) and will put enormous pressure on the vendor to ‘meet the market’. No sale no dough!

    • “Took a 12% haircut to get the deal done.”
      Do you mean that she sold for 12% less than she paid? Or 12% less than some other figure? Note that houses typically fetch less than asking prices even in boom times.

  35. I repeatedly attempted to talk two colleagues out of purchasing their first homes this year … both recently got married and decided it was “time” to buy a house. Both had spent no more than a year or 2 saving for a deposit.

    To make my case, I:
    • I showed them cost of renting is currently less than ownership (even at historically low rates)
    • Showed trend of income/rent rising slowly in comparison to property prices
    • Explained the similarities between current situation and Ireland/US/UK etc

    All this advice was ignored, and both went ahead and purchased houses anyway.

    “Well, the prices will start going up again!”. When I asked “why?” they couldn’t provide a specific answer, but were still convinced.

    But at the end of the day I still don’t blame them completely. I’m a lone dissenting voice when all of their friends and family are telling them how much the value of their property has increased etc etc. When you read the average headline in about “house prices” they tend to be little more than just RE and banking industry press releases – and that is about the limit of the research most people seem to do.

    People feel safe making a huge financial decision simply because everyone they know is doing the same, without ever understanding the risk and potential financial cost.

  36. In my area a lot of property is coming on to the market, some of which I suspect is flippers, a property that was purchased in Feb 2010 for $480k asking price today is $550k. It will be interesting to see what haircut they will be forced to take.

    Even more noticable is the increase in rental properties entering into the market.
    We have a lot of bluescope and Onesteel workers in the neighborhood, these guys are not doing any overtime and it has been announced that 30% of the admin staff and HR workforce is to be offered redundancies.

  37. To clarify it was 15% gross taking inflation. I have just taken a look at our lending figures for NSW and VIC as these are the markets that are suppose to be holding up well and are not in freefall.
    Sydney and Southern NSW district – 59% (they have 4 weeks to reach 100% – over $600m shortfall)
    Victoria – 58.50% – same time frame.
    Qld – 49%
    WA – 36%
    No figures for TAS or SA yet. I looked at this time last Qtr
    NSW – 75%
    Vic – 88%
    Qld 57%
    SA – 90%

    Things are getting much worse and in my neighbourhood for sale signs everywhere. I also admit that not all property markets in the US suffered from the crash, New York, Seattle, San Fran, Chicago, Washington DS did not fall much if at all. I suspect we may have something similiar in Australia where there are localised drops Qld and WA but NSW and Vic suffer less. Anyway I think we have at least 12mths before we can tell if this localised to Qld or nationwide. I am not calling this a crash yet, but a softening. When I see the figures in NSW and Vic at Qld levels then I will call it.