Some sage words today from The Australian’s Adam Creighton, who has nicely encapsulated the Australian economy in just three paragraphs:
Regulations that keep Australia’s house prices high and rising have dangerously distorted the economy, which is now highly dependent on rising house prices. Australia has become a hedge fund that has gone very long on residential property. The model is to borrow heavily from foreigners, via the big four Australian banks, who take a cut, and then buy and sell existing dwellings from each other at ever higher prices.
Rising house prices explain everything from the Commonwealth Bank’s latest bumper profit to the dominance of furniture and household supplies in retail sales figures. In a world of anaemic wage growth, policy makers stress the importance of the wealth effect — rising house prices — to keep confidence and consumer spending up.
Building houses and apartments is not investment, it is consumption. They don’t create jobs, they don’t incubate new ideas, or increase productivity. In fact, the homes people are buying are worth relatively little — the quality of construction is in some ways inferior to homes built a century ago. It’s the land that matters, and even more so the regulations that limit how it’s used. Buyers are taking a bet that the political process won’t alter the rules in any way.
Spot on. It is for these reasons that the Turnbull Government will not apply any sensible reforms with regards to housing, for fears of endangering the bubble, and may instead introduce some kind of first home buyer stimulus in the May Budget in the guise of ‘housing affordability’.