How the world turns, via the AFR:
The advice to young Australians from one of the country’s most prominent economists is “don’t buy”, after a week in which there has been lots of talk from government about housing affordability but growing scepticism about how much they can actually affect the market.
“The one bit of advice I give to young Australians is right now you know…amid our housing markets of the moment is ‘don’t buy’,” Deloitte Access Economics economist Chris Richardson told the National Press Club.
“Although there are elements of rental stress, and governments can be involved in helping to do things around there and indeed governments have a bigger role there than in other parts of housing markets, let’s not forget that rents today make a lot more sense than housing prices”
…Independent economist Saul Eslake agreed, saying that it was “much easier for them to make housing affordability worse rather than better”, and that the government appeared to be toying with “more idea that would make it worse”.
Mr Eslake’s cynical take was that it wasn’t surprising that Mr Morrison had started to focus on the rental market because “there’s even less the federal government can do about rental housing than owner occupied housing”.
After all of this time, after all of the discussion, they still don’t get it. There is no housing “market”. What there is now is a public/private partnership in asset inflation, an asset quango designed to favour one generation above all others.
It’s not that the government can’t do anything to impact prices, it is that it is prices via:
- tax concessions;
- bank guarantees;
- RMBS purchases;
- economically insane levels of immigration, and
- supply-side choking across the board.
Take these away and prices at least halve.
The only question anyone needs to ask oneself about the future is how long can the quango be held aloft by public policy using up national resources? My view is that we are at the beginning of the end:
- tax concessions are scheduled to be cut by the Opposition and it is popular for it;
- bank guarantees will wilt as the sovereign rating is stripped, and
- immigration is generating a populist boil-over in the community.
At least some folks sense it even if they don’t quite understand it, from Jacob Greber today:
Today’s property market has become a colossal political and economic cluster-bomb that defies quick or easy defusing.
Built on an unprecedented household debt pile, an investor buying frenzy is about to deny a whole generation the benefits of owning a good home near work. Rampant house-price growth in Melbourne and Sydney – the property market is no longer something that any one side of politics, let alone one level of government, is able to manage.
Some days it feels like property is the economy; a $6.1 trillion leviathan that threatens to swallow us all whole.
If prices continue to leap along at double-digit rates, pushing household debt-to-income ratios further above their current record levels of around 190 per cent – then the chances of a nasty financial reckoning become more likely.
Above all else, an out-of-control market leaves the entire economy vulnerable if something goes wrong.
And just in case you wondered, if the worst does come to pass affordability won’t be solved by a crash. An associated leap in unemployment, for instance, would make life even harder for those struggling to enter the market.
Which is why the idea of giving first-time home buyers the ability to raid their superannuation as a way of addressing the problem is a fairly cruel joke. It’s the wrong answer to the wrong problem.
Treasurer Scott Morrison is right to push for a gradualist approach to the problem.
…The only real trigger for an outright drop in prices or a levelling out is higher official interest rates; something that is not possible for the Reserve Bank to engineer any time soon because inflation is still well below its 2-3 per cent target range and the jobless rate is higher than it wants.
A crash will solve affordability. Sure it will result in higher lending standards and kids will have to save more but that’s real and they can do it. That crash will come not because rates go up but because they can’t fall any further, which means bank rates may well rise the moment economic crisis arrives). That, in turn, is exacerbated by the stripping of the sovereign rating.
Will the Do-nothing Government throw the last of the fuel onto the blaze? Via The Australian:
Senior cabinet ministers will today mount a joint push for Malcolm Turnbull to back a “super for first-home buyers” housing package ahead of a meeting of the government’s budget razor gang this morning in Sydney.
A clash looms after Mr Turnbull cautioned against the idea to allow Australians access to their superannuation but he did not rule out its inclusion in the housing package.
Senior cabinet ministers, led by Resources Minister Matt Canavan, have expressed in-principle support for a proposal that would allow young families to access super contributions based on their personal savings.
“This is, I think, a legitimate idea … it’s been used in other countries and it’s something we should certainly consider,” Senator Canavan said yesterday.
Scott Morrison and key ministers responsible for housing policy including Michael Sukkar, Angus Taylor and Zed Seselja are believed to be in favour of the model.
As the darkness closes in, will the children be burned in one final desperate attempt to keep the fire alight?
