WA has no idea

On Wednesday, Delusional Economics posted a cracking article about a new mortgage product being offered by BankWest enabling first-time buyers to purchase a home with only a 3% deposit:

First homebuyers will be able to borrow 97 per cent of a loan under a new Bankwest mortgage product.

Bankwest managing director Jon Sutton announced the $500m loan strategy this morning, which will be available to WA borrowers.

The loan undercuts the traditional 20 per cent deposit rate normally required of first homebuyers. The bank claimed it would cut the deposit saving time for first homebuyers from four years to six months…

Housing Minister Troy Buswell backed the product as a “new weapon in the housing affordability battle”… He said low deposit loans from the private sector were more effective in helping first homebuyers into the market than a government grant.

Like Delusional Economics I believe lowering deposit requirements (increasing loan-to-value ratios, or LVRs) is a crazy idea for all the reasons Delusional espoused previously:

Affordability is the measure of a cost relative to income. It is not a measure of how easy it is to go into debt. Buyers are “priced out of the market” because prices are too high relative to incomes, not relative to the home loan they can receive from a lender with dodgy standards. Lowering credit criteria or shovelling incentives at people will do what it did last time. Create false short-term demand, push up prices that will then create an even bigger problem. What do we do next? Offer 125% LVR loans?

Increasing LVRs will in no way lead to more affordable housing, it will simply mean that more poor fools go into debt in the belief that they are on the road to riches while paying over-inflated prices for an asset that is already oversupplied… Increasing LVRs is utter madness.

But if Minister Buswell was really interested in finding a solution to housing affordability, he would look to address WA’s housing supply problems by freeing up overly restrictive planning processes which, according to the Productivity Commission’s recent planning review, takes developers between 3 and 10 years (best case / worst case) to navigate before building can commence. Mr Buswell might also want to reconsider WA’s infrastructure charges, which add $20,000 to the cost of a typical new home.

The effects of WA’s slow and costly planning approval processes are two-fold.

First, the construction industry has been unable to respond quickly enough to the recent increases in housing demand caused by WA’s booming economy, easier credit, and high population growth. This is evident by the below charts, showing the sluggish supply response to rising house prices and strong population growth.

Second, the above factors (planning delays and taxes), combined with Perth’s restrictions on land supply via the urban growth boundary, has forced-up the cost of fringe housing lots, as evident by Perth having the highest land costs in the nation on a rate per square metre basis according to RP Data:

With land prices more than doubling over the past decade as lot sizes have shrunk:

As stated many times previously (for example, here), restricted land/housing supply is a double-edged sword. With supply unable to respond quickly to changes in demand, the housing market becomes overly sensitive to demand shocks, resulting in greater price volatility and boom/bust cycles as demand rises/falls.

During an upswing, the extra demand will automatically feed into higher home prices rather than new construction.  In turn, the price rises and perceived scarcity will encourage speculative demand and ‘panic buying’ from first-time buyers, which helps to drive prices up even further. The opposite holds during a downturn, where unresponsive supply will help to accentuate price falls as new housing planned years ago continues to hit the market.

It’s a shame that our political leaders continue to promote failed policies – such as looser credit and first home buyer subsidies – as the answer to Australia’s housing affordability problems, rather than focusing on the underlying structural factors that are pushing-up the cost of housing and create the pre-conditions for housing bubbles to develop.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Great article as usual Leith.

    The sad reality is that politicians who promote this nonsense, are working in the Banks interest and are happy to turn those who elect them in to “mortgage slaves”.

    It goes even deeper than this though. A politician really has to be very callous to take young and poor people to the cleaners like this.

    This is why the Annual Demographia Housing Affordability Surveys are generated year after year – to illustrate to people in the clearest possible terms, why they should not be paying in exces of 3 times their annual household incomes to house themselves, with mortgages at 2.5 times.

    People need to study this and further information at http://www.PerformanceUrbanPlanning.org .

    In particular the “Levitt Story”, in how new housing was supplied to young people after World War Two, at 2.1 times SINGLE EARNER household incomes. Women were not conned in to becoming mortgage slaves through that era.

    • “Fanny sniffer” Buswell is a disgrace. This alcoholic philanderer should never have been let anywhere near the housing ministry. The man’s a buffoon.

  2. Desperate Bankers, followed by Teenage Mutant NINJA’s?

    Did’nt work in US, won’t work here.

    • yep! in clear case of politicians learnig absolutely nothing from housing experiances over seas they are now actively creating and propmoting sub prime borrowers to enter the housing market. Aussie housing system is in its death throws

  3. I’m an out of work old fogey now but I can report that when I was 24, livin’ in the 70’s, I bought an ordinary 3 brm timber house close to CBD Brisbane for $28k. I was earning $14k, about average wages. Ratio 1:2.

    Now, I’d need to be earning $250k pa.

    Just saying. there’s got to be a change or the next generation are going to be mortgage paying wage slaves.

    • I am next generation…there are plenty of ways to avoid being mortgage paying slaves. Its the willingness to just take your medicine and sign up for a massive mortgage that amazees me…especially in light of world wide house price declines.

      People are very silly – and getting sillier

    • The damage is done and the current batch of 25-40 year olds will pay for it one way or another.

      Either we all mortgage up and the Boomers retire with cash OR we don’t and the Boomers vote the money out of us via pension payments over the next 30 years.

      I do pity the significant number of younger people who will probably pay twice.

    • Rod – in a nutshell, this is “intergenerational theft” and / or “reverse welfare”, where the young and poor and taken to the cleaners by the generation that preceded them.

      Our generation (the old fogey’s now) were provided with opportunities, we in turn have denied the current younger generation.

      Its a mystery to me why young people dont raise political hell about all this. Particularly young women.

      • Easy – younger generations are increasingly more fractured as a community than generations that proceeded them. Community is dead. Divide and conquer.

        And when/if they do riot and people power starts to rally up you will get the same reactions as in England – rioters/protesters must be punished/ignored because they are rallying against the system. In short the current system (politicans and bankers) asks young people to take it or be punished harshly. There is no freedom anymore – it is all smoke and mirrors. Take the big mortgage – and become a slave or we will punish you in other ways. Issues where people are given an opinion/media coverage are really issues that in the grand scheme of things don’t really matter. The issues that matter rarely get coverage.

        May not be deliberate but this effectively is it. People only think as far as their frontyard these days. Maybe it is a sign of the increasingly older population?

        • Dumb_Non_Economist

          No,

          I think you guys sort of miss one fact; who are the parents of the younger gen who are being screwed. That’s right, the screwees are the offspring of the screwers! Mum and dad have failed to tell them that not only are they going to SKI, but are also going to spend the country’s inheritance.

          • Not all boomers are in this fortunate position, including my parents.

            I suspect young people (gen Y, etc) aren’t madder about this because – inflation, GDP, AWOTE – it’s all too abstract for most of them. Much easier to simply watch Master Chef than worry about your future….

            (Before you start complaining, I’m gen Y)

          • I dont understand why there is a ‘renters party’ in Australian politics…maybe there will be at the next election ; )

            Anyone keen to join?

          • At the very least, why isn’t anyone asking the question posted on bubblepedia website:

            Where is the Choice Big Bank Switch for Savers?

          • Stavros,
            I think the Greens might claim to be the “renters party”, shame about so many of their other policies!

      • somewhat_worried

        They don’t raise hell about it because the education system has been very successful. Today’s young people (apart from a few scattered here and there) are completely clueless about the System and how it works. They are enslaved, but don’t know it. There’s always the hope that they’ll wake up, but I think their brains are too dulled by electronic media.

        • I agree with you to an extent. But I know enough people who know how the system works and are against it. The issue is community – while people feel alone in their concerns even if everyone is thinking it nothing will occur because no one is that close to enough people to group together. Like I said divide and conquer.

          Interestingly social media is bringing these people together to an extent – see the Egypt example – a lot of communication was done via wireless. Of course governments have and will shut down wireless networks and even the internet if necessary if these empower the people against the government.

  4. When you have chair sniffing, unfaithful morons like this making decisions line this…is it any wonder the Austrian School wants the Government OUT OF THE WAY!

    See, all the Government lovers around here presume the public officials are not idiotic, are not power-hungry and are not short sighted, economically naive thieves! But they are and for this reason alone, we need to press for a free market at every turn – anything short of that gives people like Buswell, Swann, BAttelino more opportunity to ruin this country

    • Buswell’s certainly responsible for restrictive planning but as far as I can tell, it’s only Bankwest who is responsible for this ridiculous product.

      Best way to prevent this would be to mandate a maximum LVR but that’s the opposite of a free market solution.

      • Agreed. Max LVRs along with loan serviceabily requirements (e.g. repayments can’t exceed 40% of gross household incomes) would be sensible.

        But the regulation of credit is a Commonwealth responsibility, whereas improving WA’s planning processes is within the domain of Minister Buswell’s own government.

        • “But the regulation of credit is a Commonwealth responsibility, whereas improving WA’s planning processes is within the domain of Minister Buswell’s own government.”

          Absolutely. And the least he could do is not cheer such a stupid mortgage product. But we all know how dependent on stamp duty state governments are…

      • I’ve got a suggestion which could make LVR thresholds slightly more “free market”…

        The lender decides its own fate: Either you lend up to but never above a conservative LVR (say, 70%) and, in return, the lender enjoys an explicit Govt backstop. OR the lender excludes itself from that support framework, must have a “living will” approved by the regulators, then is free to take whatever extraordinary lending risks it so desires.

        As a depositor, I know where I’d be parking my spare cash.

        • “As a depositor, I know where I’d be parking my spare cash.”

          As do I, but as a Victorian I can’t help but remember Pyramid Building Society.

          “The administrator’s report on 1 July 1990 was that the societies had to be wound up. On the morning of 3 July the premier was still saying there was no government guarantee, but by the afternoon he’d been rolled by his own caucus and had to announce that there would in the end be a guarantee.”

          http://en.wikipedia.org/wiki/Pyramid_Building_Society

      • Why do banks lend crazy amounts of money? Why not…if it gets paid back, you get a bonus, if it doesnt, then the Governemtn steps in.

        LVR’s at close to 100% are a direct result of moral hazard that was created by succesive policy’s of Government.

        It seems people think recessions and bankruptcys should be avoided at all costs (delayed) – the bankers know this and have played us like the fools we are

      • No – don’t have a central bank and companies like Bankwest would never offer such ridiculous terms on their mortgage. They would be too fearful too. And if they did and the buyer defaulted they would take the loss – they made the mistake they would take the hit. Only with government/someone bailing you out in times of trouble can someone afford to run a business like this.

    • How is it the only viable economies left standing in the world currently are those that have spurned laissez faire free markets and worked to find a pragmatic middle ground ? Could there be more to our problems than the lack of a “free” market ?

      • yes Ponz, much more.

        peak cheap energy (read: oil)

        peak credit

        legislature capture by either big finance, short termism or both.

  5. Looks like the taxpayers will be bailing out BankWest (CBA) when it goes under with the housing market.

    • But this will require CBA to go bankrupt first yes? Surely they are up for some huge losses, thousands of job cuts etc before the tax payer comes in.

      You can only hope the senior execs of bank west are made to take their medicine too if this goes belly up. It wouldnt under the current political system but in a few years time mid recession and with an angry public they may no longer be a protected species

  6. One of the things i am curious is to the big 4’s subsidiaries, and their funding issues. Bank West have just opened up a great Cash Management account, paying 5.27% at call. Also NAB’s susidiaries like Advantage, are they funded through the AOFM RMBS purchases.

  7. The length of time it takes to get planning permission(s) is actually a function of the number of civil servants involved in the process. No more said – the figure won’t change (unless it’s for the worse)…

  8. Great article – one of many I have read here in the last few weeks. As a 34 year old recent immigrant to WA from the UK this has a particular relevance for me.

    As an average professional earner (not in mining!) I am increasingly of the mind that long term renting might be the only option for my partner and I, if we can actually find anything…

    I was on that ladder in the UK and just managed to escape with my shirt after a divorce around GFC time and thus I have a much lower desire to jump into the fire and own my own dirt (ironic as I am an architect).

    What saddens me is how 95% of the people I meet of my generation who have always lived here remain utterly convinced of the need to “get on the ladder” as soon as possible. This is very much fed by parental generations although I don’t those a lot of those advising realise the implication of what they promote. I can see that these new mortgage products will indeed sell and the cycle will continue.

  9. Hi UC – The WA Planning Commission produces a quarterly report on Land supply in WA. There’s 21 years supply of ZONED urban land ready for development. Whilst it might take 3 or more years to get rural zoned land to urban zoned land, that doesn’t matter if there’s 21 years supply already zoned. As at December 2010, there’s 51,000 APPROVED lots that have not been developed yet.

    • Thanks LD. What, in your view, are the reasons for the hold-up in development as well as the rampant land price escalation?

      Further, of the 51,000 approved lots, how many are allowed to be built on right now? Or are these still subject to planning processes, such as Structure Plans?

      • UE, the same people doing the engineering, drafting, earthworks are also the same people in demand from the mining industry.

        Also a lot more requirements on the planning process, application forms 10 years ago were 1 page long – not the case anymore.

        • Thanks. Confirms the views expressed in my article – i.e. that planning processes are restricting EFFECTIVE land supply (not zoned urban land, which is irrelevant if developers cannot build).

          Interestingly, the UDIA says the following about WA:

          “The issue of land supply in WA is not about the release of new land, the problem is getting zoned land ‘development ready’ through the approvals process and the time it takes to get approvals.”

          • A bit misleading. It is absolutely true that to bring on new UN-zoned land to zoned land takes years. No arguments there. But there is plenty of already zoned land and approved lots. A subdivision approval on urban zoned land is required to be issued within 90 days from lodgement (rarely happens that quick, but its in the legislation if you want to make a point). We allow 100-120 days for an approval and pretty much always get it. However, we zone large tracts of land well in advance of actual subdivision.

          • So why are you guys so slow to develop? Surely with a median lot price of $240k, and assuming that you bought your land at close to its agricultural value (if not the land market is distorted), your company could make a killing selling homes as quickly as possible. But you are not. Why?

            I am not picking on you, but the fact that so few extra homes are being built, despite the solid population growth and (still) high house prices, shows that the market is heavily distorted. I am trying to ascertain why?

      • The 51,000 lots are actual approved lots. That is, they are approved for subdivision and creation of a title – i.e. there is no further zoning or planning restriction to construct on them. The next step is to lodge detailed engineering plans with the local authority (and utility providers), but the local authority cannot refuse to approve them if they meet engineering standards.

        The problem with this “51,000” stock of lots, is that probably half of them are no-where near any existing infrastructure or shopping centres. So the “real” stock is more like 20,000 – 30,000. WA creates 10,000-15,000 new residential lots per annum.

        • Ooops, correction…. it should read ” – i.e. there is no further zoning or planning restriction to construct them.” delete the word “on”.

        • Sure, so the planning system is failing to deliver, just like I said, unlike Texas and Georgia which manages to deliver adequate supply quickly and cheaply despite higher population growth than Perth.

          Another important question is: When were these lots approved? According to the PC report, approved lots in WA’s only increased significantly (to 15,000 lots) in 2004, 4-5 years AFTER Perth’s house price boom began. This is ridiculously slow and highlights what I have been saying about unresponsive supply (and akin to what happened in Miami).

          • Hi UC – i made the same mistake when entering the WA market about the word “approved”. There’s two types of “approved” lots in WA. There’s lots that are “approved” to be developed (the 51,000) and there’s lots that are given “final approval” which permits them to have titles issued (the 15,000 you refer to). So in essence, there’s 51,000 lots ready to be developed, and each year WA’s developers get 10,000-15,000 “approved” for titles – that is, they have been constructed in accordance with the “approval”. Hope that makes sense. It’s taken me a while to learn the nuances of WA. But in my professional opinion, its a better system than Qld (and sh*ts all over NSW).

          • UE, you also need to consider the labour market here. I just can’t imagine how, even if the planning process was a frictionless machine, you would be able to double supply in a short period of time. Plumbers, sparkies, chippies – there just isn’t the latent capacity around. So then you start thinking about pre-fab type housing, but even then you need to plumb and wire it in.

          • Yep, Jackson has it spot-on. Our real costs are measured in fuel and wages. You need to remember that lot production gets more efficient every year (think excavator vs shovel), but diesel (which we have to hedge) and labour (in short supply) are causing big cost increases. Land supply is immaterial (to us at least).

          • Jackson & LD. The tight labour market cannot explain the massive price escalation that has pushed the price of WA land lots to $516 per square metre ($245k for 475 sqm) – the highest in the nation. If it was building costs that you are talking about, your argument would have some merit. But we are talking about serviced land lots here.

            There is clearly some serious market manipulation going on. So who is making all the money?

      • The “years of supply” measure is simply nonsense.

        Price is the only true measure of scarcity or abundance. Just check out the differences between the fringe raw urban prices per hectare and the true rural values per hectare a few kilometres out. Ignore urban echo values.

        Then add the technically unsound Development levies – that should be properly financed along the lines of the US Municipal Utility District bond financing model.

        There is a very clear Definition of an Affordable Housing Market on my website http://www.PerformanceUrbanPlanning.org .

        It really is just a matter of “following the numbers” to ascertain where the problems are. To keep a market affordable at below 3 Multiple, acceptable new stock needs to be going in on the fringes at around the 2.5 Multiple.

        The Development Ratios should be between 17 – 23% serviced section – the balance house construction.

        This is real simple stuff guys – but not it would appear, simple enopugh for politicians of the calibre of Buswell.

    • IF there were 51,000 approved lots, 21 years supply, that modern day Bill Leavitts could simply buy at agricultural land prices with no “planning gain”, and whack up affordable housing “Levittowns”, there would not be a housing affordability problem.

      There simply HAS to be interferences with “free market” processes at work here. “51,000 lots” and “21 years supply” simply have to be “not the whole story”.

      • Hi Phil – perhaps WA’s Len Buckeridge (BGC Group) is the modern day version of Bill Levitt. His group is vertically integrated and is AU’s largest home builder. His building company uses his own brick factory, plaster company, window company, tile company, plumbing supplies, etc etc, etc, He can build an entire house using only his own companies.

        • Leith – you are asking the right questions of Land Developer, who’s answers are dipomatically, rather disingenious!

          The reality is that there has to be considerable collusion among the subdividers, to drip feed the stuff on the market at the highest prices possible. And they will be very close to the Government people, you can be sure.

          When we know they are getting fully sericed lots for starter homes in Texas at $US30 – 40,000 and for manufactured housing at about the $US20,000 mark – you know that the prices of new lots in Australia and New Zealand are just a joke.

          Do go to my website http://www.PerformanceUrbanPlanning.org and the Highlighted Articles Section and read “Houston: We have a housing affordability problem”, where I spelt all this out for Kiwis in the clearest possible terms.

          The Definition of an Affordable Housing Market on my website is of critical importance. It needs to be clearly understood.

          The Annual Demographia Surveys are the clearest evidence of what normal housing markets should be. And historically the “Levitt Story” and the Harvard University Median Multiple Tables (left column on my website) are helpful too.

          None of this is theory.

          You need to get close to honest guys in the industry in both Australia and Texas and get a good handle of the detailed costs and systems, all the way through the food chain.

          There is nothing at all complex about subdivision development. The only reason I didnt bother doing it as a developer, is because it is just so simple and boring!

          • Further to the above post, I do hope honest guys involved with the construction industry in both Australia and Texas, communicate with Leith and others on the Macrobusiness team, to assist them in getting to the bottom of the detailed costings of subdivisions.

            You can be sure that once these comparative detailed costs are published, it will drive the politically well connected subdividers in Australia crasy.

            In essense, this land rort is a game, where the well connected industry and political guys at States level hold hands, to milk the public for all it’s worth.

            The whole thing is just a joke. An expensive one though, for the poor suckers buying grossly inflated serviced lots.

  10. MAV at 2.01 pm above. Krugman’s nasty article brought forth the following from one of the most effective “Krugman watchers”:

    http://www.national review.com/ exchequer/ 274695/paul- krugman-still- wrong-about- texas#

    Paul Krugman Is Still Wrong about Texas
    August 15, 2011 4:41 P.M.
    By Kevin D. Williamson

    Paul Krugman continues his campaign to discredit the economic success of
    Texas, and, as usual, he is none too particular about the facts. Let’s
    allow Professor K. to lay out his case:

    [Texas] has, for many decades, had much faster population growth than
    the rest of America — about twice as fast since 1990. Several factors
    underlie this rapid population growth: a high birth rate, immigration
    from Mexico, and inward migration of Americans from other states, who
    are attracted to Texas by its warm weather and low cost of living, low
    housing costs in particular.

    . . . But what does population growth have to do with job growth?
    Well, the high rate of population growth translates into above-average
    job growth through a couple of channels. Many of the people moving to
    Texas — retirees in search of warm winters, middle-class Mexicans in
    search of a safer life — bring purchasing power that leads to greater
    local employment. At the same time, the rapid growth in the Texas work
    force keeps wages low — almost 10 percent of Texan workers earn the
    minimum wage or less, well above the national average — and these low
    wages give corporations an incentive to move production to the Lone Star
    State.

    What, indeed, does population growth have to do with job growth?
    Professor Krugman is half correct here — but intentionally only half
    correct: A booming population leads to growth in jobs. But there is
    another half to that equation: A booming economy, and the jobs that go
    with it, leads to population growth. Texas has added millions of people
    and millions of jobs in the past decade; New York, and many other
    struggling states, added virtually none of either. And it is not about
    the weather or other non-economic factors: People are not leaving
    California for Texas because Houston has a more pleasant climate (try it
    in August), or leaving New York because of the superior cultural
    amenities to be found in Nacogdoches and Lubbock. People are moving from
    the collapsing states into the expanding states because there is work to
    be had, and opportunity. I’ll set aside, for the moment, these
    “middle-class Mexicans” immigrating to Texas other than to note that
    “middle-class” does not broadly comport with the data we have on the
    economic characteristics of Mexican immigrants. To say the least.

    Krugman points out that New York and Massachusetts both have lower
    unemployment rates than does Texas, and he goes on to parrot the
    “McJobs” myth: Sure, Texas has lots of jobs, but they’re crappy jobs at
    low wages. (My summary.) Or, as Professor Krugman puts it, “low wages
    give corporations an incentive to move production to the Lone Star
    State.” Are wages low in Texas? There is one question one must always
    ask when dealing with Paul Krugman’s statements of fact, at least when
    he’s writing in the New York Times: Is this true? Since he cites New
    York and Massachusetts, let’s do some comparison shopping between
    relevant U.S. metros: Harris County (that’s Houston and environs to
    you), Kings County (Brooklyn), and Suffolk County (Boston).

    Houston, like Brooklyn and Boston, is a mixed bag: wealthy enclaves,
    immigrant communities rich and poor, students, government workers — your
    usual big urban confluence. In Harris County, the median household
    income is $50,577. In Brooklyn, it is $42,932, and in Suffolk County
    (which includes Boston and some nearby communities) it was $53,751. So,
    Boston has a median household income about 6 percent higher than
    Houston’s, while Brooklyn’s is about 15 percent lower than Houston’s.

    Brooklyn is not the poorest part of New York, by a long shot (the Bronx
    is), and, looking at those income numbers above, you may think of
    something Professor Krugman mentions but does not really take properly
    into account: New York and Boston have a significantly higher cost of
    living than does Houston, or the rest of Texas. Even though Houston has
    a higher median income than does Brooklyn, and nearly equals that of
    Boston, comparing money wages does not tell us anything like the whole
    story: $50,000 a year in Houston is a very different thing from $50,000
    a year in Boston or Brooklyn.

    How different? Let’s look at the data: In spite of the fact that Texas
    did not have a housing crash like the rest of the country, housing
    remains quite inexpensive there. The typical owner-occupied home in
    Brooklyn costs well over a half-million dollars. In Suffolk County it’s
    nearly $400,000. In Houston? A whopping $130,100. Put another way: In
    Houston, the median household income is 39 percent of the cost of a
    typical house. In Brooklyn, the median household income is 8 percent of
    the cost of the median home, and in Boston it’s only 14 percent. When it
    comes to homeownership, $1 in earnings in Houston is worth a lot more
    than $1 in Brooklyn or Boston. But even that doesn’t really tell the
    story, because the typical house in Houston doesn’t look much like the
    typical house in Brooklyn: Some 64 percent of the homes in Houston are
    single-family units, i.e., houses. In Brooklyn, 85 percent are
    multi-family units, i.e. apartments and condos.

    Professor Krugman knows that these variables are significant when
    comparing real standards of living, but he takes scant account of them.
    That is misleading, and he knows it is misleading.

    Likewise, he knows that the rest of the picture is much more complicated
    than is his claim: “By the way, one in four Texans lacks health
    insurance, the highest proportion in the nation, thanks largely to the
    state’s small-government approach.” Is small government really the
    reason a relatively large number of Texans lack health insurance? Or
    might there be another explanation?

    Houston, as it turns out, is a less white place than Boston (no
    surprise) and also less white than Brooklyn. All three cities have large
    foreign-born populations, but Houston is unusual in one regard: It is 41
    percent Hispanic, many of those Hispanics are immigrants, and many of
    those immigrants are illegals. Texas is home to 1.77 million illegal
    immigrants; New York is home to about one-fourth that number, according
    to the Department of Homeland Security, and Massachusetts doesn’t make
    the top-25 list. Despite Professor Krugman’s invocation of “middle-class
    Mexicans” moving to Texas, the great majority of Mexican and Latin
    American immigrants to Texas are far from middle class. The fact is
    that, in the words of a Fed study, “Mexican immigrants are highly
    occupationally clustered (disproportionately work in distinctive “very
    low wage” occupations) .” Nationally, Hispanic households’ median income
    is barely more than half that of non-Hispanic whites. And low-wage
    occupations also tend to be low-benefit occupations, meaning no health
    insurance. (That is, incidentally, one more good reason to break the
    link between employment and health insurance.)

    Further, some 28 percent of Texans are 18 years old or younger, higher
    than either New York or Massachusetts. Younger people are more likely to
    work in low-wage/low- benefit jobs, less likely to have health insurance
    — and less likely to need it.

    The issues of immigration and age also touch on Professor Krugman’s
    point about the number of minimum-wage workers in Texas vs. other
    states. The Bureau of Labor Statistics, which seems to be his source for
    this claim, puts the average hourly wage in Texas at 90 percent of the
    national average, which suggests that wages are not wildly out of line
    in Texas compared with other states. (And, again, it is important to
    keep those cost-of-living differences in mind.) In general, I’m
    skeptical of this particular BLS data, because it is based on
    questionnaire responses, rather than some firmer source of data such as
    tax returns. People may not know their actual wages in some cases (you’d
    be surprised), and in many more cases might not be inclined to tell the
    truth about it when the government is on the other end of the line.

    Interestingly, the BLS results find that, nationwide, the number of
    people being paid less than minimum wage — i.e., those being paid an
    illegal wage — was 40 percent higher than those being paid the minimum
    wage. What sort of workers are likely to earn minimum wage or less than
    minimum wage? Disproportionately, teenagers and illegal immigrants. You
    will not be surprised to learn that just as Texas has many times as many
    illegals as New York or Massachusetts, and it also has significantly
    more 16-to-19-year- old workers than either state.

    Another important fact that escapes Krugman: The fact that a large
    number of workers make minimum wage, combined with a young and
    immigrant-heavy population and millions of new jobs, may very well mean
    that teens and others who otherwise would not be working at all have
    found employment. That is a sign of economic strength, not of
    stagnation. New York and Massachusetts would be better off with millions
    of new minimum-wage workers — if that meant millions fewer unemployed
    people.

    All of this is too obvious for Paul Krugman to have overlooked it. And I
    expect he didn’t. I believe that he is presenting willfully incomplete
    and misleading information to the public, and using his academic
    credentials to prop up his shoddy journalism.

    ADDENDUM:

    Also, Professor Krugman owes his readers a correction, having written:
    “almost 10 percent of Texan workers earn the minimum wage or less, well
    above the national average.” Unless I am mistaken, that is an undeniable
    factual error: The number of Texas workers earning minimum wage is about
    half that, just over 5 percent. The number of hourly workers earning
    minimum wage in Texas is nearly 10 percent, but hourly workers are, in
    Texas as everywhere, generally paid less than salaries workers. But
    hourly workers are only about 56 percent of the Texas work force. Can we
    get a correction, New York Times?

    — Kevin D. Williamson is a deputy managing editor of National Review
    and author of The Politically Incorrect Guide to Socialism,published by
    Regnery. You can buy an autographed copy through National Review Online
    here.

      • So Ritholz is another economist who hates the Texas recipe? The debate on that thread is very illuminating.

        Of course Texas has more “poor” people by US NATIONAL standards, because that is where “poor” people by US NATIONAL standards, can AFFORD to live.

        Analyses of the type that Ritholz quote, conveniently leave out the fact that those “poor” people in Texas might be paying 50% of their income on housing, which is tough; BUT IF they lived in California, their “housing cost” would be 250% of their income or something like that. SOOOOO, they don’t live in California.

        Read “Green Disparate Impact” by Thomas Sowell, and “The New Segregation” by Randal Pozdena.

        • So true Phil. There’s a reason why so many Americans are fleeing states like California for Texas and Georgia – their low cost of living, including housing. The “liberal” states are for the elites, not the everyday American.

    • Thanks, but I don’t want to go off-topic, bring other aspects of the article and discuss it here.
      .
      On the topic of zoning, PK has agreed it is a bad idea and has said that other states can follow the Texas example.
      .
      Maybe, the religious-right among Texans can return the favour by agreeing that Creationism is a fiction and not a fact.

        • You know, the more I learn about the intuitions of the Texas rednecks and “teatards” and “creationists”, the more I admire them. Sneering, “sophisticated” “liberals” inevitably deliver THEIR societies into economic and social ruin.

          There is an IMF Paper, “Irrational Exuberance in US Housing Markets: Were Evangelicals Left Behind”? They find a definite correlation between the proportion of “evangelicals” in the population of a region, and the ABSENCE of a housing bubble. The IMF authors think this is because Evangelicals don’t speculate – I disagree. I say Evangelicals don’t allow Greenies to strangle their land supply.

          Dennis P. Hollinger in “Individualism and Social Ethics: An Evangelical Syncretism” (the title is self explanatory) finds a strong correlation between evangelical Christianity, and individualism, small government, and low regulation.

          Another interesting finding in this context, is buried in the recent study “Economic Enlightenment in Relation to College-going, Ideology, and other variables” by Zeljka Buturovic and Daniel B. Klein. The primary finding of this study is that people who self-identify with leftwing political ideology, have a very poor grasp of basic economic principles and were unable to correctly answer questions like “Restricting housing development will tend to drive up the price of housing; true or false”? But there are numerous other breakdowns of the statistics; one that is relevant here, is that among “religious groups”, it is atheists AND Protestant “fundamentalists”/”evangelicals” who stand out as having the best grasp of basic economics. (Roman Catholics, however, showed up extremely poorly. Women also showed up more poorly than men, on average).

          Read Gary North on why Bible belief provides a better mental framework for approaching economics and policy making, than secularism and Darwinism. North is rare in providing an intellectual analysis of what is, to most people, just a matter of crude intuitions.

          It is also deeply ironic that “secular liberals” who profess to worship Darwin, come over all aggressive when an atheist “conservative” like Charles Murray provides a Darwinist framework for understanding such things as “stigma” attaching to solo motherhood. It didn’t necessarily stem from religious belief; it is that societies that “tolerate” things that render them unsustainable, tend to become extinct.

  11. Wherever bonuses have been paid to senior office holders in corporations:

    The individual should be open to personal liability to those who have been found to have been victims of false misleading or deceptive conduct resulting from the defendant.

    Accountability is still possible !

  12. Correct me if I’m wrong, but I thought part of the problem in Perth was that the vast majority of vacant land in outer Perth is owned by only a few developers. These developers have a vested interest in slowly releasing land as it keeps prices up and there isn’t sufficient competition that would normally cause developers to compete to get sales.

    Anyway that is my understanding.

    • Got it in one, Karlos. WA’s (Australia’s) ridiculous land-use policies restrict competition in the land market, creating this kind of behaviour and inflating the cost of land for housing. This is why the land component of new housing in Australia comprises over half of the total cost, versus only around 20% in the past.

      • That LandCorp in WA (State Govt Body) controls most of the land tells you something.

        Bloody place is one big flat desert. Plenty of land.

        • WA Government owns the land? In Qld there is a landbanker who owns enough land close to Brisbane to build 9000 houses. Nev Pask. I would rather the gov own this land.

  13. What does Bank West care?

    It gathers up fees made to secure the loan and let’s the liability fall to someone else.

    Who’s getting a pay-off in the govt ?