Watching Business Spectator’s Alan Kohler take contradictory positions on Australian housing over the past two weeks has been a sight to behold.
On 17 September, Kohler declared that Australia’s high house prices are not a problem and are the result of a well-functioning market:
The point is that it’s not entirely clear that expensive housing is a bad thing, although I am talking my book, of course, as a home-owning, empty-nest baby boomer (with frustrated, renting children).
It is true that a bubble followed by a crash would be undesirable, to say the least, but is that what we have coming?
I doubt it. As a rule of thumb, if everything thinks it’s a bubble, it isn’t one. Bubbles occur when everyone is complacent.
There is a shortage of housing, especially inner city, and plenty of demand, augmented by foreign investment, business migrants and SMSFs. It looks to me like the market at work.
Then Kohler followed up on 22 September declaring that high Australian house prices are a curse and leverage is to blame:
The urge for home ownership is one of the most powerful in the human condition, but it is also the curse that keeps on cursing.
Australian house prices have gone up about 16 per cent in the past two years…
Houses are the most leveraged of all assets, and as prices rise they tend to be leveraged some more. That means it takes only a small decline in price and a small increase in unemployment due to rising interest rates to leave the ‘owners’ underwater and the banks facing a crisis.
As a result, housing is responsible for more banking crises through history than anything else…
In a column in the Financial Times last week, Martin Wolf wrote: “Collectively, we have made a huge bet on leveraging up the housing stock. This has gone very badly. If we are to avoid future disasters, this aspect of our financial arrangements needs reconsideration and reform”…
And in last week’s Eureka Report email, Kohler argued that “Germany is the world’s best economy, by a mile, mainly because of the way it deals with housing”. That is, because the German government intervenes in pricing, legislates 80% lending, taxation and land releases:
…the most important reason German house prices are cheap and don’t rise, is that the government authorities get involved… across Germany they consistently ensure that enough land for development is being released to meet demand. That’s based on a central government policy that ensures municipal governments get financial support based on accurate, up-to-date data on population…
And while Australia is having an agonised debate about ‘macroprudential’ banking policies (that is, restricting loan-to-value ratios to stop banks lending 90-100% value), Germany has had this policy for years. Banks simply aren’t allowed to lend more than 80% value.
The result is that German wages are kept low by comparison with its trading competitors. Governments in Germany interfere in the housing market to keep prices down as part of industrial and trade policy!
As the Forbes article noted: “By virtually eliminating bubbles, the German system minimizes the sort of misallocation of resources that is more or less unavoidable in the Anglo-American boom-bust cycle.
So which is it, Alan? Everything’s fine with Australia’s expensive housing, which merely reflects the market at work? Or everything would be great if Australia had a housing system like Germany’s? A bit of consistency wouldn’t go astray.
