Today it’s the bubble:
Home ownership among young Australians has fallen to the lowest level on record, as an explosive property boom squeezes out all but the wealthiest.
Supercharged by record low interest rates, a lack of supply and a tax system that favors property investors, home prices have surged more than 140 percent in the past 15 years, propelling Sydney past London and New York to rank as the world’s second-most expensive housing market. Melbourne, ranked the world’s most liveable city the past seven years by the Economist Intelligent Unit, is now the planet’s sixth-most expensive place to buy a house.
…“The great Australian dream of home ownership is becoming a nightmare,’’ said Brendan Coates, a housing policy expert at the Grattan Institute. “It’s down to a collective failure of government policy that will take at least two decades to fix.”
…One of the biggest flashpoints are tax incentives that have turned housing into a speculative financial asset. First-home buyers complain they can’t compete against investors, who through a perk known as negative gearing can claim the costs of owning a property-for-rent — including mortgage interest — as a tax deduction against other income. The allure of property investment was turbocharged in 1999, when capital gains tax was halved. With housing prices seen as a one-way bet, investors piled in.
…Adding to demand pressures, Australia’s migration program has helped swell the population by almost 4 million since 2006, with most settling in the major cities. Supply has been unable to keep up, with dwelling completions running below underlying demand for more than a decade. Much of the new housing is small apartments aimed at investors, rather than families.
“It’s a very different atmosphere in Australia,’’ said Professor Richard Ronald of the University of Amsterdam’s Centre for Urban Studies. “I haven’t come across this kind of resistance elsewhere to the understanding of ‘Generation Rent’ as a fundamental shift in history.”
That’s because there is no bubble so big that it has captured the entire political economy like it has in Australia.
And the share market:
Australia’s economy has grown faster than its developed-world peers over the past decade, uniquely avoiding a recession. That means its stock market has grown handsomely too, right?
Wrong. It’s actually smaller today than it was on the eve of the global financial crisis, in 2007. In that period, the U.S. stock market’s capitalization has grown by more than $9 trillion. Closer to home, Australia’s market has been surpassed by Asia-Pacific peers South Korea and India.
Not only is the contraction a disconnect with the economy, it also stands against an expanding pool of pension-fund capital, which has opted instead to invest abroad. Behind the contrast lies a corporate structure that favors oligopolies in retailing and finance in what ultimately is a nation with a small population. Also helping explain the decline: an appetite among foreign firms to buy Australian businesses, removing their Sydney listings.
Chad Slater, who first traded stocks in Australia 14 years ago and is now back in Sydney after investment-management jobs in London and Boston, is amazed at how static things have been.
“They are all the same businesses — nothing has changed,” said Slater, co-founder of Morphic Asset Management Pty, which invests in global equities. “There’s quite a cosy culture where productivity is really low — which breeds complacency — and there’s so little innovation.”
You don’t say? Good job Bloomie.
