Late last week, Alan Kohler joined the dark side:
To a large extent the 2016 Federal is all about house prices, which is both good and bad.
Put simply, to help the transition from the mining boom into new export industries, Australia needs either a currency devaluation or a big fall in its domestic cost structure, and therefore house prices.
The Reserve Bank is out of ideas, since cutting interest rates to lower the dollar just sends house prices higher, so it’s the politicians’ turn to do something — and they are doing something, sort of.
Typically, each political party has a different, perfectly valid, idea and is fiercely attacking the other side’s idea as an ideological disaster. Thus only one of the ideas will get up, when both would be better.
The Labor Party wants to limit negative gearing to new construction, the Coalition wants to reintroduce the Australian Building and Construction Commission.
One of the main blockages to establishing domestic industries that can replace mining construction as a generator of growth and jobs is the high cost of doing business in Australia, specifically high wages.
Underlying Australia’s high wages is the high cost of accommodation: housing, both residential and commercial, is the most important input in the cost of living, and therefore the cost of doing business, and land in Australia is overpriced.
…The result is that workers have to be paid a lot to service their housing debt; without overpriced houses, Australian wages wouldn’t have to be so high.
Without actually discussing this issue plainly and directly, the nation’s politicians have made this year’s election all about dealing with it.
Labor has a tricky selling task selling its negative gearing policy because it is trying to argue that the change will make housing more affordable, but won’t result in house prices falling. That’s because the Liberal Party is shouting that the policy will produce a house price crash and economic disaster.
So Labor leader Bill Shorten has to assert that it will merely lower the rate of increase in house prices — that they will become a little less unaffordable than they would have become, which is hardly a silver bullet.
Such are the verbal gymnastics required during elections, but there’s no doubt that being able to deduct property investment losses from one’s salary as if they are a work-related expense, when they are plainly nothing of the sort, is an obvious distortion in the property market and helps drive up the price of land.
So limiting deductions to new houses is a worthwhile attempt to turn it into a positive distortion by increasing housing supply.
Similarly, the Coalition’s policy of cracking down on the construction union and bringing back that ABCC, which is the potential trigger for the double dissolution election and therefore its key reason, is an attempt to reduce the cost of building apartments and thereby reduce Australia’s high cost structure.
Welcome to the dark side, Alan. Obviously there’s an extravagant attempt to be even-handed here in comparing the two policies, one of which will be transformative, the other of which will do nothing for property a price bubble that is in the land not in the construction. That’s understandable given anyone writing for Murdoch is basically writing for the Liberal Party these days. Even so, Darth Kohler captures precisely what needs to be done and should be applauded for it.
Having said that, Darth, now that you have taken the dark side to heart, I beseech you to carry it through. Do not succumb again to being an intellectual peripatetic, on the case one day only to be gone the next. I’m sure you’re beyond editors these days, Darth, but if I were yours I would encourage a series of articles fleshing out the subject:
- how the RBA and Treasury turned the post-mining boom Australian “rebalancing” into the great “imbalancing”. After all, the RBA has not “run out of ideas” on the dollar, it and Treasury deliberately created the property price bubble to offset the end of the mining boom. The high currency is the direct result of this blunder. If it is to change direction so that we can repair competitiveness it must be held to account for its mistakes;
- what policy changes can be made to manage the internal and external deflation required? You could explore macroprudential, capital controls, tax and industrial relations reform;
- how about a serve for Malcolm Turnbull who knows exactly what is required yet is salting the earth thoroughly around all possibility of it to save his own skin;
- explore the history of Dutch Disease (both mining and financial) that has driven Australian manufacturing output to just 6% of GDP and falling fast, roughly half that of the supposedly post-industrial US and UK, on a par with Luxembourg and the lowest in the OCED;
- explore the future of the Australian economy as it moves post-productivity, clogged by sluggish service industries, under-capitalised cities and increasingly dependent upon corrupt Chinese capital inflows to replace our own priced-out and emigrating youth.
So on and so forth. Take up the light saber, Darth. You are wealthy and successful, beholden to no man and the nation needs you.
I’m on holiday this week. Avagoodone!
