Once in a while a real estate article gets published in the mainstream media that is so bad that it just has to be dissected.  Mark Armstrong, an independent [sic] property analyst, adviser and director of Armstrong Property Planning, published one such article yesterday in Fairfax, entitled Bold investors buy in a softer market.

Here are some key extracts, together with my own counter-arguments.

On top of this many property markets around the globe have suffered major corrections in value and many investors are asking themselves: ”is the Australian market going to suffer the same fate?”

…I don’t think the Australian market is going to crash…

To understand why we seem to defy global trends we need to look at the differences between markets.

The Australian and US markets differ greatly from a tax and financing point of view but when we dig a bit further we find there are also significant demographic differences.

While culturally the two countries have many similarities, their societies live quite differently. In Australia, more than 70 per cent of the population live in the 10 biggest cities. This ensures a very centralised market where the bulk of the population competes for scarce land close to major infrastructure.

This competition for a finite commodity puts pressure on the value of land and results in a more robust property market.

Because most of the population wants to live in these defined areas it creates a housing shortage…

Okay, let’s stop right there. According to Mr Armstrong’s own figures, some 16 million people live in the 10 largest Australian cities. And the concentration of our population in these locations has resulted in greater competition for housing, thereby pushing up its cost.

Back to the article.

By contrast, in the US only 13 per cent of Americans live in the 10 largest cites… The US has a more decentralised population and, as a result, the pressure on the value of land is less.

Again, using Mr Armstrong’s own figures derives a population of some 40 million (13% multiplied by 309 million) living in the 10 largest US cities. That’s 2 1/2 times the number of people living in Australia’s 10 largest cities.

Given these facts, and following Mr Armstrong’s own line of argument, you would expect house prices in the largest metro areas of the US to be significantly more expensive than Australia’s, since a much larger number of people are competing for housing. Let’s have a look.

First, consider the Median Multiples (median house prices divided by median household income) of Australia’s capital cities as calculated by Demographia:

Now consider the Median Multiples of the five largest US metropolitan areas. Note that the populations of each of these regions is larger than any of the metropolitan areas of Australia’s capital cities.

There are two important observations from the US chart.

First, that the Median Multiples are typically lower in these US cities, despite their significantly larger populations. This flies in the face of Mr Armstrong’s suggestion that Australia’s concentrated population justifies its lofty housing valuations.

Second, the massive housing crash experienced in Los Angeles (population of 12.8 million) contradicts Mr Armstrong’s claim that the “competition for a finite commodity puts pressure on the value of land and results in a more robust property market“. If this was the case, then why did Los Angeles house prices fall so violently? [Hint: read here for the answer].

Anyway, back to the article.

America has traditionally had very well established small town communities with schools, transport and entertainment. These small towns often do not have a shortage of land and while this does create more affordable housing it also increases the risk of price volatility.

Unfortunately Mr Armstrong has it backwards – abundant land supply, free of physical and regulatory constraints, reduces price volatility as supply is free to adjust to changes in demand.

I explained this phenomenom in The truth about the US housing market, which provided the below text book explanation:

Consider the below chart.

Q0 and P0 represent the initial equilibrium situation in the housing market. Initial demand is provided by D0, whereas supply is shown as either SR (restricted) or SU (unrestricted), depending on whether land supply constraints exist.

Following an increase in demand, such as a significant relaxation of lending standards, the demand curve shifts outwards from D0 to D1. When land supply is restricted, house prices rise sharply from P0 to PR. By contrast, when supply is unrestricted, prices rise more gradually from P0 to PU.

The situation works the same way in reverse. For example, if there was a sharp fall in demand following a contraction in credit availability or a sharp rise in unemployment, causing demand to fall from D1 to D0, then prices fall much further when land supply is constrained.

The key point is that increases (declines) in demand can bring sharply rising (falling) house prices when supply is constrained. However, when land supply is not regulated, it adjusts to demand and house price volatility is reduced.

And this textbook explanation is supported empirically by the below charts.

First, consider the Median Multiples in US cities defined by Demographia as having prescriptive land-use regulations (i.e. restricted land supply):

As you can see, prices have been highly volatile in these markets.

Now consider the Median Multiples in US cities deemed by Demographia as having more liberal land-use regulations (i.e. more abundant land supply):

Prices have been far less volatile in these markets as changes in demand have led predominantly to changes in the rate of new home construction rather than prices.

A similar outcome has been experienced in other countries, as evident by a comparison of German housing (responsive supply) against UK housing (restricted supply):

The bottom line is that Mr Armstrong’s claim that house prices are more volatile when supply is abundant are false. The opposite is in fact the case.

Again, back to the article.

History shows that the Melbourne property market doubles in value every seven to 10 years and an investor who uses a more aggressive strategy now maybe in a position to sell their investment in the future and use the sale proceeds to wipe out the debt on their home many years earlier than the conservative investor.

Ah yes, the tired old property doubles every seven to 10 years myth. To illustrate the absurdity of Mr Armstrong’s claim, I took Melbourne’s median dwelling price ($465,000) against Australia’s average full-time earnings ($67,215) as at March 2011. I then used the Rule of 72 to extrapolated the house prices forward by 7.2% and 10.28% per annum respectively (i.e. the growth rates required to double every seven or 10 years), and extrapolated average full-time earnings forward by 4.4% per annum, which is the average rate of growth since 1990. The results are presented in the below table.

As you can see, a growth rate of 7.2% per annum delivers a median dwelling price of around $226 million in the year 2100 against an average income of around $3.1 million, producing a dwelling price-to-income ratio of nearly 73 times!

A growth rate of 10.3% per annum delivers a median dwelling price of around $2.8 billion in the year 2100 against an average income of around $3.1 million, producing a dwelling price-to-income ratio of nearly 912 times!

Clearly Mr Armstrong does not understand the laws of compounding. In fact, the only way that his ‘doubles every seven to 10 years’ claim could ever be met is if the Reserve Bank and Government abandoned inflation targeting and allowed both wages and house prices to grow in concert via inflation (like in the 1970s). In such an event, the dwelling price-to-income ratio would be largely unchanged, but house prices could continue growing strongly in nominal terms whilst remaining steady in real terms.

To be fair to Mr Armstrong, I agree with his claim that Australian is unlikely to experience a US-style housing crash. As stated previously, this scenario would likely require a hard landing in China and a prolonged commodities price crash – possible but not the most likely outcome.

It’s just a shame that Mr Armstrong has resorted to such flimsy arguments to make the case that the Australian housing market is exceptional and will continue rising strongly into perpetuity, albeit subject to some minor adjustments along the way.

[email protected]


Unconventional Economist


  1. Devilled Advocate

    Someone should send Mr Armstrong this link where his work has been carefully and clinically assessed and completely discredited – might make more of “spruikisers” think twice.

    Not sure about the use of the Demographia median though as this hasnt shown to be the most robust in the past and probably overstates it but in any case it makes a compelling reference and at least its an apples with apples with reference.

    Props Leith – top work as always.


    • Armstrong’s email is at the bottom of the article so you can forward this on to him if you like. but i doubt he would understand any of it.

    • I doubt he would care. The purpose of the article (and the BIS Shrapnel ‘report’) was to reassure the market at a time when confidence is plunging.

      I notice that the SMH still has the BIS Shrapnel on their home page today.

  2. Great article L …. can you go back to say 1960 and bring the historical data for both wages and house prices into a nice table…. would be interesting…. then it would truly be a great argument to whack the REA ‘s with…… how about we set up a lobbing group to ensure that government at least requires that investspeculators receive independent Financial advice from an AFSL holder that is not related to the sales person and that the declaration of interest ( commission) is disclosed to the purchaser!!!!

    • It really makes me angry reading these regularly published megaspruikes (big drive by the ‘certain’ media in the last few days)dressed up as intelligent analysis – when it is clearly the biased opinion of vested interests. Consumer protection regulations are well overdue.

      Whenever I read these kinds of opinion peices I remind myself that these guys NEED people to load up the debt wagon in order to put food on their tables (and Mercs in their garages) – and at the moment they are increasingly shrill about it.

      • Keating ditched negative gearing (1985) but was overthrown by vested interests just before Black Friday stockmarket crash (Oct 1987). RE was seen as safe bet with ng reintroduced and the sharemarket stuffed.
        Inflation must have been rampant in wages as well as house prices – interest rates were around 18% from 1985-1987, crashed after stockmarket collapse (down to about 10%) then rose to 17% a year after the stockmarket crash (nothing like wiping out the stragglers and highly leveraged) to then fall away to about 5.5% by 1992.
        Anyone who bought a house between 1985 and 1989 saw a reduction in interest rates of two thirds by 1992 (18% down to under 6%).
        That is how that generation paid off homes so quickly.
        http://www.smh.com.au/articles/2003/08/24/1061663676588.html Pollies tell fibs about negative gearing

  3. “Ah yes, the tired old property doubles every seven to 10 years myth”

    There is a nice university lecture series on you tube that starts with the statement ‘the greatest shortcoming of the human race is our inability to understand the exponential function’.

    If UE’s tabular example of the absurdity of the 7-10 year doubling claim was not enough, one can always refer to the Wheat and Chessboard Problem.

  4. It was a terrible article and nicely debunked. But I think there might be something in the ‘population concentrated in large cities’ argument. Yes the US has, in absoltue numbers, many more people in the largest cities. But isn’t it possible that the greater diversity of US cities keeps a lid on prices to some extent, even in the largest cities, an effect missing in Oz? In Australia, if you want a ‘city’ lifestyle or have a ‘city’ career, you’re limited to 4 or 5 cities at the most, all of which have restrictive land use policies. In the US, you can move to second or third tier cities (often with less restrictive landuse policies and therefore much cheaper housing options) and still get those benefits. So even if there’s 40 million people in the top 10 cities, the fact that many residents could quite easily move to other cities may moderate prices even in the top 10. In Australia, once you go out of the big cities, you’re really choosing a vastly different product, so perhaps there’s less competition here.

    • That’s a fair point David and explains why so many Americans are leaving California (just one example) for Texas (another). Americans do at least have to choice to move to more affordable locations whereas in Oz, the planning regimes are universally restrictive, meaning that we do not have the same choice.

    • Yes, but the population is also about 16 times bigger. I don’t have the time to look into it, but unless there are serious density skews, the point still holds

  5. “….that’s 2 1/2 times the number of people living in Australia’s 10 largest cities….”
    Shouldn’t we look at the concentration figure i.e number of people per sqm or sqkm instead, in order to get a better indication? Obviously Australia’s 10 biggest cities have different land size from the U.S.

    • I do agree that this would probably be a better comparison, eg. people/m2

      Shouldn’t be hard at all to do….data is probably fairly available…

      Though, there are then assumptions of uniformity of distribution that should be addressed, too, which is harder…

      ….but average people/m2 is a start!

    • Density is a lifestyle issue foremost, not really a supply/demand issue.

      Countries blessed with land, or acces to it by responsive processes just mean more land is available for dwellings. More ‘bang for your buck’ so to speak.

  6. Sam Birmingham

    Love that last table, Leith!

    Even if compound interest is the most powerful force in the universe (as Albert Einstein described it), the folly of property spruikers logic is that exponential growth cannot outpace the fundamentals (in this case, incomes) forever.

    If anyone is struggling to convince friends/family that property *doesn’t* double in value every 7-10 years, I encourage you to show them Leith’s graph, look forward ten years at the “conservative” compounding rate of 7.2%, then challenge your colleague to multiply the 8.8 ratio by, say, an 8% interest rate.

    If they believe that the median purchaser will be devoting 60%+ of their BEFORE tax income to the interest only component of their mortgage then, frankly, they deserve what they get.

    • Sam, you then need to show them the difference between rent costs and mortage costs.

      For example there are nice houses avalible for rent for $450pw or $1,950 per month in inner Melbourne.

      To buy it you would need $600,000 to $800,000 plus pending on whether its renovated.

      Current mortage costs:

      A loan of $400,000 is $2,897 monthly (at 7.86%)

      A loan of $600,000 is $4,345 monthly

      A loan of $800,000 is $5,793 monthly

      A loan of $1,000,000 is $7,241 monthly.

      Thats not factoring that interest rates are below the long term avergage.

    • We covered compounding in the last year of primary school and this level of maths mixed with a bit of common sense should tell anyone that the “doubles every 7 to 10 years” claim is very suspect.

      Yet some engineers and doctors I know have invested in multiple negatively geared properties (interest only loans, of course)with the assumption that their properties will double in value at least every decade!

      Greed makes even smart people stupid.

  7. Actually, house prices have increased by about 9% per year over long periods in the past. It’s just that this is the nominal change.

    The 2003 Productivity Commission report into housing affordability published a graph (page 16, fig. 2.1) showing a nominal house price index from 1959 to 2003. In that time, it rose from 100 to a bit over 4,000. By my reckoning, that’s about 9% per year for 45 years. This index doubled every 8 years or so.

    However, just below that is an inflation-adjusted index, which rose from 100 to 400 over the same period, a rate of increase of about 3.2%. This includes some long periods of stagnation; 1973 to 1987 is especially flat. Almost half the total growth occurred between 1997 and 2003. The average annual growth from 1959 to 1996 (37 years) was more like 2%. From 1997 to 2003 (6 years) it was about 9%.

    Most people are quite ignorant about inflation, so “property doubles every x years” can be backed up by “facts” like nominal price changes. It’s highly unethical, but it won’t go away as long as the government refuses to regulate this kind of financial advice.

    • Thanks Phil. That’s why I stated that the 7 to 10 years claim would only be possible if the RBA/Government abandoned inflation targeting and allowed both house prices and incomes to rise together in nominal terms, in which case the cost of most things would rise by that same amount.

  8. I’m sure many of you can colour this question…

    but WHY isn’t the property investment industry regulated like other financial investment products?

    Why don’t the policy objectives of consumer protection apply equally to protecting bogan investors in units, as they do to protecting investors from insiders in the stockmarket?

    Any thoughts?

    • Because it’s a monster that no one wants to see break loose. The banks make a massive amount of money out of mortgages and have totally pinned their future on the survival of the mortgage holder; city councils and states governments rely on the revenue streams created by higher prices; media organisations make a motza out of real-estate advertising; the Federal government, of either persuasion, are fully aware of the repercussions (both electorally and economically) should prices fall as are the RBA and last but not least, the real-estate parasites who feed off beasts existence (Was going to use the remora as an example but they actually serve a purpose). There’s a lot of vested interests in keeping the population as dumb as possible about property. That’s why it will never be regulated.

      • Inflation is taxation without representation. The population are drugged by the inflationary opium of rising sticker prices.

        It is a wealth transfer mechanism from the recipients to the issuers.

        It is expropiation by deceit. Debt is the slavery of the free. It is also a thief of the most precious commodity of all-time-your time. Time you could spend with your family. Now you know why it takes two working adults most of their productive lives to provide shelter for their families.

    • Because people including Government assumes that house investments are somehow inherently safe.

      AFTER it blows up, they will think of regulating real estate.

  9. I want to be a housing billionare!!!!! Of course for this to happen, housing credit will need to more than double every 7-10 years, which means bank funding sources will need to more than double every 7-10 years. Is anyone else doubtful about this?

    Any way, Leith did you see this:

    Mark Carney: Housing in Canada
    Remarks by Mr Mark Carney, Governor of the Bank of Canada, to the Vancouver Board of
    Trade, Vancouver, British Columbia, 15 June 2011.

  10. Another nice post UE. In a similar vein, I am looking forward to your promised debunking/expose of the highly accurate (not) forecasting from spruiktastic champions, BIS Shrapnel.

  11. I think the house price doubling every 7 to 10 years myth just goes to show how unsophisticated people are. They don’t even do basic calculations before making huge purchases, which means there is no way housing markets and share markets are priced efficiently.

    On the point about China slowing down, I think this is one major paradigm shift most people are not prepared to accept. The facts show that they had a lending splurge in 09, 10 and 11, which was spent on assets that will not provide reasonable returns. Now that lending is slowing. A hard lending is not only a possibility, it is highly probable.

    Another huge paradigm shift people will not be able to adjust to is a crash in housing prices EVEN IF China does not experience a hard landing this year. Why? Because without debt growth, asset prices will be unsupported. If asset prices are unsupported, investors will not speculate. That plus the “small issue” of demographics. Baby Boomers are retiring over the next decade.

    The prognosis is that debt deleveraging will result in a crash in property prices. This has happened everywhere, I don’t see why Australia will be the exception. In fact, scarce supply has pushed up house prices here more than in the US. A house price crash is a definite probable outcome in my eyes.

  12. Mark Armstrong

    Hi all,
    Let me first say I love this kind of debate and welcome any and all constructive criticism of which this blog is full of!! I view the market as a living breathing entity and one which is always evolving. It is also one that I do not believe I know everything about and continue to learn about it. I like many people in many industries ‘practice property’.
    My experience in the property market is not that of an economist with a high level view but that of a person who is on the ground analysing what is happening right now.
    Also I absolutely agree with the need for property advisors to be licensed and regulated. I wrote an article in the Age on this topic back in 2006.
    I continue to fight for consumer protection for property consumers.
    I get frustrated because many people who talk about the property market view it as one market place. They suggest it is either going to do A or B. The fact is the property market is more complex and different areas of the market are doing different things at the same time. In fact one sector of the property market can be falling while another is growing because they are driven by different economic factors.
    I agree with the fact that property prices cannot continue doubling in value every 7 to 10 years forever and further point out if they were to have done that since the 1800’s property prices would be significantly higher than they are right now.
    Property prices have been driven by deregulation of the banking industry and the fact that traditionally Australian property was considered a home but in the last 30 years property has morphed into an investment product as well as a home. A large reason for this is such a large focus in this country to self fund ones own retirement which drives more investors into the market. The government encourages this with favourable tax treatment which investors in other countries do not have.
    This trend means more investors are starting to take a strangle hold on the property market. To date around 25% to 30% of all Australian property in controlled by investors and this figure is slowly growing. When we look at the inner city areas of many of Australia’s cities we find this figure can be as high as 50% to 60%. The market is going through a consolidation of wealth where less people are controlling more wealth.
    Politically speaking I am not sure I am comfortable with that but I learnt many years ago I am merely an observer of the market I cannot control it. My job is to try and understand what is happening.
    The question is how long will this growth continue for. From what I can see it is likely to continue for a number of cycles yet to come. For anyone investing today their investment view needs to be taken over the next 20 years or so. Not all property will be a great investment however. Some assets will show below average growth while others above average. The way I see it is property that is in limited supply (that is built up areas with no more available land) and strong consistent demand (that is property that is purchased by home buyers, investors, first home buyers and business) will be the assets that show above average growth.
    Over the short term property prices are not going to show any significant growth as the market catches it breath but buying property is not about taking a short term view. It must be viewed as a long term investment. That is 10 to 20 years.
    Further from what I see it appears it wont be income alone that will drive property prices – it will be equity. As I said earlier we are experiencing a consolidation of property wealth and the people who will be able to afford to buy property in this country are those who already control the equity.
    Like in many European cities around the world people will find they will be forced into the rental market and the home ownership dream for many Australian’s – my children included – will not be affordable.
    There is a simple fact however that non of us can get away from and that is property will continue to be a massive part of the majority of our lives. It provides a roof over our heads and for the majority of us it is the biggest investment we will ever make. I believe all home buyers need to think of themselves as home investors and make the most of their biggest investment.
    I have some thoughts about the theory of abundant land supply reducing volatility. I am not sure we can look at land supply in isolation. The problem with abundant land supply in the Australian property market is it usually correlates with areas that are driven mainly by first home buyers – in some Australian suburbs more than 80% of the property is owned by people who live in their properties and have a large exposure to debt.
    These markets can be volatile because first home buyers are driven by affordability and when interest rates rise or first home buyer grants are scaled back or unemployment rises then these areas can face massive reductions in demand and property prices can reduce significantly. The major difference in Australia is if these people try and sell their properties and sell them for less than their loan is worth they face financial ruin and possible bankruptcy. So they hold onto their assets with everything they have. This is because in Australia all loans are recourse loans.
    The US loan market is different in that home buyers who were enticed into the market (If I remember correctly that was driven by the Clinton administrations aim to increase home ownership) were free to walk away from their homes at anytime without any liability. In the US housing loans are Non recourse – that means if you cannot afford your housing loan and you are in default your liability to repay this loan is limited to the value of the asset that has secured the loan. The bank can only repossess the asset but cannot pursue the borrower personally for any short fall. For many Americans it was easier to simply walk away from their homes.
    We see a similar trend in the investor market, particularly the high rise sector. In some high rise buildings around the country as many as 90% of the apartments are owned by investors with very little demand from home buyers. When investors leave this over supplied market prices can go into free fall because there in no underpinning support from home buyers. I have seen investors who purchased in this over supplied sector in 2001 or 2002 for $600,00 or $700,00 sell out of these assets in the last 2 or 3 years taking $100,000 or $200,000 less than they paid. This suggests to me that a sector with an abundant supply and instability in demand will be more volatile and continue to be so in the future.
    However investors who purchased assets in built up areas with limit land and restrictions on the type of development have seen property prices double in the same time frame.
    In short I am always happy to concede if I am wrong and/or if points are taken out of context or do not stack up with the theory. However I think it is dangerous to just focus on very high view economics without taking into account what is happening on the ground.
    Finally I do not drive a Merc and have no desire to. I have an old beaten up Subaru with a big ding in the side door!!


    • Mark, thanks for coming over here and providing a substantial comment.

      I understand what you’re saying, but for me the problem is debt. Debt has increased at a more rapid rate than house prices and we have close to the highest levels of private debt in the world. This hasn’t been sustainable in other countries so why should it be sustainable here?

      • Mark Armstrong


        I absolutely agree that debt is a problem but not in every property market.

        First home buyer markets where there is an abundant supply of land and limited demand from investors, are also laden with debt and I agree this is a real problem only being magnified by first home buyer grants and slick marketing. But we have to understand that this market is one of the smallest in the country. (Although is bigger in cities such as Perth and Brisbane as they have had significant growth in their urban sprawl over the last 10 or 20 years. Notice property prices in these markets are more volatile and will continue to be so)

        The biggest property markets in Australia are those dominated by baby boomers and post war babies. Take for example my parents generation. They purchased their home in the now middle suburbs (they were the outer suburbs in the 60’s) for less than $30,000.

        Today they have no debt on their property and have significant equity. The baby boomer population is the biggest market in Australia. They have a lot of equity and very little debt and are a major driver of the property market.

        OK so now they start to buy investments because the government has told them they have to!! Yes they are increasing our debt but they are now using tax effective debt. A large slab of our debt in Australia is tax effective which makes it much cheaper debt to pay for than in most other countries. I do not plan to get into the debate about if negative gearing is right or wrong. The fact is it is here and there is no chance in hell any government is going to get rid of it.

        As I have previously stated looking at very high level and broad based statistics are very useful but often they only tell us half the story.

        The property market is more complex and we need to drill down to the next level to find clarity.

        I agree with many of the comments I have read on this blog I do not disagree across the board. In many cases they apply to some sectors of the property market but not to the entire market.



    • Thanks Mark,

      People like yourself who take the time to post your views, experience and opinions in such detail and depth really add another layer of value to an already excellent site.

      Even better if those views challenge the article and ask us to consider other options/reasons rather than just agreeing with everything. Really appreciate this. Always happy to look at all points of view.

    • Mark,

      You say “..In the US housing loans are Non recourse….”. That is a rather sweeping statement.

      There are only a handful of States in the US that allow non-recourse loans – and even in some of those States there is provision for recourse proceedings to be intiated if the lender see fit.

      I seem to recall an article on this blog some time back that clearly showed that some of the biggest default rates in the US were not necessarily in those States allowing non-recourse loans.

      I’ve no doubt that non-recourse lending has contributed to the current situation in the US, but I think you, along with many others, may have exaggerated its impact.

  13. Devilled Advocate


    Kudos for having the temerity to post on here.

    I’d encourage you to read a little deeper on this forum and see how many of the drivers and assumptions that lead to the super normal capital gains simply will not continue and that property like every other asset should or will be driven by fundamentals.

    I think we would be asking for an Irish style result if greed and blind stupidity continued to be the norm.

    Again props for manning up and fronting on here – that takes courage.


    • Mark Armstrong

      Cheers DA,

      I agree market is driven by fundamentals but different property markets are driven by different fundamentals.

      My job is to drill down further into the market and discover what are the drivers of each market. Happy to take on board whatever I can from this blog.

      PS: Property spruiker I am not. Never have and never plan to sell property!

    • Ditto that DA.

      Would like to see regular posts and debates from people like Mark and others. Be a refreshing change from the dross we get on the MSM.

  14. The median price vs average income chart is definetly quite alarming. What adds to my frustration with the entire property spruiking fraternity is the fact they are continually comparing median housing prices vs average incomes. If one takes the median income vs the median housing price the picture becomes even more obviously bleak than Christopher Joye’s blog would lead us all to believe.

  15. Its amazing how many really bright public servants (in charge of major policy advice to Government) fail to understand how compound interest works. Its junior high school maths.