2017 Demographia Housing Affordability Survey

By Leith van Onselen

The 13th Annual Demographia International Housing Affordability Survey has just been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed.

This year’s report assesses 406 urban markets in nine countries: Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, United Kingdom, and the United States as at the third quarter of 2016.

The survey employs the “Median Multiple” (median house price divided by gross annual median household income) to rate housing affordability. This measure is widely used for evaluating urban markets, and has been recommended by, amongst others, the World Bank and the United Nations, and is used by the Harvard University Joint Center on Housing.

The Survey ranks urban housing markets into four categories based on their Median Multiple, from “Affordable” (3.0 or less) to “Severely Unaffordable” (5.1 & Over) [Table ES-1]. Average multiple data (average house price divided by average household income) is used in Japan, since data for estimating medians is not readily available.

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According to the Survey, housing affordability remained poor across most major metropolitan markets in 2016 (i.e. with over 1 million people).

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At the national level, Hong Kong has by far the most unaffordable housing, with a median multiple of 18.1. New Zealand is the second most unaffordable market with a median multiple of 5.9, followed by Australia (5.5), Singapore (4.8), the UK (4.6), Japan (4.1), Canada (3.9), the US (3.6) and Ireland (3.4):

ScreenHunter_17049 Jan. 22 16.51
ScreenHunter_17051 Jan. 22 17.01

As shown in the above table, all but seven of Australia’s 54 markets captured in the survey are ranked as either “Seriously Unaffordable” (14) or “Severely Unaffordable” (33). The result represents little change from last year’s survey, where 33 markets were ranked as “Severely Unaffordable” and 12 were ranked as “Seriously Unaffordable”.

A break-down of Australia’s rankings are provided in the below table:

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In 2016, the bubble epicentres of Sydney (12.2) and Melbourne (9.5) remained near their highest median multiples on record:

ScreenHunter_17052 Jan. 22 17.02

And Sydney was the second most expensive housing market out of the nine nations surveyed, with Melbourne the sixth most expensive:

ScreenHunter_17050 Jan. 22 17.00

By contrast, the most affordable market in Australia was Karratha, with a Median Multiple of 2.1, and rated “affordable.” Port Hedland (2.3), Kalgoorlie (2.6), and Gladstone (2.8) were also “affordable”. Both have obviously been hit hard by declining resource markets.

The overall decline of housing affordability in Australia over the past few decades is also clearly evident in the above Demographia chart. Whereas all major Australian markets, except Sydney, had Median Multiples of three in the early 1980s, today all are ranked at around five or above (well above in the case of Sydney and Melbourne).

One of the key contentions of the Demographia Survey is that higher land prices are the principal contributor to the rapidly increasing home prices in unaffordable markets, as well as increased speculative activity. These land prices include the cost increasing influence of land supply restrictions (such as urban growth boundaries), excessive infrastructure fees and other overly strict land-use regulations:

ScreenHunter_17056 Jan. 22 17.17

… in many housing markets, house prices have skyrocketed compared to household incomes. The most severe house price increases have been limited to housing markets where urban containment policy (or its equivalent) have been implemented. Generally, urban containment policy draws a development limit around the urban area and seriously limits or even prohibits greenfield development of housing tracts on the urban fringe. Consistent with the basics of economics, this is associated with higher land prices and, in consequence higher house prices (Figure 2).

Virtually across the road land value gaps of ten or more times result. This destroys the competitive market for land by removing the “supply vent”19 necessary to maintain housing affordability…

Demographia’s contention that Australia’s rising home prices have been caused primarily by escalating land costs is supported by evidence. The below chart shows aggregate Australian housing values relative to GDP broken down by the land component and the structure component. As you can see, almost all of the growth in Australian housing values (relative to GDP) has been in rising land values:

ScreenHunter_17057 Jan. 22 17.25 ScreenHunter_17058 Jan. 22 17.25

Meanwhile, CoreLogic has recorded massive rises in the value of Australian vacant land:

ScreenHunter_314 Sep. 15 11.01

Whereas the HIA has recorded rising land values at the same time as lot volumes have contracted (suggesting choked supply):

ScreenHunter_15579 Oct. 20 11.23

A key reason for this land price escalation in Australia (as well as in New Zealand, the United Kingdom, and the expensive markets of the United States and Canada) is that the market’s ability to quickly provide low priced new housing supply is being hampered by restrictive land use regulations, many of which have come into effect since the mid-1990s (Sydney has had long-standing limits on housing development on the urban fringe). Demographia describes the key features and consequences of restrictive housing markets as follows:

More Restrictive Land Use Regulation uses urban containment policy or other mechanisms (such as comprehensive plans or development limits) to such an extent that the competitive market for land is not permitted to operate on the urban fringe. More restrictive land use regulation seeks to outlaw the liberal regulation that produced middle-income housing affordability.

Urban containment strategies are the most important of more restrictive land use regulation. Generally, urban containment regulation is “plan-driven,” as planning departments and governments determine where new housing is allowed to be built. There is a “negative presumption,” with new development generally prohibited, except in limited areas where it is permitted by government plans. Typically, urban containment policies include urban containment boundaries and related variations (such as urban growth boundaries, green belts, urban service districts, “growth areas” and other strategies that substantially reduce the amount of land available for house building. Urban containment policy may also be characterized by terms such as “densification policy,” “compact development”, “urban consolidation”, “growth management” “and “smart growth.”

By severely limiting or even prohibiting development on the urban fringe, urban containment eliminates the “supply vent” of urban fringe development, by not allowing the supply of housing to keep up with demand, except at prices elevated well above historic norms.

Urban containment policies are often accompanied by costly development impact fee regimes that disproportionately charge the cost of the necessary infrastructure for growth on new house buyers. There is particular concern about the cost increasing impacts of these fees and levies, especially in Australia, Canada (Canada Mortgage and Housing Corporation), New Zealand (New Zealand Productivity Commission) and California…

By contrast, affordable housing markets, like many cities in the US, utilise open market-based land use structures whereby plentiful new housing supply is able to be built quickly and cheaply on the urban fringe, thereby preventing rapid house price escalation. Demographia describes these markets as follows:

Liberal Land Use Policy (Less Restrictive Markets) applies in markets not classified as having more restrictive land use regulation (where competitive land markets are permitted to operate on the urban fringe). In these markets, residential development is allowed to occur based upon consumer preferences, subject to basic environmental regulation. Generally, liberal land use regulation is “demanddriven” Land is allowed to be developed, except in limited areas, such as parks and environmentally sensitive areas. By allowing development on the urban fringe, liberal land use regulation allows the “supply vent” to operate, which keeps house prices affordable. Less restrictive regulation can also be called traditional or liberal regulation. In addition to lower housing costs relative to incomes, the lower population densities typical of liberal markets are associated with less intense traffic congestion and shorter average work trip journey times. Liberal land use regulation has also been called “traditional” regulation.

So, under an open market-based model (provided there are not also substantial physical barriers to housing supply), increased demand, such as from reduced lending standards and easier availability of credit, quickly leads to the building of additional low priced housing on the urban fringe, which helps keep house prices in check and reduces the likelihood of speculative housing bubbles developing. Further, highly leveraged speculators are less likely to be encouraged into open land markets, since there is little prospect of achieving strong capital gains. Investing in open land markets is, instead, more about rental yield.

I will add that restrictive urban planning structures should not be viewed as a one-way bet for house prices, with unresponsive land supply also more likely to result in higher levels of house price volatility and boom/bust price cycles – a fact also acknowledged by Demographia and evident in Ireland’s boom and bust.

Why? Because strict land-use policies (planning) steepens the supply curve, which makes house prices more sensitive to changes in demand, increasing the likelihood of the housing market experiencing boom/bust price cycles as demand rises/falls.

The full 2017 Demographia Housing Affordability Survey can be downloaded here.

[email protected]

Unconventional Economist


  1. boomengineeringMEMBER

    Something we all know, but how we we change it?
    Someone will probably answer saying violence .

    • No single gesture will drag us from the morass of unaffordable land. Planning, debt appetite and speculative impulse must all be changed. But even these adjustments are insufficient.

      It is only by reforming our tax bases off labour and capital onto land and its economic rents that durable universal prosperity can be achieved.

      Meanwhile: Don’t Buy Now!

    • Wrong question, boomengineering. There are plenty of how-to’s; I’m sure we could all reel off a list of policies the government (either side) could undertake or simply not do, which would bring housing prices back to normality. The question should be: how can we FORCE the government to do something which bring housing prices back to normality? But before that, the question is: how many WANT the government to do things which lower prices? And I think, there’s your answer.

  2. RE is now a financial vehicle, hence using out dated optics misses the driving factors behind its use in this reality vs. the historical norm….

  3. boomengineeringMEMBER

    We wee/s out of place above showing my age.
    1/How do we change it
    2/ how we can’s
    Dent was right into demographic’s and a lot of what he predicted doses come true eventually.
    Another sure way (a do) is to wait for self implosion but it’s been a long wait.

  4. reusachtigeMEMBER

    Demographia? LOLOLOL!!! Those are communists that want to force the population into urban sprawl when real demand is apartments!

    • ErmingtonPlumbingMEMBER

      Have you been on the Cognacs with breakfast again Reusa?

      Where do you think all that, “real demand is apartments!” comes from?

      A. Communists! (Chinese ones of cource)

      Its their money that’ll keep this ball rolling to the Moon and as long as our price to income ratios remain half those of Hong Kong, more and more Chinamen will be thinking,…Straya!

      I would have thought a Property Aristocrat like your self, would be showing more deference to your property investing Betters and not using the word “Communist” pejorativly.

      Way to disrespect the Geese that lays our Golden eggs.

    • No. Real demand is for houses – in the inner city. Supply is restricted by laws of physics, not planning.

      Solution is in transport and regional policy to encourage jobs growth outside the city centers. Lots of talk about this in Sydney but still all the new mega-projects direct traffic and trains into the same old CBD.

  5. Albury f&cking Wodonga has a higher rating than Dublin, Edinburgh, Washington DC, Singapore, and TOKYO!!!

    Just wrap your head around that. A place with limitless land, a surplus of tradies, and limited employment opportunities is more expensive than some of worlds premier cities.

    We are rooted

  6. More evidence National failing in housing … NZ Labour Party … Scoop News


    More evidence National failing in housing

    The latest international survey of housing markets provides more damning evidence that National’s half-hearted attempts to tackle the housing crisis are failing miserably, says Labour Leader Andrew Little.

    “The Demographia International Housing Affordability Survey underlines what Labour has been saying for some time – the Kiwi Dream of owning your own home is fast slipping away for a generation of New Zealanders.

    “Skyrocketing house prices coupled with low wage growth have pushed Auckland from fifth to fourth place as one of the least affordable housing markets in the world. Only Vancouver, Sydney and Hong Kong were higher in 92 housing markets surveyed.” … read more via hyperlink above …

  7. So the answer is to throw open land development to the open market? Yeah, it’s worked well in the USA where the home affordability for middle class has hit new lows http://www.cnbc.com/2016/01/13/the-new-housing-crisis-that-will-sink-american-middle-class.html FAIL
    Why not just enact State legislation to take land development away from Local Government? Oh, wait, did this in SA and it got handed back quick smart when the developers list of infrastructure upgrades were tabled. FAIL

    Hey, here’s an idea! Why don’t we all lobby those parasites polishing Parliament seats to start putting more income in the hands of ordinary Australians so they can actually afford to buy a family home, and change the NG/CGT rort at the same time?
    The problem is not the development market, it’s working exactly as it has over the long term, it’s just that real incomes are in negative growth and have been so for the last decade.

    Like the LVT debate, this is the wrong solution looking to solve a problem, when the real solution is right in front of our noses, except we keep believing the free market will solve all our problems. It won’t. The so called free market is nothing but the opportunity for rent seeking on a grand scale. Do we think developers would act in a benevolent manner in a free market – meh!

    • Malcolm, you are clueless about the issue. The problem is mainly caused by urban planners. Those cretins created a shortage that is rationed via price.
      It is utterly clueless of you to suggest more money in the hands of buyers would result in more buyers getting good housing. THE PLANNERS CREATED A SHORTAGE. More money will drive prices even higher and the same number of buyers will still miss-out, merely at a higher price.
      Read the demographia article and ask us for help when you don’t understand.

      • Really Claw. Thank you for your considered opinion which you’ve gleaned from the Demographia blurb; a study written by an extended arm of the USA urban planning think tank, responsible for delivering the rent seeking private RE market squillions because the fools in government believed they were a bona fide authority, when they are really an organ for running over the top of regulation for their own benefit. You might like to check out who funds these people and when you do that you will find they have about as much independence as the right wing think tank IPA.

        For your edification I worked in Local Government and have a fully informed view of the debate and the issues regarding urban planning in Australia, so spare me your childish perspective which equates data with causation irrespective of the empirical data out there which completely refutes the notion that the “free” market will remedy the issue. That view is simple minded and not based on the evidence in developed countries like the USA and the UK. If you had read what I put up about the midlle income groups being progressively squeezed out of the market, you might have some foggy notion of what is really happening. But by all means, do a quick google and solve the problems just like the majority of so called planning experts who are smelling their own farts to the extent their brains no longer function. You’re in good company there budd. Your hysterical shrieking confirms your ill informed wing nut status. Maybe you might like to think about LIRP and taxation distortions which were completely missed by the Demographia clowns and your own narrow minded self. Match that to the empirical evidence generating speculative processes in the market and you might have a glimmer of the real issue. Try not to solve every freaking issue with a supply side solution.

        I can see you are mesmerised by colourful charts and vague data which allows you to crack a fat about something of which you have zero knowledge. Like the ill informed twit who wrote this article, you are one of those social engineering low lifes who base their thinking upon rubbish with a heavy dose of right wing ideology. You and you LVT brigade gravitate around the urinals looking more at your own appendages than actually getting out the real evidence and joining the dots. Stay away from a debate you don’t have the intelligence to understand, parasite.

      • The data and causation run in the reverse direction to Claw’s fantasy. The bubble is always coupled with over zoning. Why? Because local councils cave in to developer pressures, get hooked on the revenue plus corruption becomes more rewarding.
        re. Demographia: why does anyone take seriously a report which tries to value housing as a multiple of an unrelated income stream?
        Houses generate rental income not household income.

      • It’s a report to suit the developer lobby spin. Namely: affordability (not a bubble) is the problem. Prices are high, but they are driven by fundamental factors. So the solution is to build more houses.

    • In theory if urban planners choked housing supply then price would rise and possibly trigger a bubble.
      In practice demographia shows that when urban planners choke housing supply then prices rise and sometimes trigger a bubble.
      Now we have a vulgar urban planner come here and deny his role in causing the problem.
      He also rants on about a free market, yet I am sure he cannot define what a free market is. Of course there is no such thing.

      Another poster mentions Bob Day. Let me assure you that Bob Day would be a multi-millionaire today if instead of honestly trying to build houses, he instead bribed planners in local government to rezone land after he bought it. Corrupt planners often do this for their mates. Of course the whole system of arbitrary zoning itself is a corruption of what was once a decent market in land.

      Sydney circa 1970 and Houston circa 2017 show how relaxed zoning produces reasonably priced housing.

      • Seems like he did alright out of the enterprise.. or at least Family First did.
        Have the poor fhb’s been refunded their deposits yet? Obligations.. free markets and all..

      • Demographia supports none of your propositions Claw, not that the article is worth a damn anyway, but there’s the rub.
        To blame a planner/s is very shallow. The urban planning framework is designated by State Laws with which the LG planner must comply and the State Planning Minister has to approve all development plans after LG has completed their draft plan. Prior to draft there are lengthy environmental reports, challenges and ERD Court hearings, submissions and directions from the infrastructure authorities, flood plans with the catchment authorities/port authorities, citizen working groups and submissions, hundreds , countless LG planning committees and countless discussions with State Planning. In 4-5 years all going well a draft is ready for the State to have a crack at and you need to see it to believe the squirming they go on with to avoid providing additional infrastructure. Unless the property lobby greases their donations tin, another two years will come to pass before approval happens so we are now circa 7-8 years. The approved plan is then given public airing and Council approvals and committed to the strategic plan, so add another two years to lock into the rating cycle and maybe, just maybe if all the ducks line up then a decade from the light bulb going on the first sod gets turned. Add another year or two for on site development and infrastructure upgrades from State and LG and realistically people would be laying down deposits after fifteen years from inception. This is a normal orderly development process for a greenfields site. Broadacre per-urban infill is entirely different, but still a lengthy years on process.

        Compare this with a developer getting a hard on and contributing to the parties in power and sometimes the State themselves will commence a planning review to which the Local Authority must comply. This gets fast tracked and that fifteen year time frame gets cut to five and guess what happens? There is no provision for infrastructure so the LG has to lay into the existing ratepayers to provide infrastructure the State should have provided in the first place. And by the way, the regulators will apply a surcharge for development work out of cycle and the Council will hammer the developer to stump up with some cash for infrastructure and voila, the blocks which would have been available for $250,000 under orderly development are now $500,000 on greenfields one hour from the CBD.
        So to lay the blame on a single group of planners is just too simplistic, there are a whole range of issues that come into play – it is a straw proposition with no substance. Understand that the LG authority/planner/developer has no authority over infrastructure such as telecommunications, power, sewerage and deep drainage and potable water supply – these are all State responsibilities with a few EPA regulations and hoops thrown on top to make life interesting. What happened with Day and Co around Mount Barker was that the Planning Minister made a captain’s call and left Council to carry the can with a handful of coin from the developers. 400M2 blocks with 90% hard coverage giving enough room for a lemon tree in a can so that the numbers would work for the developer. Take a drive through that abortion and then look at the $3000 per annum rate bills and the STEDS charges and the waste charges and the emergency service levy on top and these people are getting annual LV costed local taxes of around $5,000 and you and your ilk want to hit them with a LVT – really?

        But that’s not the end of the story. Add on LIRP, CGT/NG and migration distortions and that $500k block might just be doable if the wife wears iron panties for30 years and the bank stumps for a 40 year term. That, Claw is why land prices are so high and it’s got fark all to do with some planner’s opinion of a particular project on any particular day. The rabbitting on you guys on here do about land banking and all the rest of the bullshit is just laughable and is what happens when some nincompoop looks over the data and draws the wrong conclusions. Giving the free market free reign wil NOT make land cheaper because the whole system is cluster farked from whoa to go. You and the writer are harking back to the days when Housing Trusts in State Government developed huge estates from land they had acquired over forty years previous for the purpose of post war reconstruction to populate this place. They built some community housing and the private sector builders/developers were sold huge numbers of blocks and infill to create communities. The infill was where the developers made their coin. but the State Governments have sold off that land to the developers thanks to pressure from Fed underfunding and now these guys have land they can’t afford to develop. So they run cows on it and get PP rate remissions until bits and pieces of development can occur. The only resolution is for the State to become the developer, but that takes some planning and foresight which the current mobs have no idea about because they can hardly find their bums with both hands. Supply side economics ain’t gonna cut it if the gubmint isn’t involved. Tell that to the Demographia silk ties and watch them evaporate. Don’t know why I bother really, but then I’m clueless according to you.

      • Malcolm your comment is appreciated.
        I don’t put all the blame on local urban planners such as yourself. In the same way a German footsoldier in 1943 cannot be fully blamed for WWII. Some blame should go to the German generals and even some to Adolf himself.
        Of course the urban planning framework, the State Laws and the State Planning Minister are to blame. The local planner is merely a footsoldier doing the damage on behalf of the ruling scum. The local planners should refuse to work in such a shabby system, but sadly many people will do anything for a dollar.
        Malcolm you grossly misrepresent my opinion on the matter. I strongly support big govt planning and provision of large scale inexpensive housing with sufficient infrastructure.
        I do not believe in a free market. There is no such thing.
        I do not push for a land value tax as the solution to our problem (1970-2017). I would like to see the problem solved without LVT by lower immigration and outbuilding the shortage. Once this is done THEN land taxes can be looked into.

  8. The Demographia survey, while ery interesting and worthwhile, fails to recognise that it has totally ignored the huge fall in interest rates since its inception and the impact of falling interest rates on both borowing capacity over a “standard” 25 year amortising mortgage and on the Price to Earnings multiple of assets generally.
    In 1996 the mortgage rate was about 10.2%. It is now about 4.2% (source: http://www.rba.gov.au/chart-pack/interest-rates.html > Australian Housing Lending Rates). At that difference in interst rates, the same income will support a loan over 25 years that is 170% of what could previously be borrowed. From an investment point of view, when yield required on an investment halves, the PE doubles and at the same dollar yield the price doubles. The PE when the yield is 7% is 14.3 times, but if the required yield falls to 3.0% then PE ratio becomes 33.34 times without any change in the nominal dollar yield on a rental property. Demographia completely ignores the effect of the 30 year bull market in bonds driven by falling interest rates and the consequent changes in borrowing capacity and PE ratios and their effect on driving house prices up.
    In failing to address this change in financial environment, Demographia’s survey is fundamentally flawed and therefore loses a significant portion of credibility.
    I am not denying the impact of restricted supply of raw land and land banking of scarce land (already rezoned and most likely to be rezoned), but very few things can be analysed without considering the impact of multiple factors in cause and effect.
    Note also that the US is a potential severe anomaly as the survey started during a huge construction boom and its early years were during the greatest housing bust in US histroy, at least since the Great Depression. Examination of major markets’ house price indices in the US shows major recoveries over the last 10 years from 2007/8 recession induced low prices. The rough concurrence of the start of Demographia’s surveys and the US constriuction boom and house price bust undermines to some degree the value of the US as a basis of comparison.

    Also of some concern is the failure to recognise employment prospects in some affordable markets being relatively lower than for less affordable markets eg Karratha which has been the cubject of dramatic changes in commercial activity and employment availability. Similarly some US rust belt cities.

    Changing population is also a driver of prices and the “cheapest” city, Bay City, Michigan is a classic example. It’s population has fallen from about 53,000 to about 34,000 since 1960, a fall of about 36%. Most investors would expect to lose capital value in such a city, exacerbating the decline in demand.

  9. Another confounding factor is the population growth rates, with Australia having the highest population growth rate in the OECD.
    A further issue is the change in prices in areas which are undergoing transitions from low density to very high density and in Sydney recent press reports have shown dramatic increases in average values in areas which have some low dnesity residential areas being dramatically redeveloped from low to very high density. A relatively few houses are grossly distorting average prices across whole local government areas and presumably, to a lesser extent across the whole metropolitan area. This is a consequence of “smart city” constrained supply of development land, but while it effects the median and average prices of existing houses, the modal price is going up a lot less quickly and prices outside of areas of likely rezoning are not getting any redevelopment premium and so prices in those areas are rising a lot more slowly. Houses that 5 years ago were worth about 1 million with a land value of say 650,000 are now reaching around $4 million which is land value under expected new very high density proposed zoning near railway stations. But houses say 2km away have moved materially less than the average price in the municipality because the average is being distorted by redevelopment sales.

  10. boomengineeringMEMBER

    Agree, Oxygen taken out of my brain by this mornings bike ride, spelling etc all over the place.
    Plenty of how to do’s not many actual do’s. Hope I got it right this time.
    As above someone will probably answer saying violence, force is close enough

    • If more and more people are priced out of the real estate market (buying or even renting) there may well be violence. But there is not nearly enough will at the moment i.e. young people priced out. Things might change if interest rates rise by a few basis points.

  11. Christchurch bucks trend in Demographia housing affordability survey | The New Zealand National Business Review


    Christchurch housing became more affordable in 2016, bucking the trend across New Zealand’s housing markets tracked by the Demographia International Housing Affordability Survey.

    Produced by Illinois-based Wendell Cox and Christchurch-based urban planner Hugh Pavletich, the Demographia report compares 92 housing markets in nine mainly English-speaking countries, using a “median multiple” approach that relates housing costs to household income. Markets ranked above 5.0 on that scale are judged “severely unaffordable.” … read more via hyperlink above …

  12. I currently rent a moderately comfortable flat on one side of Canberra. My partner rents a moderately comfortable flat on the other side of town. We’ve been living apart for 18 months and now we want to live together and don’t want to rent, because renting in Australia sucks arse for more reasons than I care to elaborate on here.

    My partner sent me an Allhomes link to place that’s going to auction in a few weeks. A nice enough place in a nice enough suburb in Canberra. I called the agent and he cheerfully says he reckons it will go for around $1.1 million. Over a million fucking dollars for a not very special suburban house on a small block in Canberra!! Not Biarritz or Manhattan, suburban Canberra. I wanted to tell the nice young real estate agent that he and his clients could choke on a bag of dicks, but what would be the point? He wouldn’t understand, because someone will pay that amount and he will get his fat commission for doing Not Very Much at all.

    I’m a highly paid professional as is my partner, and yet I’m starting to doubt that it will be feasible for us to purchase a decent house in some burb in Canberra. The whole fucking world has gone mad.

    • Not the whole fucking world, but certainly the main cities in Australia. Who knows how much higher prices will rise? Imagine if only 20 years ago, someone would have predicted that the average house (hovel) in Sydney would be over $1M, and that you wouldn’t get something below $1M in Melbourne within 20kms of the city (I don’t know a lot about Canberra prices). Most people would have written any such predictor of these events as barking mad. It couldn’t happen; the fundamentals wouldn’t support such ridiculous prices, especially if wages don’t rise accordingly. And surely the govt would introduce measures to curb the bubble, wouldn’t they? Yet, not only has it happened, but the both sides of govt have been instrumental in creating this monster that has swallowed up everything in its wake. And continues to. And the vast majority of Australians stand idly by.

    • What’s truly insane to me is that I could build the damn house myself (including training time and materials) and it’d take far less time than taking a huge loan for the same house and trying to pay it off with a 6-figure income.

      As we all know, it’s not the building, it’s just the land that costs so much. Utter insanity.

      Then we have “economists” scratching their heads and wondering about the mystery of where all the productivity went.

    • Dale SmithMEMBER

      I know, they did the same in NZ in flying to the UK.

      They have this amazing logic (which is why they are in the shit they are), and it goes like this.

      You can only find the answer to your own problem by talking to people that have the same problem, ergo, if everyone one else in the world had no affordable housing problem, then they would not know who to ask to find a solution to their own housing problem. It’s stupidity beyond measure.

      Noting also that if they fly east to the UK, they will fly right over jurisdictions that have heaps of affordable housing.

      • ‘Noting also that if they fly east to the UK, they will fly right over jurisdictions that have heaps of affordable housing.’

        Flunky will flyover funky town.
        Won’t you take me to Junket town.

  13. “Ludwig von Mises pointed out many years ago, that once a central bank indulges in expansion of credit by lowering the rate of interest it charges on loans, it cannot stop expanding credit: it has to go on expanding credit by lowering even more, the interest rate it has set. If the central bank decides to let the market once again set the interest rate, then the previous expansion will turn into a general liquidation, to clear out the malinvestments created by the artificially induced expansion. If the central bank does not allow the market to set the interest rate, then the expansion of credit will continue until it produces the crack-up boom, which is followed by a massive debt liquidation.”
    — Hugo Salinas Price 17-1-17

    It will be interesting to see if Trump’s policies hasten the crack-up boom or if he beats China into backing their currency with gold and real bills backed by gold.

    • The markets do set the interest rates. There is no law saying you can’t lend (borrow) at any rate you feel like.
      Here is the flaw in the Austrian line: if interest rates are so far below market clearing rates, and people are just as happy to borrow at interest rates 4 times above where they are now; why aren’t there lenders popping up offering these loans and making a mint? Again there is no law against it.
      Austrians don’t understand interest rates because they only see the world from the lenders point of view.

      • people are just as happy to borrow at interest rates 4 times above where they are now
        Ridiculous. No person is JUST AS happy to pay more.
        eg I pay $30 for a DVD player and would be prepared to pay $200 for one if I had to. Of course I would be much happier to pay $30. I would not be just as happy to pay $200 as I am to pay $30.
        No wonder your understanding of economics is awry.

      • Clueless. Absolutely clueless.
        Are you the best the developer lobby can afford?
        If you make a law capping the price of something below the price at which people would happily buy it, less qty is supplied than would be the case absent the intervention.
        You have shortages! The thing you always rant about.
        In this case credit would be rationed, because lenders wouldn’t want to lend at an artificially low interest rate.
        Since there is no interference, and lenders are free to lend at any rate they feel like, and credit clearly isn’t being rationed, it follows that interest rates are not artificially below market clearing rates.

      • Dear Sweeper
        I’m actually Australian…
        But for you to say that interest rates haven’t been manipulated down by central banks to the lowest level in 5,000 years is pretty ridiculous.
        I don’t know what your background is but I picture you as a first year uni student whose head has been filled with rubbish.
        Try to use your common sense instead.

      • athalone….

        Some of us don’t confuse AET musings with common sense [environmentally conditioned bias]…. not that anyone would want to use such a devise to reconcile data that has a propensity to be counter intuitive….

        Disheveled…. I think the term your looking for is “preference” in an ideological frame work of how things should work and not an observed reconciling of events.

      • Clueless Sweeper. Patently clueless.
        Firstly don’t talk vague nonsense about prices people are happy to pay, instead use the term “market clearing price” or “equilibrium price”. That is the price at which the supply and demand curves meet.
        Now if you make a law capping the price of something below the market clearing price then you get a type of shortage as more buyers turn up wishing to buy at that price than sellers turn up wishing to sell at that price. And no, that is not the type of shortage we currently have in housing. And no, I do not rant.
        Now I don’t claim to speak for Austrians but I do know that there is no suggestion that a law is capping the price of credit. The suggestion is that the credit system is creating extra “funny money” to drive down the “market clearing price” of credit.
        The suggestion is that the extra supply of money is harmful in certain ways – eg inflation comes eventually.

        I strongly suggest you read some basic material on Austrian economics before trying to refute it.

      • http://www.nakedcapitalism.com/2016/05/inflation-targeting-and-neoliberalism.html

        Once you two AET breathers wrap your heads around that try…..

        Because neo-liberalism. Because I like the idea, a lot, of catching the Mount Pelerin Society, Pinochet, Diane Rehm, the Friedmans, Joe Biden, Rush Limbaugh, and the people who drafted the Democratic platform in one big net, and then deep-sixing the entire squirming and gesticulating political class with language that’s “exceptionally bloggy and aggressively casual and implicitly ironic.”

        And this tactic really is fair. Trap a neo-liberal in conversation next to a whiteboard, or hand them a napkin, and you can probably coax them to “educate” you by drawing the famous “Because Markets” diagram, which looks like this:

        Figure 1: “Because Markets”


        And when your targeted neo-liberal is done sketching, they will express the idea, with varying degrees of quasi-religious fervor, that the price set by the intersection of the downward-sloping demand curve and the upward-sloping supply curve is the right price.

        Except the supply and demand curve ain’t necessarily so. The other day, I saw an elegant hi-so lady eating a Krispy Kreme in Bangkok’s Siam Paragon. With a fork! That donut cost her 27 baht — 84¢, 5¢ more than the US, in a city with half the cost-of-living of New York! So, what’s going on? To her, Krispy Kreme donuts are a luxury good. How does she know that? Exactly because they have a high price! Therefore — Thorstein Veblen would be proud — those donuts have an upward sloping demand curve! (Yves, who is actually qualified to talk about this stuff, goes over these issues in more detail than I can, in ECONned.) So, empirically, seeking truth from facts, as they say, Figure 1 is by no means universal. And that’s before we get to the idea that “Because markets” isn’t appropriate for vast swaths of human endeavor; Common Pool Resources, for example, are not best managed as a form of private property.

        But by “right,” your neo-liberal interlocutor will not mean right mechanically or arithmetically, but right morally; that is, the best of all possible worlds will be created when there are no pesky artificial factors interfering with the frictionless operation of the sacred curves. Note, however, that by the asymmetry of Context #1, Figure 1 does not apply to the neo-liberal practitioner themselves, nor, by the asymmetry of Context #2, to the class of people who own the markets in which the prices are set. So, if unions raise the price of human rental, that’s not just an ordinary bargaining process, it’s wrong, even evil: It’s a defilement of the sacred curves. But if a squillionaire uses their power to bust that same union, that’s not merely no problem, it’s not even part of the problem (by Context #2). Hence, we have the pleasant and realistic outcome that the price of a Walmart worker’s time isn’t enough to live on, the price of the (no doubt credentialled) neo-liberal practititioner’s time is somewhere in, er, the “middle,” and the price of a squillionaire’s time is so high they buy grotesquely expensive homes and forget they own them. Because markets.


        Disheveled…. I’ve always be curious how some pontificate about – stuff – without actually doing any research, just make up some axiom and apply it to everything retrospectively or people completely ignorant or pretend to be wrt neoliberalism e.g. AET and neoclassicals are the prophets of neoliberalism….

      • As far as basic AET goes…..

        Just a very quick note so as to weigh in on a debate which, frankly, I don’t really want to weigh in on. It relates to the Austrian Business Cycle Theory (hereafter: ABCT) and its relationship to the natural rate of interest. The natural rate of interest was discredited by Piero Sraffa in the 1920s when he pointed out that there were actually multiple own rates of interest depending on which commodity you took as a numeraire. There have been many Austrian responses to try and iron this out — almost all of them imagine a range of financial market contracts, throw in some implicit “rational expectations” assumptions about how such contracts are priced and then claim that they can reconstruct the ABCT from here.

        I don’t think that this is the case, I think that the assumptions they use to make the financial contracts produce the interest rate they wish to produce — because, let us have no doubt, this is a theory that at some base emotional level the Austrians want to be true — contradict other assumptions made elsewhere in Austrian theory; such as the assumption of Knightian uncertainty.

        However, even leaving this aside we know that the ABCT will not work because, whatever way you cut it, it rests on the idea of a rate of interest that will bring the economy to full employment equilibrium. The manner in which the theory “works” is that the money rate of interest — i.e. that charged by banks — either falls above or below this full employment equilibrium rate, thus causing either inflationary or deflationary forces to generate. This view, however, is disproved by the Cambridge Capital Controversies which showed that such a rate of interest — which the Austrians take over from Knut Wicksell — cannot exist.

        Here I will quote Peter Kriesler summarising the argument made by Colin Rogers in his extensive book on monetary theory, Money, Interest and Capital:

        Wicksellian monetary theory relies crucially on the concept of the natural rate of interest which has logical flaws which are now recognized as having been exposed by the Cambridge capital controversies. The natural rate of interest was derived from the interaction of forces within the real sector, and determined the equilibrium monetary rate of interest. The natural rate of interest is derived from Wicksell’s capital theory on the assumption that all forms of capital must earn a uniform rate of return. The natural rate is the price which determines the equilibrium of savings and investment. By applying the results of the Cambridge critique of neoclassical capital theory to Wicksell’s concept of the natural rate of interest, Rogers is able to show that it has no rigorous theoretical foundation. Since, for Wicksell, it is the natural rate which determines the market (or monetary) rate of interest, this leaves Wicksell’s monetary theory also without foundation. (Pp52)

        It also leaves the ABCT without foundation as this theory relies on the notion of an interest rate — call it the “natural rate” or the “equilibrium rate” or whatever else you want — that, as Kriesler says, “determines the equilibrium of savings and investment”. But this notion does not stand up to the results of the Cambridge Capital Controversies.

        And just to wrap this all up I will quote Austrian economist Robert Garrison on the origins of the ABCT and how it relies crucially on Wicksell’s ideas on monetary theory that I have laid out above:

        Grounded in the economic theory set out in Carl Menger’s Principles of Economics and built on the vision of a capital-using production process developed in Eugen von Böhm-Bawerk’s Capital and Interest, the Austrian theory of the business cycle remains sufficiently distinct to justify its national identification. But even in its earliest rendition in Mises’s Theory of Money and Credit and in subsequent exposition and extension in F. A. Hayek’s Prices and Production, the theory incorporated important elements from Swedish and British economics. Knut Wicksell’s Interest and Prices, which showed how prices respond to a discrepancy between the bank rate and the real rate of interest, provided the basis for the Austrian account of the misallocation of Financial capital during the boom. The market process that eventually reveals the intertemporal misallocation and turns boom into bust resembles an analogous process described by the British Currency School, in which international misallocations induced by credit expansion are subsequently eliminated by changes in the terms of trade and hence in specie flow. (My emphasis)

        Put a fork in it. The ABCT has been a dead duck for years. Which leads one to wonder why Hayek received the faux-Nobel for it — which he received, ironically enough, joined with Gunnar Myrdal, Wicksell’s student who overturned the Wicksellian monetary theory!


        To my mind there are only two coherent theories of capital — and the mainstream possess neither. The first is what might be called the Ricardian or the Marxian. This is what might be called the ‘labour theory of capital’. The idea is that capital is effectively embodied labour or, to use Marx’s colourful phrase, ‘dead labour’. Marx unfortunately contaminated this concept with moral judgements, as he so typically did. In Das Kapital he wrote:

        Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks. The time during which the labourer works, is the time during which the capitalist consumes the labour-power he has purchased of him.

        But it is perfectly possible to extract the interesting point being made here: capital is accumulated labour. That is, when a machine is built it is built using human labour and in that regard it ‘stores up’ this labour. To the extent that it is built using previously accumulated capital, it is also effectively using previously accumulated labour time.

        The second approach to capital is the Austrian one. In the Austrian theory capital is effectively embodied time, in the sense that it is time spent on the production of one good or service rather than another. G.L.S. Shackle provides an interesting gloss on this in his book Economics for Pleasure. He writes:

        [Böhm-Bawerk] gathered ‘produced means of production’ of every kind under the heading of capital. And capital, he said in effect, is the visible symptom of the part played in the productive process by the lapse of time between the putting-in of services of labour and land, the ‘original means of production’, and the enjoyment of the fruits of that process at a later date. How can we say that ‘time’ is productive? Because given quantities of human effort and of ‘land’ can yield a larger quantity or better quality of product if we are willing to wait longer for it. (pp212-213 — Emphasis Original)

        Do you see the slight inversion taking place here? What Böhm-Bawerk did was to change the emphasis. Rather than saying that capital was embodied labour, he said that it was embodied labour time that could have been spent on something else. The emphasis was laid less on the ‘labour’ and more on the ‘time’.

        The idea here is that we as a society could work to produce consumption goods in lesser quantity/quality now or we could use our efforts to produce investment goods that will in turn produce consumption goods in greater quantity/quality in the future. While this is not a bad way of looking at the problem it quickly runs into problems when Böhm-Bawerk and the Austrians try to turn it into a theory of the interest rate.

        This was because they were pre-Keynesian and the Austrians did not understand that real capital — machines etc. — must be firmly distinguished from financial capital and that the market for the latter operated in an unusual way. They assumed, implicitly, some sort of perfect knowledge on the part of the market. So, left to itself the interest rate would tend to equality with the profit rate on investment goods. Thus, the rate of profit would come to represent the ‘reward for waiting’, as Alfred Marshall would put it. Of course, after Keynes we came to know that what determined the interest rate was actually the liquidity preference of the market.


        Then there is that little historical drama of having the elites support AET and neoclassicals via money and academic posts to support their agenda, even tho their pet theory’s had been long discredited, because anything else was emotionally – philosophically unpalatable.

        Disheveled…. imagine the dirty people spoiling the party…. btw I have not see the Mises site extolling Somalia or Zimbabwe utopias or a return to the Robber Barron period of late…. heck even those neo or new AET camps cant think for themselves, and attempt to pinch early PK thoughts…. sigh…. loss of intellectual capital will do that too ya…. that and theoclassical devolution….

      • ErmingtonPlumbingMEMBER

        Bravo Skip!

        I Loved the
        “I’ve always be curious how some pontificate about – stuff – without actually doing any research, just make up some axiom and apply it to everything retrospectively”

        But without all these “made up axioms”
        What have we got Skip!?

        Reality?,….that doesn’t sound like a lot of fun.

      • Claw,
        I confess I have read some of the stuff from the Austrian cult. And I find it completely incomprehensible.
        But not as bad as this:
        “Now I don’t claim to speak for Austrians but I do know that there is no suggestion that a law is capping the price of credit. The suggestion is that the credit system is creating extra “funny money” to drive down the “market clearing price” of credit”.
        How is that supposed to work? Are you saying the CB just chooses and then sets an equilibrium interest rate? ie. excess money creation leads to forced saving?
        So hey why not set it at zero!

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