It’s as obvious as the nose on your face that global markets are beginning to suspect that the Australian property bubble may burst. The reasons are equally clear:
- prices are stalling or falling;
- officials have labelled it a bubble;
- global interest rates are rising;
- other similar markets in NZ, the UK and Canada are rolling;
- China is slowing.
But in assessing the timing of the Australian bust one must always remember that it is not like these other markets. It really is different. The ANZ bubbles are not markets at all. They are public/private partnerships in asset inflation.
There are three legs to the central planning: monetary, fiscal and immigration policies. Notice that these are all policy choices, not faits accompli. The system is enabled by a unique moral flexibility in an elite that is prepared to debauch the liberal capitalism more fully than in other nations. Witness to date:
- 2008/9 the bubble tried to burst but everything not bolted down was thrown at it to keep it up, including yoking the public balance sheet to bank foreign borrowing;
- 2010/11 the bubble tried to burst again but was again bailed out by a central bank that demanded households borrow heavily when it had told them it was too risky just the year before;
- 2013/14 when households refused, foreign money came knocking and authorities stood aside while Chinese bidders drove local home buyers completely out of the market;
- 2016/17 as Chinese authorities tighten capital controls and macroprudential policies began to bite, and the housing market to correct, immigration was ramped to such high levels that it overran the greatest apartment building boom in the world.
Don’t be fooled into thinking that these are random kicks of the can. They’re not. They are part of a system of bubble central-planning that knows exactly what it is doing while pretending to higher ideas. It chooses to run immigration at breakneck levels so that it can claim that there is no bubble, only supply shortages. It chooses to guarantee banks and drive mortgage credit higher when external shocks hit, to ensure that growth is sustained. It chooses to bribe disenfranchised kids into the system when it threatens to teeter. Those making the choices are protected by an equally corrupt media that depends upon the bubble for real estate profits.
Doyens of the busted machine move back and forth from despoiling policy to raking in millions themselves in the mortgage factories without fear of reprisal. These are career paths for the oligarchs, such as Ken Henry and John Key, not serendipity. They are not policy-makers or businessmen but bubble central-planners that stoke and rort the system that they pretend is a market.
So, let me tell you what they are planning today. Immigration is going to run at speeds that the nation can’t handle, and housing supply is going to be choked off, until rents in the big eastern cities spiral out of control. They will back-fill the supply boom we’ve just had and then some. The young people that can’t afford to buy homes are now going to be thrown under this new bus. The bubble central-planners will seek double-digit rental gains if they can get them. That way the next leg of housing adjustment is managed via inflation not deflation. And while they do this they will swan about the world pointing innocently at the supply shortage, as if it has appeared out of thin air, and declare that “there is no bubble, only a shortage of houses!” The media will play along for its whored profits.
Armed with such corruption, it rather looks like the bubble will never burst doesn’t it? If you’re prepared to sell your land, your houses, your national budget, your media, your standard of living, your children, your very soul to wealthy foreigners, greedy banks and whomever else happens along with a few dollars more then perhaps the sky is the limit.
But it’s not. There are hard limits to these things and even the Australian asset quango is approaching them. That’s why global market are sniffing around again for blood:
- monetary policy cannot go below zero and when the next shock arrives and Aussie banks will need to hold back half the rate cuts to boost margins. That only gives households one of two more rate cuts of relief;
- fiscal policy is constrained when it guarantees such large private debt. The sovereign rating guarantees banks, states, local governments, and public corporations. When it goes they all go and as funding costs rise during a shock there will be no rate cuts left to absorb them. As well, negative gearing is going to be cut in 2019;
- immigration can be run until we’re blue in the face but we can’t get around the economic implications of falling wages and deteriorating standards of living. In an oversupplied economy, eventually immigration, too, runs into a political brick wall. Not to mention that during times of stress, foreign capital has a habit of disappearing. Poof!
The base bubble central-planners are working their levers furiously to keep the thing aloft but they’re so loose on their axels now that they threaten to fly entirely off.
It remains a great time to sell Aussie property.
