By any comparative measure, the Australian economy has performed remarkably well over the last two decades.
Strong gains in the labor force throughout the 1990’s, rapid population growth and a surge in the value of key commodity exports through the 2000s.
Resilient wage inflation duly capitalised into rising property prices, by way of a dramatic and accelerated run up of household debt in the lead up to the GFC. All of which was buffered and prevented from any significant deleveraging by the Rudd administration in 2008, when they threw sizeable cash handouts to families along with infrastructure investment to avoid plunging Australia into a technical ‘recession.’
From this alone, our economic platform is deserving of the title “The world’s ‘star performer.”
However, whilst we may stand out in the wealth stakes, we’re not a happier nation for it.
Last week Q&A featured a question from a young Australian and recent school leaver which touched on the sensitive subject of depression asking
- What can the Government do to “fix it?”
Like every other Western nation, Australia has experienced a sharp rise in the number of people suffering depressive illness over the last decade, with the average onset of the disease moving downwards in terms of age, since the 1990’s.
Organisations such as Beyond Blue report that more than one in five Australian’s experienced depression, anxiety, or both, over last past year, and as the gentleman stressed, he was no exception.
The comments that followed were sensitive in nature – focusing primarily on individual treatment and prevention within the health system. And whilst the cause of depression is both complex and varied, the first acknowledgement on what the Government could do ‘collectively,’ came from Clive Palmer:
“We need to have some sort of vision..” Said Mr. Palmer “Create an environment that makes people realise the world is not as bad as we think it is… if you cut things, if you cut budgets, if you take things from people, you make them more worried about the future, and more uncertain”
This was reiterated by Ged Kearny, President of the Australian Council of Trade Unions:
“I get very concerned when I hear about cuts to public health… they’re just another barrier to person, particularly a young person, getting help..”
They are appropriate observations considering our rising population, skewed toward an aging demographic, which by its very nature will necessitate additional funding over the next decade into both health and education.
So, it was somewhat unfortunate, at the same time panellists were discussing cuts, Prime Minister Tony Abbot was giving a speech to the Australian-Canada Economic Leadership Forum in Melbourne, hinting at just this – as summarised bluntly by Christopher Pyne, Minister for Education;
“[The Prime Minister] said that the current growth in education and health expenditure was unsustainable, and that is true.”
What’s Tony Abbot’s ‘vision’ for economic growth?
“You can’t spend money until you’ve earned it! – Or until you have the means to pay it back!”
Was the cautionary opening statement Mr Abbot posed.
It’s a somewhat startling assertion considering it comes from the ‘issuers’ of our monetary supply, offset through taxing those who do have to ‘earn’ dollars before they can ‘spend’ it – whilst our Government ‘earns’ nothing – but is rather elected, and charged, to balance the budget in the best interests of its working population to promote economic growth – for which education and health are vital pillars.
Abbot goes onto say – the “best” way to build a “stronger economy” is for Australia to once again; “Enjoy a surplus!”.
Which may lead you – (like me) – to wonder how exactly the average private household will “enjoy” this surplus, considering we have the highest unemployment rate since 2003, along with an increase in those registering as “long term” unemployed, up 13.5% since January 2013, and more part time jobs being created than full time?
In Victoria – where manufacturing industries are concentrated – unemployment is at its worst level since 2002, whilst youth unemployment – which represents the demographic driving the future of our economy – has reached a ‘crisis’ point.
Just over 12% of young people between the ages of 15 and 24 are currently out of work.
Regional localities reflect the worst – 20% in Cairns and Tasmania, 18% to 19% in north Adelaide, 17% in Western Sydney, the Illawarra, parts of Melbourne and regional Victoria – with the trade off being the increased cost of metropolitan accommodation for those “job seeking” in capital cities.
Additionally, the latest “ABS labour price index” records wage growth at its lowest level on record – climbing just below the rate of inflation for the last calendar year – whilst the cost for ‘essentials’ such as health, childcare, utility services, and petrol, in some areas, has reached record highs.
Considering our household debt to disposable income has barely deleveraged since property prices hit their peak in 2010 – the very talk of reaching a surplus within ‘3 years’ – particularly by way of cuts to essential services, or even the increased number relying on job seekers allowance – is foolhardy,
When the government tightens its belt, the private sector picks up the slack – therefore “repairing the [government] budget” with the claim it’s putting Australia “back on the right track” – is not putting the fate of ‘Australian’s’ on the ‘right track.’
Austerity, at a time of rising unemployment, does not lead to “productive” economic growth. And from depression and unemployment statistics alone, it seems Australian’s are not ‘enjoying’ a return to surplus.
They’re are working longer, retiring later and in the face of rising unemployment, the only ‘vision’ the working population seemingly have to hold to, is more of the same.
So what are we left with?
After 30 years of demise, the manufacturing industry is in the depths of recession.
Retail is losing the battle to the “World Wide Web” and residential construction is still struggling to pick up the cyclical slack created by the mining sector.
Abbots “infrastructure promise” to speed up the flow of money from Canberra into the states, to upgrade road and rail projects, is positive news and sorely needed. However, remember where those gains will be most acutely felt.
Without effective land value taxation, the investment creates the ‘future speculative hotspots,’ where the improvements will be capitalised into rising land values, rather than fed back into servicing, maintaining, and further extending essential community facilities.
Land is an absolute necessity to all commercial and personal needs, therefore as land values rise; it will affect a continued strain on business and productivity, and once again, we’re stimulating the cost of irreplaceable fixed assets, rather than the employment sectors needed to underpin a longer trajectory of economic growth.
But this is what Australia is remarkably good at – creating a booming land market. We’re right up there with the world’s best performers.
The housing bubble success story…
Following a rapid 12-month cyclical upswing of housing inflation, residential real estate prices are once again reaching their 2010 peak.
Outside of normal ‘corrective’ downturns, we’re continually lectured by an overcrowded mass of vested industry commentary, our housing market can ‘never fail’ – or certainly not to the extent suggested by personalities such as ‘Harry Dent,’ or respected Australian economist Professor Steve Keen, who are quickly bundled into the same category and labelled as nothing more than irresponsible ‘fear mongers’ for implying as such.
Our commentators waste no time offering their own economic analysis of ‘property cycles,’ which unfortunately missed any prediction of the subprime crisis – but that’s ‘OK’ because the Australian market didn’t ‘crash,’ – they didn’t predict a ‘crash,’ – credibility restored.
Albeit, housing affordability for both renters and homebuyers, has rarely escaped headline news since before the last election, and whilst to a limited extent we seemed to have progressed past the point in which rising prices are marketed as overwhelming ‘positive’ news, it certainly hasn’t destroyed the myth that they’re somehow ‘good’ for the long term health of our nation, as owners leverage off the so-called ‘wealth’ effect – relying on the unearned equity in their housing investments to fund both lifestyle and commercial activities.
Australia’s biggest employer – aged related care (the health and social Assistance industries) – derives a large percentage of its funding from people selling their housing, which their children additionally hope to inherit to assist their own journey onto the ‘ladder’ – and the perpetual fear of any downturn in established values has painted the government into a corner.
Is the housing market on Rocky Roots?
Yet, fear mongering or not, we know from the above statistics alone, the estimated $5 trillion worth of wealth contained in the house and land market is sitting on rocky roots.
It’s no longer supported by the boom of productive activity and wage growth that assisted in generating the inflation during the 1990s and 2000s – producing the ‘strong’ monopolised banking sector which capitalised on the mortgage market as a population of buyers and speculative investors rapidly expanded.
Outside of future prospected wage increases, significant gains are only achievable by manipulating demand side stimulants, tapping into foreign investment, (currently driving the inner city apartment and development market,) whilst limiting effective and feasible ‘cheap’ supply – which the Government has successfully achieved to date, by way of policies such as negative gearing, first home buyer grants, and a truly diabolical record of supply-side reform.
As mentioned in one of the most recent submissions to the Senate’s Housing affordability enquiry, by Prosper Australia, “It took forty years from 1950 to 1990 for housing prices to double, but only fifteen years between 1996 and 2010 to double again.” And whilst most will agree growth may be more ‘subdued’ as we continue, it’s imperative we highlight the destructive nature of this system, which isn’t assisting making us a ‘happy’ nation, and for a moment, stand back and take stock.
Ask yourself a Question..
Just for the moment, forget the raft of industry commentary and the prospected ‘dates’ for the next ‘crash’ predicted by Harry Dent – and ask yourself a question;
- What will the next decade bring?
If through manipulation alone, Australia manages to achieve ‘more of the same’ and keep the housing boat afloat;
- What will the consequential effect be on small business and industry?
- Who will benefit most?
- Will it be your Children who have to save even longer to get on the ladder?
- Or their Children who will need to save longer still?
Remember – if we were to have a crash, it’s not the wealthy that will suffer – it’s ordinary working families who are then left in a position where they’re unable to borrow to take advantage of lower prices.
Is the future, long-term wealth inequality?
The ‘boom/bust’ land cycle, better known as the ‘property clock’ – which we’re told by industry advocates, is the ‘best’ way to build the individual ‘wealth’ of its nation, is a system which derives its very existence from a long drawn out speculative process, which ultimately accentuates inequality, under utilises land, always marginalizing those at the bottom of the income stream, whilst advantaging those at the top – as I explained here.
Nowhere is the divide between rich and poor more evident than the land market, – which results in a slow process of social polarisation which in Australia, has given us a segregated schooling system where social disadvantage in education is stronger here than any other comparable western nation.
Whilst inequality in wages and business activity can be equalised through competitive activity, land – by its very nature – is ‘fixed’ in supply, and therefore the only ‘cure’ to rising prices in a soft economic environment, is the produce of ‘additional’ supply.
Meeting that demand by extending ‘upwards’ is a challenge. Land values in the inner suburbs are already high – and although it can assist the needs of apartment dwellers, investors, student renters, and to a degree, downsizers – family buyers (our largest home buying demographic) have no option but to head to the fringe if it’s affordability they’re after.
But, due to ineffective land tax and supply policy, the fringe suburbs, which capture the bulk of our city’s population growth, do not have the funding needed to facilitate ‘urban sprawl’ – hence the process of social polarisation.
They have the highest concentration of mental illness – such as obesity and depression – and prices are further manipulated by larger developers who ‘drip feed’ their stock onto the market, of which the Government currently has no control.
Not politically ‘sellable?’
From the time a child learns to enjoy a family game of ‘Monopoly,’ Australians are nurtured on a system that teaches the key to building wealth, is through the leverage and speculation of ‘capital growth’ in land values, therefore, none of this is easy to change.
To do so, requires complete structural reform of land value taxation and housing supply policy – therefore we’re told it’s not politically ‘sellable.’
The most solid prediction of the year?
The most most solid prediction of 2014 to date is the one that will result from the Senate’s housing affordability enquiry.
After the numerous submissions have been tabled and discussed. The question I stressed in my own submission will remain unanswered;
- “Will the Government allow land values to drop?”
Assuming this is correct, then Prime Minister Tony Abbot has a duty of care to explain to the public directly how the ‘propping’ up of the current status quo will continue to erode the opportunity of future generations.
He must explain how the Government’s failure to provide effective land value taxation and supply side reform to lower land prices, will lock them into longer mortgages, a life times worth of double income debt, push more into ‘long term tenancy,’ and additionally, point out how the current system enhances poor education and health outcomes, social polarisation, and places a strain on core productivity.
Ultimately the choice lay with the voting population, and in a country that holds to the motto of ‘a fair go’ – I expect clearly evidencing the consequences of our current housing market, will be a lot less ‘sellable’ than educating how we can establish a sustainable approach which – if handled correctly reducing taxes on productivity – will ultimately make each and every one of us better off.
It’s time we allowed Australians to make an educated choice.
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