Gittins: Housing market is a war on youth

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Ross Gittins has turned over new leaf in recent times, penning some excellent material. The renaissance continues today:

You know the remarkably high price of homes is now a top issue for our politicians, state and federal. But you may need reminding that house prices are an intergenerational issue.

As a general rule, the younger generation buys its homes from an older generation, which means rising house prices constitute a transfer of wealth from younger to older generation.

Unfortunately, this conflict of interests between the generations makes it unlikely the measures in the “housing affordability packages” the pollies say they’re working on will do much to limit the rise in prices.

Our problem in Australia isn’t so much fake news as fake government – governments that, lacking the courage to implement controversial solutions to problems, just create the pretence of solving them.

As a general rule, older generations don’t have much sympathy for younger generations – which is the pollies’ dilemma.

We make an exception, of course, for our own kids. This is why parents who’ve benefited from the rise in house prices over the decades increasingly find it necessary to help their offspring make it onto the home-ownership merry-go-round.
I’ve done it myself. But get this: what we regard as an act of parental generosity, is actually an act of generational self-interest.

…Were parents to decline to help their kids, prices would have to come down until they could be afforded – which would be contrary to the interests of older sellers, such as parents.

…What politicians rarely propose is measures to reduce the upward pressure on prices by reducing the demand for homes.

Quite right. Of course this is only the tip of the Boomer spear that is being driven into their children’s breasts.

At the macro level it works in an economic model that consumes future standards of living growth in support of current over-inflated standards. This is the current account deficit model of growth that must expand either public or private debt loads forever if it is to grow.

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This model, in turn, is driven by a social contract with the baby-boomer demographic bubble that has been promised ever rising house prices as the road to wealth and prosperous retirement. The political economy manifestation of which I call the politico-housing complex.

This plays out in a number of micro-economic policies: untouchable support for a highly distorting taxation regime that mis-allocates national savings into mortgages; superannuation concessions that favour property and business sectors such as finance and mining. Even as the national Budget blows out on middle class entitlements, the tax concessions that drive the economic model – which represent 8% of GDP, the highest of their kind in the OECD – get ever more fat.

There are also the public guarantees for the nation’s banks that have prevented markets from-restoring balance to the system; the local level restrictions on housing supply; the record high immigration levels and un-policed foreign buying activity of existing real estate. These policies explicitly degrade our national political economy and future standards of living in the name of boosting baby-boomer dominated property-owner wealth.

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The war on youth is wider still in climate change policy which successive Coalition governments have sought to trash.

It is a closed loop of economic child abuse that needs to be torn down and thrown out.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.