A free economics lesson on bubbles for Hockey and Costello (and Kohler)

By Leith van Onselen

As H&H has pointed out, Former Treasurer Peter Costello, made some good points today about the challenges ahead for the economy and property but he also backed-up Joe Hockey’s poor effort yesterday, claiming that there is no housing bubble because there is a shortage of supply. From The AFR:

“For a western developed country, Australia’s population growth is very strong,” Mr Costello said.

“So we have to factor that housing supply is not meeting demand. It’s important the public understands this”…

“If you speak to anyone outside Australia as I do, they will ask if the Australian residential property market is overvalued… It is the first thing any economic investor will ask”.

“They say that using multiples against world standards…  But we are growing so fast, faster than the Mexicans, Argentinians, South Africans”…

“Building a house is comparatively cheap… What is expensive in Australia is land. We have increasing demand but quite a restrictive supply of land and as a result, prices are high”.

“Houses are so expensive because the government has the control on land…”

While I obviously agree with Costello on Australia’s ridiculous land prices, brought about in-part due to government land-use policy, I’m not sure how Costello can ignore the record high level of investor speculation, most of which is negatively geared:

ScreenHunter_4269 Sep. 17 13.08

Moreover, how do Costello and Hockey explain why markets with similarly restrictive land-use policies to Australia – Ireland, Spain, California, Florida, Arizona, and Nevada – experienced large booms and then busts? How is this possible in their world?

Both Joe Hockey and Peter Costello need an economics lesson. As I have explained previously, unresponsive housing supply results in greater house price volatility – both on the way up and the way down. Such a situation can be explained using basic supply and demand analysis, as shown in Figure 1:

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

Following an increase in demand, such as a surge of investors following changes to tax rules (e.g. Australia’s CGT reduction in 1999), the demand curve shifts outwards from D0 to D1. When land supply is restricted, house prices rise sharply from P0 to PR. By contrast, when supply is unrestricted, prices rise more gradually from P0 to PU.

The situation works the same way in reverse. For example, if there was a sharp fall in demand, say following a contraction in credit availability or a sharp decrease in Australia’s Terms of Trade, causing demand to fall from D1 to D0, then prices tend to fall much further when land supply is constrained.

This was illustrated perfectly in the US bubble. There, markets that operated restrictive land use policies and regulations that hindered market from supplying affordable homes in a timely manner experienced large booms and busts, a sample of which are shown below:

ScreenHunter_4271 Sep. 17 13.24

By contrast, those markets that operated liberal land-use policies – and in turn kept land prices low and allowed the market to supply homes relatively quickly and affordably – experienced much lower price volatility (see next chart).

ScreenHunter_4270 Sep. 17 13.24

The key point of this analysis is to show that declines in demand can bring sharply falling house prices even when supply is constrained and housing shortages exist and restrictive supply combined with easy credit are key ingredients of housing bubbles.

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Leith van Onselen

Comments

  1. The immigration numbers in the next 12 months should be very interesting with all the kiwis and irish heading back.

    • If, as is completely possible, Australia happens to be the only Anglophone country in recession for part of the year, they could be very interesting indeed.

      NOM only cracked 100k twice throughout the 90s. In 1993 it was 30k. The next time we see 1993 style unemployment, we can certainly expect to see 1993 style immigration, if not an overshoot given the high number of temporary work visas around these days.

      • We have ways of hiding 1993 unemployment levels today. We still have massive shortages of workers apparently but not if you are a local looking for work.
        I think we have entered the political world of delusion and denial whenever it suits them and the problem with the polies is that they believe their own bullshit to be true, after all it is real ‘on paper’ and in the spread sheet.
        The answer to every problem now is, more immigration and more mortgage lending.
        They will behave surprised when everything unravels

  2. Joe (more than any other single person in the country) could take the dangerous speculative heat out of Syd/Mel house prices in less than 60 days if he wanted to.
    He doesn’t want to.
    Our country is being run by real estate agents, spivs and shysters.

    • And how could he do that? Not on the supply side that’s for sure. You can’t build houses that fast.

      The easy way to fix this problem is to kill demand, whether it be by quarantining NG, getting FIRB to do its job, slowing immigration, repealing CGT concessions, preventing SMSFs from investing in property, or all of the above. What we don’t need right now is an interest rate hike.

      • It’s one or the other Joe, Glenn’s not going to wait much longer.

        Joe is playing a high stakes game of chicken with the RBA and is showing no sign of moving.

        He has indicated he is willing to blow the joint up to prove a point, if that is what it takes.

      • “What we don’t need right now is an interest rate hike.”

        We certainly do if you are serious about your belly aching that the problem is excessive demand.

        If you don’t want low interest rates to drive demand for housing debt what do you want them for?

        To have other people help you pay down your debts faster?

        Business doesn’t need lower interest rates.

        People with savings don’t need them

        People blocked by MP from borrowing to buy houses don’t need them.

        They don’t work on the exchange rate because it is driven up by our banks borrowing off shore.

        Low interest rates are a failed policy and have a single purpose – to drive debt expansion used for bidding up house prices.

        Good grief – a shortage denier who blames demand but insists on no interruption to their cheap money lifestyle.

      • Glenn is not going to do anything except jawbone in the face of the mining cliff. The ball is in Joe’s court.

        • That is it. as Greg Jericho says in the final stanza of his piece today……

          ‘The RBA has clearly decided it is not in the business of providing any further stimulus through lowering interest rates, lest it cause housing prices to grow faster. It means if the economy does not pick up over the next six to 12 months, it will be left to Joe Hockey to stimulate the economy with his next budget – a tough ask for a treasurer preaching austerity and a path back to surplus.’

          So at some point in the next year we get to see an Australian treasurer bound and gagged and affixed to a pole, and slowly roasted alive in the lead-up to the next federal election, with housing just one of many inflammable issues being thrown into the pyre. Book your seats now and BYO drinks – the fun is just beginning.

      • Good grief – a shortage denier who blames demand but insists on no interruption to their cheap money lifestyle.

        Mate I have had zero debt for more than a decade. Zero. The price of debt means nothing to me, but the sh*tty returns I get on my savings sure are hurting.

        My only interest in the price of debt is the impact it has on the currency. If I believed for a nanosecond we could hike without impacting the currency I’d be all for it.

        Shortage denier? Really? You’re the one lining up with Hockey, Costello, Kohler, Peter Fraser, The Claw and all the other vested interests.

      • Dunno Gunna I’m swinging to the “some central bank somewhere will bail out Australias housing bubble” one more time view of things.

        For whatever stupid reason, Australia’s housing bubble will be the last man standing…

      • For whatever stupid reason, Australia’s housing bubble will be the last man standing…

        You may joke, but I wouldn’t be surprised.

      • ‘For whatever stupid reason, Australia’s housing bubble will be the last man standing…’

        ……..while that wouldnt particularly surprise me it could only be accompanied by the globally exposed sectors of the economy, indeed the economy in toto away from real estate, being driven further and further into the dirt.

        I would also note that there is big money starting to think in more nuanced terms about how best to short the whole shebang.

      • TL, I seriously doubt all those up front charges for infrastructure and premiums for planning uncertainty will disappear once you choke off the inflow of capital. Affordable housing will not be achieved this way. Similarly, the quality of affordable housing will also suffer (see size of median blocks in fringe for example).

      • @Gunna,

        at some point in the next year we get to see an Australian treasurer bound and gagged and affixed to a pole,

        I assume you mean something like this:

        Then yield thee, scumbag,
        And live to be the show and gaze o’ the time:
        We’ll have thee, as our rarer monsters are,
        Painted on a pole, and underwrit,
        ‘Here may you see the estate agent.’

      • @StatSailor

        Cheers, a little Shakespeare always livens up the day……

        tho a little red hot poker in the nether regions might be more the go for the Bariatric one

      • “..My only interest in the price of debt is the impact it has on the currency. If I believed for a nanosecond we could hike without impacting the currency I’d be all for it…”

        Haven’t you noticed that:

        1. Cutting rates has done nothing for the exchange rate

        2. The RBA do not cut rates to managed the exchange rate

        Good that you have no debt and self interest is not the motivation but that just makes your enthusiasm for low rates even more inexplicable.

        If you are serious about the exchange there is ONE thing that needs doing and that is regulating the capital transactions driving it.

        Low interest rates have one objective and that is drive demand for debt and as much of it is funded off shore that puts a boost under the exchange rate.

        Considering we seem to share many of the same concerns it would be helpful if you did not support policies that undermine those objectives.

  3. “Australia’s population growth is very strong,” Mr Costello said. “So we have to factor that housing supply is not meeting demand. It’s important the public understands this”…

    Yeah and the rest of us are such a dumb bunch of retards that we are not able to work this out for ourselves..

    Thanks for the patronizing drivel you moron – I thought we were all a little bit smarter than you give us credit for.

    Another pollie [email protected], not worth his weight in empty peanut shells !

    • And how is Australia’s population growth very strong? Oh dispshit who decides who comes here? It sure as heck isn’t the below replacement breeding rate lying f#@# bag


      • It sure as heck isn’t the below replacement breeding rate lying f#@# bag

        Not for want of trying on PC’s part. Indeed given TFR is about 0.2 higher now than it was pre JWH, he was actually quite successful in this regard

      • Really Stat, really? He blew up the sleuth gates open and let in half a billion muslims that breed at twice the rate all we got was 0.2 lift?

        We waz had

      • Overseas born women have a lower TFR in Australia than Australian born women. Too many Chinese and Southern state Indians.

      • @Stat curiouser and curiouser, better get that immigration ponzi doubled stat, we’re suffering entropy loss

      • Posted this on accounting thread. Seems relevant.

        http://www.sbs.com.au/news/article/2014/09/12/australias-migration-beacon-status-waning-say-experts

        …the days of Australia being the one and only beacon of opportunity for skilled migrants within the Asia Pacific region are gone and there is going to be much more competition from countries, including China, which now has its own skilled migration program.

        Wages fall any further, we might need to offer 457s immunity from parking fines or a free set of steak knives. In the mean time, if you want a job, the best course you can do is a CAE course on Mandarin in the Workplace.

    • “It’s important the public understands this”…

      You’re not looking at it the right way Bob. As with Hockey yesterday, Costello doesn’t give a damn if there really is a shortage or not, he knows it is music to the ears of those who are spooked by talk of a bubble. It eases their fears and keeps the punters in the game, and managing the punters is central to managing the bubble.

      Supply shortage is a diversion deployed by Bubble Deniers. In just the last week we’ve had Mad Adam, Joe Hockey, Alan Kohler and now Peter Costello all running the same line. “There’s no bubble, there’s a supply shortage.” Once you see it, it sticks out like dogs balls.

      • +1.

        Every old white FIRE puppet reporter for every media company has come out in the last 24 hours to dismiss that it’s a bubble and has said shortage.

        Ross Greenwood took about 2 minutes to do it this morning on TooGay.

      • Shortage! Shortage! Shortage!

        While I’ll happily admit we have a problem with restrictive land supply what sh*ts me is seeing these grey-haired vested interests trot out day after day and blame everything on the shortage. It speaks volumes.

        The easy way to bring supply and demand into balance is to kill demand, whether it be by quarantining NG, getting FIRB to do its job, slowing immigration, repealing CGT concessions, preventing SMSFs from investing in property, or all of the above. What we can’t do is build a lot of houses overnight, or even create a lot subdivisions overnight.

      • quarantining NG, getting FIRB to do its job, slowing immigration, repealing CGT concessions, preventing SMSFs from investing in property, or all of the above

        Or a much simpler one, how about you let the market decide what IR should be?

      • @ Lorax

        “The easy way to bring supply and demand into balance is to kill demand, whether it be by quarantining NG, getting FIRB to do its job, slowing immigration, repealing CGT concessions, preventing SMSFs from investing in property, or all of the above.”

        Yep – although you left one out. Skewering the supply shortage myth would also kill demand. Talk to any numbnut specufester about why they’re long on property, and you don’t have to wait long before you hear the word shortage. Bust this myth and the bubble busts with it.

      • Exactly,

        It’s a classic case of Soros’ reflexivity theory.

        Reality (the bubble prices) support housing investors thinking. Yet it’s the housing investors thinking which is based on a misperception that supports reality. The misperception in this case is that prices reflect the fundamentals of a market where supply is choked by government interference.

        I think in the US case, Soros said the misperception was that house prices cannot be driven by credit – because greater demand for credit also meant greater desired saving (just at a lower interest rate). But this ignored the way bubble prices removed borrowing constraints on households by increasing the dollar value of security they could pledge.

        In any case the misperception which supports the whole thing in Australia’s case, is that there is a shortage. Remove that myth from the discussion and then investors have to face the cold hard reality that they are paying bubble prices and are no different to bitcoin speculators.

      • @Sweeper

        +many. Not only that but the policies and perception are such that CG is the investment vehicle, not yield. This distorts the market further.

      • Agree. And investing for CG makes them no different to bitcoin speculators.

        Someone on this forum posted an investment case for housing the other day and included an 5% annual compounded CG in their expected return on investment.
        Think about how stupid that is. A capital gain can only exist because the change in market valuation from one period to the next is unexpected. Something has to change from one period to the next – either expected earnings, discount rate, something – which leads to a higher valuation in the next period. But you can’t include the CG in your expected return (or valuation at year 0) because by definition the capital gain cannot be expected. If it was expected, there would be a no risk arbitrage opportunity and the current market price would increase.

        This is the sort of stupidity guiding property investors.
        Housing investors don’t pay a multiple of future earnings.
        Housing investors pay a multiple of future multiples. And that makes perfect sense to them

      • Great post Sweeper. The perception that the PHC will keep a floor under land prices (as Central banks worldwide are keeping a floor under asset prices) will keep this bubble humming for a long, long time

      • Yeah but the perception is wrong. There isn’t a shortage.

        That’s Soros’ theory; reality is based on a misperception in investor thinking, and then the reality ends up reinforcing the misperception.

        ie. historically high prices reflect underlying supply/demand fundamentals, therefore current prices are worth paying, therefore prices remain historically high.

      • @Sweeper

        Yes, you met our dear friend Jags! I am sure he is a nice enough bloke.

        Housing investors don’t pay a multiple of future earnings.
        Housing investors pay a multiple of future multiples. And that makes perfect sense to them

        Indeed! Moreover, not only that, but they are subsidising renters in the meantime. Ofcourse those that got in early will be fine, but thats always the case in a Ponzi!

        Edit: There will never be a better example of reflexivity than the Aussie housing market.

      • Lets move the focus to affordability, affordability, affordability. That way people might actually comprehend what needs to be done.

        Supply shortage is a diversion deployed by Bubble Deniers. See above MM. I also find it amusing that the “demand” camp doesn’t regard the falling quality of dwellings and block sizes (along with inflated costs via upfront charges for infrastructure) as a reflection of supply shortages. That said, if you focus on affordability you wont get derailed by bubble deniers. Best solution addresses supply and demand concerns (even that was agreed to by Egan and Soos).

      • @ Alex

        I don’t find this amusing. The supply shortage myth is an insidious and toxic ingredient of the bubble mentality – and it is key to keeping punters’ expectations more positive than negative. Joe Hockey knows it. Peter Costello knows it. And if people stop believing they’re onto a winner, the whole pyramid scheme will topple over. Sweeper has nailed it by reference to reflexivity.

        BTW, Quality of dwellings, including their size, has nothing to do with any shortage. It’s called greed (aka ‘The Profit Motive’). And your reference to affordability makes no sense at all. So high prices = shortage? PhilBest would be proud.

      • Quality of dwellings, including their size, has nothing to do with any shortage

        That is a shortage-denial classic. If you take this to its logical extension, it could be argued that by placing 20 million cardboard boxes in the Simpson desert we could solve Australia’s housing shortage for many decades to come.
        Of course quality matters, size matters and location matters. We require enough decent housing a decent commute from decent jobs. There is a shortage of such in Australian capital cities.

      • Claw,

        Are you saying the ABS hasn’t taken into account quality adjustments in their measures of consumer housing costs (rent/imputed rent)?
        As you know consumers are paying the same % of their income for the same quantity and quality of housing as they were two decades ago.
        And you still haven’t explained how that fits into your model.

      • @ Claw

        As usual – a cogent, piercing, and entirely illogical response. Face it champ, the nuance is lost on you.

      • Renters are paying a lot more for the same when comparing a few decades back. Perhaps Sydney going back 20 years is not enough to show it. The other capitals yes.
        Any figures showing a flat line are dodgy. Please give a few addresses so I can sanity check the claim.

      • I don’t find this amusing.
        It’s not meant to be MM. I find it rather odd that “demand purists” don’t seem to comprehend the up front charges for new builds that have appeared (or increased) since the late 1990s aren’t going to disappear if you remove CGT and other incentives for IP. Those supply distortions will still keep inflating the costs for new builds – that is bloody obvious. Granted that is more of a supply side distortion rather than a shortage but that is my point (and that of others here) – supply still matters. Similarly, it is also obvious the trend re size for fringe blocks has overwhelmingly been downward for a great many years (as to is the trend towards low quality high density dwellings). Obvious limitations in the “demand only” perspective here.

        Edit:
        It’s called greed (aka ‘The Profit Motive’). Yes, but whose greed? There’s more than one pig with their snout in the trough. The upfront infrastructure charges wont go away without a supply side solution – nor will the new planning uncertainties.

      • So the data is wrong.
        That’s the core of your argument isn’t it.

        No. Shortage-denying charlatans keep bringing me “data” that in their eyes proves the shortage to be a myth. I debunk it, and they go silent for a while, or some other charlatan brings me some other rubbish data. They never apologise. They go search for another straw to clutch at.

      • Most recent data on the subject shows increase to average size of Australian dwelling.

        How about the block of land it sits on (or equivalent) ?

      • @ Alex

        “Granted that is more of a supply side distortion rather than a shortage but that is my point (and that of others here) – supply still matters.”

        Another supply-sider who doesn’t really have an argument for the shortage (“it’s the vibe man!”) and is just crapping on about some narrow self-interest issue. I’m not concerned by upfront infrastructure charges Alex – they are what they are. Go bang your self-interest drum somewhere else.

      • What “self-interest” might that be MM? Why dismiss the affordability, affordability, affordability theme? What have you got against affordable housing?

        Up front infrastructure charges are an increasingly significant cost for new builds and that accounts for a large part of the house price inflation (per the source above and many others). Smaller block sizes (and larger numbers of flats) do suggest a scarcity exists in this market that is largely hidden by simplistic new dwelling count vs pop growth figures. I sense a lack of genuine concern for legitimate points here and I suspect demand purists like you are the real “diversion” deployed by those that don’t want affordable housing.

        Another supply-sider No – that’s you misrepresenting others again. I (and many others here) am a supply and demand sider.

    • Boom-tish!

      Yep, and Germany is restricted up the ying yang but no bubble there for, well, ever. There’s something in that…

    • would China be classified as supply restricted or supply unrestricted?

      What about the whole world? What is the average temperature of the earth?

      • Don’t answer a question with another question please. Especially one that goes off another tangent altogether.

      • China is too large and diverse to be treated as a single entity in such a question. Your question was invalid.

    • would China be classified as supply restricted or supply unrestricted?

      Parts of China would be severly restricted and other parts of China would be relatively unrestricted.

      • Ok, broken down to tier 1, tier 2 and tier 3. Are each tier supply restricted or supply unrestricted? If you only want give a single answer, answer for tier 2.

  4. Every time Howard and Costello pop up their little heads to make some sage comment, it is worth reminding Australia that these turkeys took us to private debt hell and dressed it up as economic growth.

    http://www.australiandebtclock.com.au/clocks ignore the public debt at the top and have a look at the private debt. Under Howard and Costello this expanded to the ridiculous.

    Their only achievement of any moment was to sell all our public assets and put them in the Future Fund. A fund that has nothing to do with the future of Australia but has the sole purpose of protecting their defined benefit pension funds. An achievement Lord Voldemort would find most agreeable.

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

    Xers and Ys we seriously need to move the debate forward and we need to find a way to get the boomers and their X/Y patsies out of the way.

    • But aj they’re Boomers greatest duo ever — sold off Australia and put it in their pockets for cheap at IPO. If you were too young or too penniless welcome to the new Australia — where dyed in the wool greenies will come to save you and you property value.

      EDIT: When Greenies go from screaming “Save the Whales” or “Save the Barrier Reef” to “Save the Property Market” we live in a vile, treasonous to all former values, society…

      • Nationalise the assets;
        Super profits tax for boomers sitting on gains from public asset sails;
        Take back the future fund.

        Boomers better get ready to fight for their ill-gotten gains.

      • Such talk is certainly interesting but precisely how will that happen? The only scenario I can see is outright revolution?

        Oh and don’t forget that Costello also sold Australia’s gold reserve at the bottom of the market. The guy has f*cked us harder than anyone even realises.

  5. So that massive run up in prices from the late 90s, corresponding to similar increases across the world, all down to a lack of supply ???! Pig’s arse. Talk about the world’s dumbest former Treasurer coming to the aid of the world’s dumbest existing Treasurer.

    Take away that tax and easy credit and easy immigration and easy foreign investment driven demand, and I think you’ll find there’s was and is ample supply. These idiots will stop at nothing to justify the massive cluster f**K that they have all helped to create. They are now actively seeking to compound their errors, doubling down on our kids’ future, all to keep a giant Ponzi scheme from crashing, so that every easy money hustling wanna be rent seeking landlord in this country doesn’t have to re-examine their investment model.

    Every current politician not actively campaigning for an end to this madness is now complicit in this systematic debasement and corruption of our society.

  6. ‘It’s important the public understands this”…’

    It’s far more important the public understands that for far too long its elected members haven’t given a stuff about the community they represent. He speaks about population growth and supply as though they are completely out of the Government’s control.

    Peter, you and members of Parliament thereafter have been abject failures and for some reason we keep paying you.

    • F#cking right jimbo, he’s talking about “population growth” as if its babies being born to non-muslims (lets call a spade a shovel shall we?)

      EDIT: To be clear I don’t give a sh#t who’s having babies but I’d love for the LNP to come out and say Muslim Australians are breeding at twice the rate of any other, and we’re importing as many as we can take. They wouldn’t get elected for another 100 years.

      • I remember him saying that around the same time that house prices went up and so unit living was becoming the new norm of sorts. He said “get another dream”, that dream being bringing up 3 kids in a 2 bed dog box.

        What a fuckwit government.

        Boomers loved them though. Howard made boomers wet on sight.

      • Ha ha two for Allah! In case, you know, one has to go collect virgins 0.o

        I hate doing these clarifications because I don’t think we should live in fear of the PC crowd, but what really sh#ts me is constant pressurerising of society by the right-wing where they flood the country with Muslims and then tell everyone to be scared of getting their heads cut off — its complete bullshit and just creates fear in both populations (general and muslim). The left plays completely into this strategem because criticism of any element of either policy makes you a racist – the right don’t care about being called racists and here we f#cking are!

      • One for work for the dole…

        One to work the checkout at the next Westfield…

        So many brown people doing those jobs now. Gen x didn’t create enough slave labour for them.

      • Well if ISIS does do an attack here they’d bloody better take out some specufestors and not some good people.

        Hopefully a property investment seminar. 😀

      • Mining BoganMEMBER

        Wow, just think! What if the beheading types are watching our tv as a guide to where they could pull a stunt?

        An attack on talentless bogans at a Bunnings sausage sizzle could be on the cards. Better alert ASIO. Reckon they’d do their shopping there anyhow.

      • There cetainly seems to be strong evidence of this in the Melbourne inner-west.
        Dare I say that many first generation Australian born muslims are accustomed to being “taken care of” by assorted government benefits.
        As these are progressively being eroded, the result of which will be most obvious in some 15 years when their kids are looking for jobs.

      • Noooo I like those sausage sizzles outside Bunnings. Yum. I’ve become a pretty good amateur dunny fixer because I can’t stand the thought of some bogan getting $500 out of my mum for 10 minutes work.

        Muslim food is great too. No one gives a fuck about them any more. The right sure is desperate trying to lay on this fear trick from 2003.

      • Mining BoganMEMBER

        Yeah well, you lot enjoy your sausages. But when the scary brown people let off a bomb (made for $19.80 from parts bought inside…there’s also a demo bomb-building course on tuesdays), make sure that bit being sewn back on is a finger and not a half-eaten snag.

      • @stat so is nearly everybody. Another hidden cost of this stupid financialisation of housing is the total degradation of the housing stock.

        – scary renos that completely f..k the house
        – grubby little landlords that won’t fix a thing
        – terrible build quality for new homes because people will pretty much buy any crap, and the land costs make quality prohibitive.

  7. Judging by past statements, I think this lesson will be too advanced for Joe’s seemingly primary school level mathematical ability.

    • My figures are slightly different to yours

      Year,Occupied,Empty,% empty,total
      1911,923459,33473,3.5%,956932
      1921,1153285,51163,4.2%,1204448
      1933,1547376,68772,4.3%,1616148
      1947,1907895,47041,2.4%,1954936
      1954,2380353,112594,4.5%,2492947
      1961,2817270,194114,6.4%,3011384
      1966,3185656,263873,7.6%,3449529
      1971,3694559,339057,8.4%,4033616
      1976,4162064,431200,9.4%,4593264
      1981,4691425,469742,9.1%,5161167
      1986,5285571,543539,9.3%,5829110
      1991,5765021,597582,9.4%,6362603
      1996,6496072,679165,9.5%,7175237
      2001,7072202,717877,9.2%,7790079
      2006,7596183,830376,9.9%,8426559
      2011,7760322,934471,10.7%,8694793

      It seems that since 1976 it is normal for around 9% to 10% of dwellings to be unoccupied for census purposes.
      That seems to be normal. If you can come up with a scheme to reduce this then good on you. However it does not seem to be the cause or the solution to our housing shortage.

      I read somewhere that 40% of all food we grow ends up in the garbage. Compared to this, having 10% of houses empty at any one time doesn’t seem so wasteful.

      • Right so we have had ~ 10% unoccupied buildings in census night. If that is normal and we have had a shortage since 2000, wouldn’t you expect them to change? Even a little?

        Obviously the loosening of credit and the into of CG concessions had nothing to do with it.

        Edit:

        I read somewhere that 40% of all food we grow ends up in the garbage. Compared to this, having 10% of houses empty at any one time doesn’t seem so wasteful.

        Strawman dude! If food had a 40 yr lifespan, we wouldn’t be throwing 40% of it out….

      • flyingfox,
        Go to bed, you are not making any sense.
        There is nothing to suggest the census empties have anything to do with the shortage, with high rents, or with high prices.
        The empties were 9% before the trouble started and are only 10% now.

      • Go to bed, you are not making any sense.
        It’s a simple question, in simple english … I can utilise a much larger vocabulary to make it sound significantly more esoteric.

        Wouldn’t you expect that number to drop over time if we had a genuine shortage?

      • So at 9% empty before, 10% empty now, supply is surely being created pretty close to rate of household formation?

        Claw you are basically saying that the supply/ demand balance is unchanged since 1976, so can’t help feeling it is not the cause of the change of income: house price ratio over the period.

      • I disagree that the habits of Australians on census night are either consistent or inconsistent with their homeownership status.

        The extrapolation you’re making FF would make sense if the vacancy was on census night was real as reported, I suspect its just people not wanting to be bothered…

      • @mig,

        Are you implying that the population as recorded on census night is 1 – 2 million lower than the actual population? It is a natural consequence of your statement.

        A further consequence is that the ABS haven’t thought of cross referencing their numbers with any other source e,g. electoral rolls, or their own birth and death data which would uncover a discrepancy of that magnitude.

      • What Im saying is the number increased in the last 70s to 9% and stayed at that way, to me that reads as people stopped giving a shit about antiquated surveys from government. I know I’ve never participated in one and I’ve shared often enough (read no one I lived with bothered either).

        I’m only surprised its not more.

      • Wouldn’t you expect that number to drop over time if we had a genuine shortage?

        No. I would be looking at what it costs to rent a decent place.

        The number of people keeping houses empty for numerous reasons would not interest me.

        Shortage-deniers concoct all kinds of bizarre things they would expect to happen during a genuine shortage. (eg “if there was a real shortage then people would be pitching tents in my street”) When one of these things does not happen, they proudly boast that the shortage must be a myth.

        If I used this very same technique I would be able to prove the shortage a thousand times over. This is meaningless crap. Just look at high rents. That proves the shortage.

      • @mig

        Not arguing with that but like I said, those go through check and balances. Also if we have a severe shortage that has sent prices to 2-2.5 times since the mid 90’s then it should be reflected in the census numbers…

      • In 35 years no one in government in any department have noticed the extra 2 million people, including around 1 million extra eligible voters, and around 1 million registered births that have disappeared off the face of the earth?

        The census is a survey: there is a non-response rate. That is the case with every survey. Statisticians doing surveys agonise over the non-response rate, and expend stupid amounts of energy trying to work out what it is and how to improve it. It is beyond belief that in the last 40 years no one at the ABS has wondered how large the non-response rate to the census is and taken even with the most rudimentary measures to account for it. All they have to do is check out statcan after all.

      • @claw,

        Shortage or not, missing census answers or not there has been no movement in nearly 40 years by your account.

        Not a skerrick.

        Yet over the same time frame there has been a massive change to the ratio of house price to inoome.

        Something must have changed (a lot!) to change the income to price ratio, and you have provided data to the effect that it was not supply.

      • Also if we have a severe shortage that has sent prices to 2-2.5 times since the mid 90′s then it should be reflected in the census numbers

        This is nonsense. As I stated elsewhere in simple terms the shortage determines how many families miss-out, credit determines at what price they miss-out.
        So it is POSSIBLE that the shortage happened before the mid 90’s and then credit increased causing price to go up 2.5 times.

      • You mean the perceived shortage due to the juicing of demand due to policies that will make it cheaper for you to rent from a landlord and make it worthwhile for him to outbid you auction?

        There will always be a perceived shortage due to this. The alternative is gross overbuilding.

        Edit:

        So it is POSSIBLE that the shortage happened before the mid 90′s and then credit increased causing price to go up 2.5 times.

        Errrr …. strawman ….bedtime maybe?

      • What high rents? Again, rents to income have not moved since 90′s and house prices have doubled….

        GROSS INCOME. Does that include the rent received by landlords? Does it include super? Does it include imputed rent?
        Is the rent cost hedonically adjusted?

      • GROSS INCOME. Does that include the rent received by landlords? Does it include super? Does it include imputed rent?
        Is the rent cost hedonically adjusted?

        Its the same measure used at all time points. Why would you expect it to change all of a sudden even if we used net income? The central limit theorem and law of large numbers means that the ratio is a good descriptor.

        Edit: If anything the net income ratios will be better given the drop in tax rates over time.

      • @Stat dude you’d get better data geolocating twitter and facebook, government data is far behind its a complete joke.

        I feel for the ABS stats guys, they’re utterly irrelevant. They might as well go off and write a stats app they can then rent to government…

    • What high rents? Again, rents to income have not moved since 90′s and house prices have doubled….

      With an increasing number of households having two incomes, plus the large growth in incomes over the last couple of decades, shouldn’t rent as a percentage of income be going down ?

      • Wage inflation works itself into price inflation especially in needed and positional goods. Unless there is a massive surplus of something.

      • Also the falling cost of money (low interest rates) should cause the price to rent goods such as cars, plant and equipment and buildings (not land) to fall also.
        This would lead (all other things being equal) to the rent for a house and land package to fall.

      • @the Claw and Smithy

        If you want to see a great example of why the demand side is driving things, have a look at the sums provided Jagster for a apartment investment.

        As investments go, it is a bad one. But due to the fact that investors can claim expenses and depreciation (and are somehow in love with CG), they can offer said apartment for rent at a much reduced cost to buying it.

        With this incentives in place (and the stupidity of the ozzie property investor), how do you expect owner occupier to outbid investors.

        The supply side solution would require atleast 10-20% overbuilding (back of envelope, correct me please if you have data).

  8. Costello was hopeless when he was Treasurer. He is responsible for the position the budget is in now. Hockey is stupid as well. Everybody would agree with that.

    However, if their assumptions are right – that there is a shortage – then what they are saying is right, there is no bubble and prices reflect fundamentals.

    The problem is there is no shortage. A shortage doesn’t mean a shortage of savings vehicles or tax avoidance schemes, it means a shortage of shelter.
    The consumer price of housing is the market rent. If you put the market rent on the Y axis it becomes clear that there hasn’t been a shortage.

    • Shortage must be linked to price. There is an acute shortage of decent rentals for under $500/week around my area, let alone the obscene price of buying a house.

      • Bust the supply shortage myth and the bubble busts with it.

        Could you do the same with food supply and then just stop farming? It would be so easy.

      • Claw,

        The fact that you are debating this means you have lost the argument.
        When there is a shortage of a good, it is obvious so nobody debates it.

      • The fact that you are debating this means you have lost the argument.
        When there is a shortage of a good, it is obvious so nobody debates it.

        A new form of shortage-denial. I like it!

    • Its been going for a while skip, if you consider where wealth disparity has been heading for 30 years or more you’d have to consider the fair-go society has been thoroughly corrupted and maligned.

      Or did you mean the more pedestrian/legal form of corruption?

      • “It starts just after the end of World War Two, when America’s industrial and financial giants, fattened up from war profits, established a new lobbying front group called the Foundation for Economic Education (FEE) that focused on promoting a new pro-business ideology—which it called “libertarianism”— to supplement other business lobbying groups which focused on specific policies and legislation.

        The FEE is generally regarded as “the first libertarian think-tank” as Reason’s Brian Doherty calls it in his book “Radicals For Capitalism: A Freewheeling History of the Modern Libertarian Movement” (2007). As the Buchanan Committee discovered, the Foundation for Economic Education was the best-funded conservative lobbying outfit ever known up to that time, sponsored by a Who’s Who of US industry in 1946.

        A partial list of FEE’s original donors in its first four years includes: The Big Three auto makers GM, Chrysler and Ford; top oil majors including Gulf Oil, Standard Oil, and Sun Oil; major steel producers US Steel, National Steel, Republic Steel; major retailers including Montgomery Ward, Marshall Field and Sears; chemicals majors Monsanto and DuPont; and other Fortune 500 corporations including General Electric, Merrill Lynch, Eli Lilly, BF Goodrich, ConEd, and more.

        The FEE was set up by a longtime US Chamber of Commerce executive named Leonard Read, together with Donaldson Brown, a director in the National Association of Manufacturers lobby group and board member at DuPont and General Motors.

        That is how libertarianism started: As an arm of big business lobbying.”

        The advent of thinktankistan and lobbying post WWII was a game changer wrt the political system architecture. The term crowding out comes to mind.

        Skippy… tho’ Adam Curtis has a plethora of condensed viewing, for those don’t have the time or the inclination to do the serious analytical research.

      • It seems a filter is sensitive to a comment, so, all I’ll say is look into the think tank – lobby group FEE post WWII and how libertarianism started: As an arm of big business lobbying.

        The advent of thinktankistan and lobbying post WWII was a game changer wrt the political system architecture. The term crowding out comes to mind.

        Skippy… tho’ Adam Curtis has a plethora of condensed viewing, for those don’t have the time or the inclination to do the serious analytical research.

      • Skip mate all of that coincides suspiciously well with Western “cultural revolutions” aka brainwashing baby boomers into becoming borg mindhive driven consumers.

      • For a good time Mig look into high powered psychology used in advertizing aimed at kids as young as under 5 years.

        http://www.psychologytoday.com/blog/media-spotlight/201307/television-commercials-and-your-child

        The Development of a Consumer

        Average Income and Spending for Children aged 7-12 yrs

        Regular Income Annual Income# Savings Total Spending
        $US/month/child $US/year/child $US/year
        Germany 32.30 569.40 46% 0.9 billion
        UK 31.50 506.20 26% 1.7 billion
        US 29.10 493.10 21% 8.9 billion
        France 22.50 377.90 30% 2.2 billion
        Japan* 10.70 407.90 62% 1.0 billion
        China* 9.00 182.00 60% 2.6 billion

        http://www.uow.edu.au/~sharonb/children.html

        skippy… citizens are born… consumers are groomed… eh…

      • Consumers are groomed. Of course they bloody are. And we love it!

        I’m BMW you’re Audi; I’m Nike you’re Adidas; I’m
        Apple you’re Whatever; I’m Lib you’re Labor or worse; I’m vegetarian you’re carnivore; I’m dog you’re cat; I’m Bombers you’re Pies; I’m this, you’re that.

        It’s all very primal, and clever.

      • From a sociological perspective your full of it 3dk1, try increasing your knowlage base with some social psychology, so we can have an informed and intellectually honest conversation.

        Sure social norms are form of indoctrination, what matters is the intent and whomever benefits the most.

        Me… I’m a human being first and foremost, the kind that seeks. Pigeonholing via isms and ologys is not my thingy, nor is attachment to stuff over societal long term well being, duty to the future… eh.

        As far is stuff goes, myself, quality over price any day. That said, I boycott stuff concocted out of nefariously operated enterprises as much as humanly possible. .

        skippy… I wonder where on Hare’s scale you would reside.

  9. I must tell our Aussie cuzzes (listen up too Gunna) a tale or two about your naughty former political leaders … John Howard and Peter Costello.

    It was back early 07, as I recall, when Dr Alan Moran of the Institute of Public Affairs (IPA) had his great book “The Tragedy Of Planning” launched by none other than Peter Costello, the then Treasurer, who was at that stage very supportive of housing and planning reform.

    Well … until former Prime Minister John Howard told him “Peter … I have never heard people complaining about rising house prices … so forget it”.

    As his lap-dog, Peter Costello did as he was told. It was always a great shame he never went through the Margaret Thatcher “Develop A Spine School”.

    Dr Morans next book should be “The Tragedy Of Failed Liberal Politicians”. It would be big … and a big seller too !

    That in turn was followed by the donkeys at the Housing Industry Association buckling as well, as I explained at the time within THE NEED FOR CLARITY …

    http://www.demographia.com/p-hia.pdf

    Sadly it was Howard, Costello and the HIA that derailed the whole housing reform issue in Australia back in 2007. New Senator Bob Day copped massive flak from them all following that fiasco … a story Australians deserve to be told about.

    Senator Bob Day is different. He has a spine.

    The astonishing thing is that former Australian Prime Minister Howard in his twilight years, has been traipsing around the planet, attempting to convince people just what a great reformer he was. Talk about gall !

    The great former Australian Prime Minister Paul Keating had a very good measure of Mr Howard and Mr Costello …

    Paul Keating Insults Archive

    http://www.webcity.com.au/keating/

  10. I think the supply / demand diagram is misleading.
    Land is very very inelastic and because of the inparralleled opportunity for rent is frequently a speculative target.
    So, any increase in delta P leads to increased speculation (demand) even with liberal land policies the supply of well positioned land is limited and inelastic so more price rises.
    As you mentioned restrictive land policy makes this worse and more volatile. But regardless I think it changes the shape of your diagram when you take the speculative demand into account.
    The existing diagram make it look more like normal goods with a normal supply / demand response.

    Mind you I’m not an expert in such things.

    • Glissom … many years ago I wrote an article HOUSING BUBBLES & MARKET SENSE …

      http://www.scoop.co.nz/stories/BU0901/S00046.htm

      … here is a passage from it …

      “An excellent brief article Perhaps Economists Should Be Picking Vegetables by Efrain Rojas, outlines the story of his poor parents, who were smart enough to avoid the bubble prices of California – only recently purchasing two houses there with no mortgages. Mr Rojas states –“

      “It was abundantly clear to them that the housing market was insane and due for a catastrophic collapse, based upon the anecdotal evidence they saw around them i.e. half million dollar homes in places where people were lucky to make $10/hr. If you were an economist and did not see this coming, you should seriously reconsider the value of your education and maybe do something with a tangible value to society, like picking vegetables”.

      Common sense is indeed a rarity … particularly for those “victims” of the social science schools of our tertiary institutions.

      • As David Attenborough once said ““Anyone who believes in indefinite growth on a physically finite planet is either mad, or an economist.”

        Original quote was actually made by the economist Kenneth Boulding, who died in 1993.

      • Annoying Devel … may I respectfully suggest you read and most importantly absorb the writings of Julian Simon and Bjorn Lomborg.

        Malthusianism has a very embarrassing history.

    • Glissom, the real world evidence is that a superabundant supply of land for housing development, leads to a breaking of the price gouging racket in “well positioned land”.

      What many people are failing to understand is just HOW MUCH land is practically accessible to an urban economy with an economic trade-off between travel and land costs.

      This economic trade-off actually takes many times as much land within its ambit as what an urban economy needs for DECADES of growth – the time horizon for speculative “banking” of all this land is simply too long.

      I recently read a paper on Spain and its famous bubble and crash, that completely missed the point about the crucial role of quotas on urban land supply. The author dismissed the role of this in Spain “because the government progressively increased the supply of zoned land to a peak of 30% more than what it was at the start of the bubble”!!!!!!!!!! Therefore “restricted supply cannot have been a factor”.

      DUH! DUH! DUH!

    • Says the guy paid to spruik our 80% foreign owned mining industry by the Australian peak body? Thanks Major Major Major Major.

      • When has that allegation ever been proven? 3D1K’s arguments have always seemed to me to have some merit, and I also see that he enjoys winding up the ideologues on the other side of the debate.That’s all. I have been accused myself of being “paid”, which is ironic given that there are almost no vested interests at all in the arguments I make, other that potential first home buyers and renters and the poor, and I don’t see them lining up to give me a donation for all the hard work I have done on their behalf.

        There is obviously going to be a much better livelihood to be made in going along with the racket that delivers some of the fattest wealth transfers in history to a rentier class. And that rentier class’s useful idiots have the gall to accuse their opponents of being the “paid” ones…..!!!

    • ok unpaid sruiker of the MCA if it makes you feel better PB. 3dik never takes a view that conflicts with the MCA, he never discusses options that might conflict and always obfuscates the debate on resource issues.

      At least PB your analysis is rational and coherent and you look at both sides of the argument.

  11. As I said a couple of days ago:

    http://www.macrobusiness.com.au/2014/09/hockey-cheers-on-housing-bubble/#comment-664937

    PhilBest September 16, 2014 at 3:42 pm

    The idiocy!!! – “it’s a supply problem, therefore it isn’t a bubble”.

    A supply problem is a precondition TO a bubble – IDIOT!!!!

    Undistorted, elastic supply of ANYTHING, prevents a number of things, including price gouging, AND BUBBLES.

    See also (in response to the usual obfuscation from Mouse and Lorax)

    http://www.macrobusiness.com.au/2014/09/hockey-cheers-on-housing-bubble/#comment-671558

    PhilBest September 18, 2014 at 6:49 am

    Reason there has never been another tulip bubble? Potentially superabundant supply of tulips; in contrast to the scarcity at the time the famous bubble commenced.

    Bubbles all require “initial scarcity” or initial inertia in ramping up supply. Once the bubble is underway it is perfectly possible for speculative mania to drive oversupply as well as price inflation for some time until the crash comes.

    If the “initial scarcity” problem is overcome, there will be no further bubbles. I have explained these things many times on this blog.

    • PhilBest says there is a shortage, therefore there is no shortage.

      Can anyone find a hole in my logic?

      P.S. MB, fix the bloody formatting!

      • You’re not even trying to understand.

        The Lorax and all the other neo-pagan theocrats say that running a quota scheme on urban land supply is not what is making the price of land go up. Heck, the Medieval Papal theocracy would be proud, so much for western civ having an enlightenment and getting rid of one theocracy.