Joe Hockey: Ponzi Lord

ScreenHunter_04 Oct. 15 09.58

By Leith van Onselen

As noted by Houses and Holes earlier today, Federal Treasurer, Joe Hockey, gave an interview on CNBC in New York in which he defended claims that Australian housing is a bubble with the below response:

“A lot of commentators, particularly over here [the US], don’t understand the Australian housing market. The fact is, we have a very generous immigration program. And we have very slow supply coming in to the market. Now rising house prices in Australia help to make some of the more marginal new housing developments affordable and realistic and deliverable. And in turn, that increase in supply helps to manage the market. So, Australia is a long way from a bubble…

A lot of Australians put a lot of new capital into their homes – renovate their homes, upgrade their homes – and we have the largest homes on average perhaps in the Western World, and the world more generally. So it’s a very different asset class in Australia than in other jurisdictions”.

What is most astonishing is the first paragraph of Hockey’s transcript. Here we have a Liberal Treasurer, who is supposed to believe in and advocate free markets, effectively endorsing a quango.

What Hockey has effectively said is that the Government will continue to run a high immigration policy and let state governments continue to strangle supply in order to support house prices; or using Hockey’s own words: “to manage the market”.

While I am obviously disappointed in Hockey’s comments, and the Government’s complete lack of acknowledgement of problems in housing policy or commitment to reform, I should not be surprised. After all, just last month Prime Minister Abbott explicitly endorsed higher house prices and the “wealth effect” it bestows on home owners:

“Don’t forget … if housing prices go up, sure that makes it harder to get into the market, but it also means that everyone who is in the market has a more valuable asset”.

What is lost in all of this is that the well trodden Australian policy of pumping demand and choking supply has a particularly detrimental impact on younger (and future) Australians that are forced to dedicate a far larger proportion of their lifetime’s earnings on housing than they should. High land prices also adversely impacts the construction sector, whose output has barely increased over the past 30 years, despite the massive increase in the Australian population. The productive economy also suffers through higher input costs (e.g. rents), as well as less access to finance, which is instead channelled into housing as buyers chase prices higher.

Economic theory and international evidence also shows that unresponsive (inelastic) housing supply tends to increase volatility by making prices more sensitive to changes in demand. As such, the policy of supply repression, advocated by Hockey, heightens the probability that the housing market and economy could experience a painful correction in the event that Australia experienced an economic shock.

Overall, this is a poor effort by Hockey and unbecoming of a Liberal Treasurer, who is supposed to advocate free markets and opportunity over political manipulation.

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Comments

  1. And Peter Fraser wondered why I saw a collpase of the Austalasian property markets as the only answer to correct the irrational imbalances! No sensible alternative is likely to come from those that should be providing it – the Government.

    • Notice also Janet that the news of a bubble or the nose of it has made it to a number of international news forums. So the bubble news momentum is building up and markets are often based on peoples perceptions of what something is worth. The more of this bubble talk is going to start scaring investors.

      • Chinese do not consider it us a bubble as their bubble is even bigger, this is the danger for Australia and mostly for Sydney.

    • +1. Asking for reforms is like asking the pope(or Abbott) to stop being catholic. A crash is the only answer.

    • What! How dare you suggest the collapse of the Austalasian property markets is necessary and that merchants of debt do something productive for a change!!

      • How about we, as concerned individuals, pen together a letter/paper outlining the madness of current govt and RBA policies?

        It should be sent to all politicians, newspapers, blogs and journalists so that when inaction results in the inevitable burst they can’t say they weren’t forwarned!

        The stupidity of the current policy setting from all sectiors is truly absurd.

        I’m in if anyone else is prepared to contribute.

      • Stomper and disco stu, I’ve been saying something similar for a while now. I too have written to Joe Hockey in the past without any response. It has to be a group effort.

    • CROSS POST FROM SMARTCOMPANY

      Nobel Prize in economics goes to housing sceptic

      The Nobel Prize in economics has been awarded to three economists focused on the strengths and shortcomings of asset markets.

      Eugene Fama, Robert Shiller and Lars Peter Hansen have separately come up with different but complementary branches of modern asset market theory.

      Shiller, the best known of the trio, is famous for his work on the inefficiencies of asset markets. In 2005, he published a paper suggesting the US housing market may be overheating.

      Speaking to Reuters after his win, he told the wire service he was seeing some of the same signs today in America and across the world.

      “It is up 12% in the last year [in the United States]. This is a very rapid price increase right now, and I believe that it is accelerated somewhat by the Fed’s policy,” he said.

      Australia – as well as China, Brazil, India, Norway and Belgium – is witnessing similar price rises, he said.

      “There are so many countries that are looking bubbly.”

      In an interview with Bloomberg earlier this year, Shiller took aim at the notion that housing was an ‘investment’.

      “[Housing] takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better…

      “So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000s. And I don’t expect it to come back. Not with the same force. So people might just decide, ‘Yeah, I’ll diversify my portfolio. I’ll live in a rental’. That is a very sensible thing for many people to do.”

    • The Australian housing bubble has been officially denied by the treasurer, therefore it must be true!

  2. ” we have a very generous immigration program”

    Basically stating that foreigners come first over Australians when it comes to housing. Yet so many Australians are been made homeless or can’t get affordable housing.

    Yet another admission

      • But Lori, the only politicians in the USA who are against urban growth containment, the real origin of these problems, are Republican.

        All the non-growth-contained, affordable and growing cities are in Republican-leaning States.

    • You’re right.

      Old rich white guys supporting the wealth of other old rich guys.

      Don’t worry about youth, they have plenty of time!

      • Or maybe the Federal Government which supports immigration on the one hand, but refuses to fund the extra costs of immigration borne by the states might be part of the blame? As a result, the states restrict land development as it will only end up costing them more money which they don’t have.

        Nah, better to blame the old white guys and hand wave the problem in their direction.

        Whatever.

      • Emess, I think you are crediting State governments with a level of intelligence they have not exhibited.

    • “Basically stating that foreigners come first over Australians when it comes to housing.”

      If only we were being sarcastic or joking when we make comments like this. But sad to say, it is the absolute truth.

  3. People need to complain about this to their local MP…. but wait… why would they do that when they are up to their eyeballs in debt and praying for house prices to keep rising?

    This ‘market’ needs to be pumped into the stratosphere and then left to implode into ash.

    • Everyone believes that one day when they will have to sell their property to fund their retirement, there will be plenty of fools to buy it at its exuberant price. This is a cultural bias.

      On the other hand, none takes into account that Asians who want to live here and in the West in general, in the global economy are the driving force for housing prices. The world top 1% is no more local, but much bigger and can grab everything that the West has created for its middle class during the previous century. This is the logic of globalization. We need totally new paradigm for explaining what is going on, but the Chicago School will never deliver it.

      • There are more millionaires in China than there are people in Australia. The Chinese could easily buy up every available property in Australia, and this is what I was asking last night – at what point (if any) would the government put a stop to it – if they bought 30% of all properties for sale? 50%? 70%? 100%? Maybe they are quite happy for foreign investors just to buy up everything. It certainly looks that way.

      • @md Lets not forget that those millionaires are only so because of debt inflation in their own countries. They face similar issues to us, only they can’t import (immigrants) their way out of it nor even to postpone it.

  4. Hockey and his quango collaborators may be able to manage housing supply, but they wont be able to manage the upcoming unemployment tsunami. If anyone thinks these immigrants are going to be able to run with the ball and support the economy,they have rocks in their head. If only housing was not supported by debt and debt didnt have to be repaid by working at jobs, the quango members should be sleepless at night worrying where jobs will materialise in this commercially border-less globe. Abbott now has his hands full with Hockey and massive creditability issues. WW

  5. Thanks for the transcript, Leith. I wore out the video tape repeatedly rewinding it in disbelief.

  6. “A lot of Australians put a lot of new capital into their homes – renovate their homes, upgrade their homes – and we have the largest homes on average perhaps in the Western World, and the world more generally. So it’s a very different asset class in Australia than in other jurisdictions”.”

    Ignoring the fact that we have a land price bubble, not a house price bubble, as demonstrated by UE.

    http://www.macrobusiness.com.au/2012/08/the-land-bubble/

  7. The only solution is for the building industry and all the businesses that benefit from new housing construction – and there are a lot of them – to hold a National Summit on New Housing Construction.

    Forget the Boy in the Bubble – our Ponzi Lord – he clearly will be of no assistance after his mendacious comments in New York.

    1. New methods of financing new housing constructions – eg Texas style MUDs which allow both low sticker price for new buyers and the gradual introduction of a LVT system.

    2. Invert the current default restrictive position of planning to freedom to develop unless specifically reserved for a purpose – eg transport, roads, parks etc.

    Just 2 things required.

    If thousands of builders, tradies, retailers, architects, etc cannot make this happen nothing can.

    Time for the HIA and the Master Builders to turn up the heat on the Boy in the Bubble.

  8. General Disarray

    They just need to change their name to The Conservative Party and clear up this confusion once and for all.

  9. Robert Shiller wins Nobel Prize for research on asset bubbles. Identifies Australia as having real estate bubble.

    Joe Hockey on CNBC – outsiders ‘don’t understand’ Australian real estate.

    Classic timing.

  10. I am an engineer, not a lawyer so I would appreciate if there is someone with a legal background who can provide an opinion. Surely such statements contradict the free trade practices act? Also Abbot has stated that owner occupied houses are an asset. With most federal and state politicians having nearly all their personal wealth tied up in their homes, surely this represents a massive conflict of interest. Imagine the outcry if nearly all MPs had a majority of their wealth in a particular mining tenement. They then structured the banking system to encourage the public to invest in it and restricted the supply of all other mining tenements. There would be a revolution!

    • Also Abbot has stated that owner occupied houses are an asset. With most federal and state politicians having nearly all their personal wealth tied up in their homes, surely this represents a massive conflict of interest.

      Not to mention that they exclude PPORs from asset tests like the pension.

    • Jumping jack flash

      I too have wondered this. PPOR is NOT counted as an asset for any means testing for government handouts, yet here we have the government saying that it is an asset representing “wealth” of Australians.

      So what is it exactly?

      ps. we all know it is NOT wealth, it is negative wealth, but banks run the world and we are now all banks, and as far as banks are concerned, debt is wealth.

  11. What I don’t get about that wealth effect theory is if you’re a home owner and you see everyone’s home values going up, are you really better off? Because that seems like you’re just moving with the pack.

    • Of course you’re not better off. You still own the same house and you still get the same utility from that house. If you want to move to a new house you can sell your current one for more but you have to pay more for the next one. If you’re upsizing you’re worse off, and if you’re downsizing you’re better off, if you’re staying the same you’re a little worse off (since you pay more on transaction costs). All in all the homeowners are probably close to nil net effect. Investors on the other hand benefit from rising prices and new entrants to the market lose out.

      But that’s not the wealth effect in question. The wealth effect is really about inflating the money supply with new debt, which increases demand for everything today at the cost of reduced demand tomorrow (as more money for a longer period of time is being taken out of supply as it pays off debt). Whilst you can keep prices rising exponentially you can keep the money supply rising ahead of debt payments so you continually see ‘growth’. When rising prices stall for long enough, or go backwards, its game over.

      Yay for a money supply tied to a ponzi scheme.

      • This is true, but because most people don’t have any idea how inflation works and how it makes them poorer not richer, those ponzi schemes work perfectly.

      • The banksters and their underling merchants of debt are certainly better off..

        Sloppy Joe may appear to be looking after the interest of the housing specufestors, but his real constituency are a bunch of banksters..the top 1%.

    • JohnsonM’s answer was excellent, but I also wanted to provide a short response: yes you are better off. And everyone who doesn’t have a house already is worse off – which is everyone who didn’t want to buy, was unable to afford to buy, and every generation now and later that was not old enough to buy. It’s state-endorsed self-interest at its worse, and Australia pats itself on the back for it every day.

  12. Neville Gearless

    Looks like we have had NO change in government. I did not vote for either of the majors for a reason..

  13. Leith I’m struggling to see just what (and why given no prior indications of intent to introduce significant reform) was expected of the new government.

    Seems to me that the commentariat here at MB must have had a strong sense the new government would behave in its first days very differently from the previous government. Perhaps flattering that the coalition was viewed in such a reformist light, but unrealistic at this point.

    • 3d1K they are behaving very differently from the previous government. I can’t say I have ever heard any of the previous government make such statements.

      Even if they were pro immigration and pro property, they were much gaurded about it.

      • Pro housing construction yes. Not pro ponzi inflated, world beating house prices.

        Seriously, what does this say about Australia? Against the opinion of many respected economists and financier’s, our treasurer is saying we are different. Why? Because we will make sure we are …

      • flyingfox, who cares about Australia and Australians, we are living in a global world where the big wealth doesn’t have any nationality and the top 1% don’t ware any national gown.

      • 3dogs, the Liberal party loudly proclaimed over and over again they would cut red and green tape.

        Yet here is Hockey saying the red/green tape is a good thing for the housing market?

        Spruiking an onerous regulatory environment as helping bring marginal developments online seems more at home in a socialist country and not coming from a small “l” Liberal treasurer.

      • @Lori I agree with what you are saying. However even by most global standards this is getting ridiculous. The top 1% are certainly not wearing Ozzie gowns …

    • You are trolling, 3dik.

      You were front and centre before the election talking about the astonishing ineptness of the Labor government, how change was coming that would fix Australia’s problems, that the Libs understood economics and debt, things would be instantly better, etc etc blah blah blah.

      Now you are saying that expecting change is a bit unrealistic?

      LOLZ

      • Not at all. The previous government was inept. Completely. My point is the new government has barely been in power and is here widely criticised on almost every issue.

        Did you really expect a turn-around on property from this new government some mere weeks into governance when no indication of such was expressed and when the previous government similarly declined to actively intervene on the property scene.

        It just sounds very petty.

        I would rather see constructive policy suggestions together with realistic assessments of impact on all parties involved (positive and negative because it seems many here only argue the benefit from their own position ignoring adverse outcomes for those in a different position) – a coherent transparent and honest platform to go forward with.

      • Did you really expect a turn-around on property from this new government some mere weeks into governance when no indication of such was expressed and when the previous government similarly declined to actively intervene on the property scene.

        No I don’t. But I don’t expect this sort of BS either. At least Rudd was taking about the capex cliff and possibility of slowing down etc etc.

        I would rather see constructive policy suggestions

        So would I. Unfortunately this has been missing from Australian politics for quite some time. This gibberish is not policy. It is economic suicide, delayed.

      • 3d1k,

        “…I would rather see constructive policy suggestions….”

        Really?

        Just the other day when someone pointed you in the direction of a few suggestions you said words to the effect that there was no need as everything is tickety boo – life in Oz was generally comfortable and relaxed.

        Now that you can no longer plausibly deny that Joe is pulling up much shorter than most (including myself) expected you are claiming that there are no constructive policy alternatives.

        Let it go 3d1k.

        There is no shame in joining cause on some issues (Joe’s performance) with those you oppose on others (e.g mining).

        I didn’t pick you as a tribal warrior – I thought your were too nimble for that.

      • Pfh we are ticketybooish. Comparatively. All too often in the comments here you’d think we’re Greece’s inbred cousin.

        I’m all for constructive input tempered with recognition of policy impacts to all involved – known unknowns and all that. More than happy to read a piece on the removal of negative gearing say, the impact on new market entrants, those currently utilising NG and resulting gov/tax flows.

        As for all this harping on about the new government it’s starting to read like something from the pages if ABC online!

      • “……it’s starting to read like something from the pages if ABC online!”

        That is just an unfortunate co-incidence.

        I think I know what is really bugging you. Many of the rusted on ALP types who defended bad economic policy by the last government are now economic liberal purists and giving the new government a hard time for things they gave the last mob a free pass.

        Unfortunately, there is not much you can do about that. Economic policy reform must takes allies where it finds them – even if it is an alliance of mutual inconvenience.

        Remember that the opposition have a job to do and they will deserve just as much criticism if they fail to hold the government to account on economic policy.

        We will have to wait until 18 October to find out who the new Shadow Treasurer will be. I don’t imagine you propose giving them 12 months to limber up.

      • Speaking of “holding to account”, how about the complete absence of comment/criticism from the opposition on Hockey’s overnight CNBC brainfart.
        Shorten’s equally stupid Q&A “Big Australia” brainfart would indicate a bipartisan childlike inability to get their head around any cogent housing policy.

        Is there anyone in parliment capable of anything more than a “making-sh!t-up” level of analysis.

    • “Leith I’m struggling to see just what (and why given no prior indications of intent to introduce significant reform) was expected of the new government.”

      Why do you need to have prior indications of intent to be disappointed by Hockey’s comments?

      If Labor had indicated that they had no intent of reducing the deficit would you have struggled to see what was expected if MB expressed disappointment?

      “Perhaps flattering that the coalition was viewed in such a reformist light, but unrealistic at this point.”

      Why is it unrealistic “at this point” and when will it be realistic?

    • Reading between the lines, it seems 3d1k should change his nick to 3d1k10IPs..

      He probably has 2 IPs each for himself, 1 kid and the 3 dogs 🙂

  14. Joe Hockey and Tony Abbott both live in Sydneys lower north shore. This is some of the most expensive real estate in Australia (the world).
    You can’t blame the Liberals for trying to protect the value of their own homes. Plus high prices keeps the rif-raf out, and keeps the lower north shore exclusive.

    • Yeah great point (personal interests do very much come into this) together with PhilBest’s comment the other day that the crashing of housing bubbles around the globe during the GFC forewarned Aus pollies and they have used every trick in the book to prop up our bubble, and deny it. Sadly for Australia, a reinforced bubble explodes with more force.

  15. Look, I wish people would understand how different things are here..

    Australians care about their homes more than people from other countries. Those Americans, Spaniards and Irish, they just treat their homes like another disposable item.

    We also have bigger houses, so we can afford to spend more on them. Everyone here knows the importance of over-capitalising.

    We have lots of migrants coming in – I mean look at the boatloads of people trying to get here to buy houses. No-where else has immigration like us.

    Our banks have much better lending standards and will always, always put these lending standards ahead of profit. You can tell by the modest profits our banks have been making and the balanced nature of their assets.

    Prices haven’t really been booming here at all and real estate is still very affordable for first home buyers. And prices double every 7 years, so they need to get in or miss out forever.

    And of course, kangaroos and ocean views. Lots of these, especially in the inner west of Sydney where prices are skyrocketing.

  16. Someone at MB able to knock up a point by point rebuttal to Hockey’s misinformed points?

    You already have the charts and data.

    I’d like to share via email and Facebook to friends, family and of course the local member!

  17. HAHAH – apparently large houses cause high prices!

    That is why vacant land in Sydney is so astonishingly cheap (no large house on it to push up the price, see).

    • People include garages and verandas in house size calculations here in Oz. In other countries, they don’t.

      Our houses are medium-sized and often very badly constructed, Mr Hockey.

      • In any case, as I tried to make clear, it is chiefly our land prices that are too high. The house on top is usually only a small proportion of the “value”. Which is why tiny houses are still massively expensive. Hockey is wrong.

  18. “Now rising house prices in Australia help to make some of the more marginal new housing developments affordable and realistic and deliverable.”

    WTF?

    How does overall price appreciation make newer developments more affordable?

    • Yes, I saw that too and had a similar reaction.

      ‘Tis plain that we are now truly in the cloud-cuckoo realm where up is down, low is high, expensive is cheap, right is wrong and bad is good.

      Welcome to the Brave New World. Huxley had no flippin’ idea at all.

    • I think what he was trying to say is that you can buy a one bedroom dogbox for under half a mil. That’s affordable, so how can anyone say there isn’t affordable housing available? I mean, you can’t raise a family in it or have any possessions, and you’d be lucky to have somewhere to park your car, but at least they’re providing affordable housing! Maybe he’s hoping we get to the stage like in Hong Kong where the poor have to live in cages. At least it’s affordable!

  19. reusachtigeMEMBER

    Stop fighting this everyone and capitulate! The time to warn is long over. It is now time to fuel this and encourage it along. Tell everyone you know that housing is the best investment and it is government guaranteed!
    .
    The less people warning at this stage the better!
    .
    Look at it this way… you could continue to warn you friends not to buy, and have them hate you no matter what happens. They’ll hate you if you are wrong, and hate you if you are right, for being so damn smart in the face of chaos.
    .
    But if you encourage them to go hard into housing, and they lose the lot, in their misery all you need to do is say “well everyone thought it would always be the best investment for ever and no one saw this coming” and with that, they will nod and hug you and love you for your sympathy.
    .
    Give it up and get on with the pumping! Become a mortgage broker even and make as much money as you can out of anyone crazy enough to listen. That will help, and it’s the Aussie way! They will all still love you for helping them at least try.

    • I gave up warning friends, they went to take more mortgage although they are struggling to pay the one they have on their home. Herd mentality if always more powerful.

    • +1 reusachtige

      I find that my thinking is often remarkably similar to yours.

      The only thing I might add is; the current bubble will act as a giant sieve that will filter out the wise. If you are running a business and looking for a wise employee, for example, you will find it easier to spot one after the bust……

      • reusachtigeMEMBER

        That’s quite good. Stay clear of those who blew it all and bring on the survivors. It should be an interview question “What steps did you take to protect yourself from the housing bust?” Answer A – Load up on lots of IPs.

  20. Sad truth is that no politician can do much to exit Aus from this sorry dependence. So all they can do is try to keep confidence up and hope they aren’t the ones holding the bomb when the music stops.

    If there is no big crash to resolve this problem, then instead future governments must wrestle interminably with the problem of an economy hamstrung by this problem as well as social issues caused by the impact on younger generations and the entitlement burdens of older generations.

    But it will take a long time before there’s any political mileage in recognising the problem. It’s become too big.

    • It is similar to QE, actually no difference at all as RBA is buying mortgages and fueling the mortgage debt.

    • Would it be a replay of Japan over the last two decades, perhaps?

      Or, will it be a Spain/Cyprus type burst aneurysm?

      Dunno which is preferable: the quick and highly painful sword thrust through the innards that kills you fast, or the nutritive deprivation that kills you slowly with less pain.

    • +1 davel

      “But it will take a long time before there’s any political mileage in recognising the problem. It’s become too big.”

      The scary thing is; once you think about how one can engineer orderly deflation of our bubble (i.e., how one can arrange an orderly “queue” without a firing squad to prevent those with properties from jumping the queue), it becomes clear that we past the point of no return about ….. a decade ago (no kidding)!

      So there is no retreat. March forward toward that giant cliff. Ready, set, GO!

    • Davel:

      “….If there is no big crash to resolve this problem, then instead future governments must wrestle interminably with the problem of an economy hamstrung by this problem as well as social issues caused by the impact on younger generations and the entitlement burdens of older generations….”

      And that’s where the UK is today. I shake my head in wonder at the sheer patience of their younger priced out/lifetime rent generation. Sadly, things probably can get this bad in Aussie too.

  21. Jumping jack flash

    Banks rule the world.

    If you look into it, the rules of finance are backwards for banks, fundamentally debt = asset. They sell debt obligations to each other, and that is their worth.

    That is why everything seems backwards.

    We are once again in a transition period where there is increased pressure for Australians to think and act like banks.

    Oppressive mortgage sucking up all your money? This is now “wealth”. And you should be happy.

    Equitymate, where essentially you increase your mortgage to negate any repayments you have already made, plus any “value” that the property may have “gained”, is desirable, and means you are incredibly wealthy.

    60% of your income going to the bank for debt service and you want a new car because hey, you’re incredibly wealthy now and you “deserve it”, but you can’t possibly afford it and eat? Don’t worry!

    Want to send your kids to a private school, because hey, you’re incredibly wealthy now, you’ve got over a million in debt, and you and your family should live the millionaire’s life, but you’ve got $100 left in your wallet each week after bills and debt service? No problem!

    Take on another loan! A credit card or two! Live the dream.

  22. Imagine any other minister (for example, the Agriculture Minister) giving an interview like that:

    Interviewer: is there any risk of milk becoming affordable in Australia? I really want to know, because I have 10 gallons of milk in my fridge, so I don’t want the price to drop.
    Minister: Don’t worry. I can promise you that, thanks to the policies of my government, milk will never become affordable for the average family.

  23. RapperWithABaby

    “.. in which he defended claims that Australian housing is a bubble..”

    By “defended” you mean “fended off” right? I think this usage of defended can be confused. He definitely didn’t support the claims.

  24. (Silly) Question:
    Say the bubble pops, wouldn’t the immigrants (Asian/Chinese) buy up the cheap property(s), as most of them are currently buying them outright (cash on the table – did witness this..), the locals end up in the same situation.

    • Overseas investors are not going to touch Aussie housing during massive slide.

      Only once rock bottom has been hit would they be interested – which means waiting for a while first to make sure. Picking the bottom is very difficult. In the US, Ireland etc, it took several years before things really stabilised.

      The locals don’t all end up in the same situation. Indebted locals lose. The recent buyers (who have the most debt) lose most – imagine having to pay off a $600K loan for a place that’s only worth $400K.

      People who have owned their home for years and have seen the price rise “on paper” (but without selling) will just go back to where they were – as long as they didn’t borrow against their house!

      The cashed-up people ready to buy are the most likely to be winners – whether Australian or foreign.

      But overall it’s not going to be a happy place to be.

    • Housing doesn’t even have to slide for investors to loose big time. Dollar slides to 60 cents wipes out 35% of your “investment”.

      Couple the two together and you are looking at a serious loss.

  25. Ian LucasMEMBER

    Enough to make you weep – literally.

    To the list of downsides associated with inflated housing prices, I would add:

    – a child care sector that’s bigger than it needs to be, because both parents of young children more often have to work to cover mortgage payments or rent. Child care is expensive, hence parents look to the state for support.

    – an aged care sector that’s bigger than it needs to be, because people have less time than they used to to look after their elderly relatives, so again they turn to the state for support.

    – the recent addition of paid parental leave onto the list of things for the state to support. Parents less able to afford time off after their babies are born.

    – thus far unmeasured costs in terms of family stress, family breakdown, weakening of extended family support, poorer educational outcomes for kids (parents having less time or too buggered after work to read to their kids).

    I don’t have a problem with the state helping people who need it – quite the opposite. But here are some areas in which “needs” for state support have arisen at least partly (my guess is largely) because successive govts have opted not to correct the manifold distortions in the housing market.

    Funny that a Liberal govt doesn’t join the dots. It says it believes in not messing about with markets but doesn’t want to stop the distortions in the housing market. It wants people to be more self reliant but doesn’t seem interested in addressing one of the main forces making them less self reliant.

    Funny also that they lie doggo while first home buyers are priced out of the market. Liberals used to believe in an “ownership society”.

    • Ian, those are very good points; actually the direction of causation runs both ways; all that government assistance is a cause of people being willing to load up further on debt.

      There are many things that affect “median multiples”, and one of the excuses I have read somewhere for Aussie median multiples being so high, is Aussie middle class welfare being de facto “income” that is not counted in the Median multiples calculation.

      Interestingly, the tax deductibility of mortgage interest is one reason that US bubble cities median multiples can go so freakin’ high (LA went over 11). In an inelastic housing supply market, any demand side assistance capitalises into higher house prices.

    • Fear not. An army of consultants is at this very moment fine tuning the assumptions and discount rate in a Cost Benefit Analysis to justify the Coalition’s implied policy to defend inflated house prices.

      If it wasn’t already clear, the Liberal Party don’t believe in anything but maintaining a conservative status quo.

  26. At what point – when the bubble bursts – do the powers that be start to blame it on:

    – the weather aka climate change;
    – China (they stopped buying our dirt)
    – Boat people (they took our jobs);
    – Immigrants (cashed up Chinese millionaires);
    – Immigrants (all those Poms and Irish and Saffers and….Asians!)
    – Immigrants (they don’t speak Strine!);
    – Gen X & Gen Y (lazy bums!)
    – The aged (it costs too much to keep them alive)
    – The very young (it costs too much to keep them alive)
    – The environment (it costs too much to keep it alive)

    Ok, some of this is simply rhetoric, but scarily enough – not impossible!

    Everything and everyone BUT the elephant in the room : bloody, bloodsucking bankers and their politician bed(bug)mates.

    • +1 Ronfire

      The dark lords of neoclassical economics will be sitting comfortably on a sofa made of usury, watching burning tyres and barricades on the street of our cities on TV while sipping a cup of tea.

      Isn’t it wonderful to have such stupid citizens like us to rule, who will go after whoever they point to but not to them? Just do not forget to pay peanuts to the guards and instruct them to shoot first and ask questions later whenever somebody tries to break in.

      • Gunnamatta drew attention a few threads back, to a video.

        http://michael-hudson.com/2013/10/global-property-ponzi-policy/

        From 12 minutes on, it is a “must watch” on the subject of housing and finance and government policy, it is packed with insights, I agree with the whole lot of it.

        Roughly from memory:

        “The UK government is pretending to help the first home buyers, but they are really helping the banks. The banks will get the fatter profits AND the bailouts”

        “This isn’t failed policy, it is a raging success from the point of view of what it was meant to achieve: enrich the banks. The banks run the government”.

        “They talk about Adam Smith and free markets, and mean something completely different. They mean the enrichment of a new rentier class, something that is contrary to all the economic philosophy of the enlightenment era….”

        “It’s goodbye to British manufacturing. No-one can pay the wages that will be necessary to cover the housing costs..”

      • Yes, Phil, I remember that one. I recall that I was amazed as to how accurate the alternative Star wars saga had been.

  27. Well, let’s be fair with Joe Hockey.

    As a dancing fairy, he was quite successful. If he screws things up real bad as Treasurer, as it seems likely, he can always go back to dancing…

  28. What a staggering mix of stupidity and callous abuse of your own young.

    As one comment mentions this is just saying to your young folks “we don’t give a shit about you”

    Sorry young guys the boomers are eating you alive and selling your country.

  29. Are there any alternative views held by others in the Liberal Party re how to handle this situation?
    Reading ronfire’s list, all these reasons are ALREADY being given for Aust’s current stagnant economic conditions.
    If hundreds of apartments owned by absent Chinese landlords remain unoccupied in the best locations in Sydney, Melbourne etc, I can fully understand why squatters will move in.
    Also, a lot of people here mention that the Aus dollar will devalue by 30%, might I ask against what – the renminbi, the USD, the Euro, or all of them?

    • @ hzhousewife

      “Are there any alternative views held by others in the Liberal Party re how to handle this situation?”

      I doubt it. In fact, I am pretty sure that the answer is negative. Not only there are too much vested interests and IBGYBG mentalities, it would be literally IMPOSSIBLE to “handle the situation”. As I posted above (and a few times before), once you think about how one can engineer orderly deflation of our bubble (i.e., how one can possibly arrange an orderly “queue” without a firing squad to prevent those with properties from jumping the queue), it becomes clear that it is impossible NOT to trigger a full scale panic.

      So I guess the only thing they can do is …… to hope (and pray) that their time is up before the clock hits midnight, that it is not them but the ALP who will be holding the bomb when the time comes…….

      • aahh dumpling, just as I thought. So it’s a bit like Wyle E. Coyote and the Roadrunner tossing the bomb between them, and it didn’t really matter who we elected.
        Can anything be done about the banks then? In my dreams I imagine we all refuse to borrow…..

      • “Can anything be done about the banks then?”

        I am not quite sure if I understood your question.

        If we all stop borrowing tomorrow, that will instantly burst the bubble – aka the full scale panic I had talked about.

        Let’s just say what follows won’t be pretty.

  30. are they running this country by pumping up house prices ? by generous migration intake and controlling supply of housing ? what about other industries ? by doing so will pushing up cost of production and maintaining businesses. How can we compete with the world ? I guess investors only invest in property but nothing else . Soon unemployment will rise and for all migration intake are lining up for the dole .. and let cope with it .. short sight, only thinking of themselves in short term but not in long term for our children future ..