Gittins: Only your vote can burst the housing bubble

Some good stuff today from Ross Gittins:

So, who pushed housing prices so high? We did. Who failed to do what was needed to counter the increase? Our governments.

The feds failed to limit the growth in demand (by limiting immigration and fixing the tax system), while the states did too little to increase supply (by discouraging the building of new homes on the outskirts and by permitting a first-in-best-dressed mentality by people in inner and middle-ring suburbs).

Why are they allowing the proportion of home owners to decline? Because most things they could do to genuinely help first home buyers would come at the expense of existing home owners, who have more votes than the youngsters.

If young people and their parents don’t like that, the answer’s more pressure at the ballot box. Wheels that squeak more.

Spot on though I’ll add that the system is clearly beginning to wobble under the weight of its debt. Gottiboff puts his finger on that this morning:

We are now looking at the possibility of a so called perfect storm in the Australian savings industry. Rarely in our history have we faced such a simultaneous set of dangers.

The first danger started when last week UBS highlighted that there was a massive over statement of income by home borrowers. It was reported exclusively in The Australian (Exposing a lending debacle, March 9).

Then, in the royal commission into banking, NAB confirmed they had discovered widespread fraud. That was the first indication from a bank that UBS is right.

In the next two or three years vast numbers of interest-only loans will need to be rolled over. The dwellings will need to be sold if the fraud is as big as UBS suggests. Owner occupiers will face much bigger payments and might also be forced to sell.

Enter the ALP’s Bill Shorten and Chris Bowen. At the last election they introduced a very sensible policy to limit negative gearing to new homes.

To that dangerous cocktail we have an ALP that plans to reduce the attraction of bank shares and many bank hybrid securities to retirees. Bank shares will fall as the retirees invest elsewhere. Bank shares dominate the ASX and Australian savings. If the bank losses and the franking credits change coincide (that assumes an ALP election win) then there will be a fall in the level of Australian savings. Someone needs to tell the ASX that the banks may have misled the market in the income levels they published for their mortgage borrowers. Class actions are possible.

Gottiboff is using this as preamble to attack Labor’s imputation concession rollback policy so there’s no praise for him. But he’s unwittingly described what is underway, the breaking of the politico-housing complex that is the lynch-pin of the housing bubble. It was always a policy driven beast:

  • triggered by capital gains tax discounts;
  • driven by negative gearing;
  • fed by mass immigration and demand-side stimulus, and
  • built by supply side choking.

All of these are now under intense pressure, either set to break a the next election or clearly ripe for political reform. Add that monetary policy is close to exhaustion and fiscal is not far behind and the conclusion that the politico-housing complex has entered its sunset days is real.


  1. Because most things they could do to genuinely help first home buyers would come at the expense of existing home owners, who have more votes than the youngsters.

    Last HILDA report had 51% of voters owning real estate (and a very good discussion of why this figures differs from the oft quoted ’60+% of households are owner occupied’ factoid) – based on current trend, this year is likely to be the year it slips under 50%, and I note Gittins expects the trend towards non-house ownership to accelerate from now or in the near future.

    If you had a plan that revolved around converting an RE investment to cash sometime in the next decade, better to do it now than later, because conditions are unlikely to favour waiting.

    • That’s what they said 10 years ago. I know – I said it too. A significant ramp in house prices and debt levels was unimaginable from the starting point 10 years ago.

      Turns out we didn’t have enough imagination.

      I now know that it ain’t over til it’s over. And it ain’t over yet.

      • Who said less than 50% of voters owned RE 10 years ago?
        The Gittins piece above is pretty much the first time I’ve seen it suggested that it could happen soon – the idea that a majority of voters could want house prices to fall, with even a vague chance they could be listened to, is a brand new emerging risk factor to high house prices.

      • HnH – I wasn’t reading you 10 years ago, I was reading other stuff (including Dr Keen)

        Still, it would be interesting to read your thoughts from 2007-2009 and how you justified your “buy” recommendation. Got a link?

      • Peachy,

        Back in 2010 – 3 years after the GFC it looked as though good sense was about to prevail and most thought that we were going to see a slow melt as the RBA and APRA allowed the market to cool and stagnant.

        It seemed that we had dodged a bullet but had learnt a lesson.

        But just about everybody – myself included – did not anticipate the economic vandalism that would result from the election of the LNP in 2013 – not that the ALP were exactly setting the world on fire with their easy access program for foreign buyers.

        The LNP pushed the credit creation foot to the floor, with the help of RBA and APRA, and the market took off.

        The only people who were confident that there would be another boom were the property bulls who had a very good understanding of private bank credit creation and how the only limiting factor on that, once there is a public guarantee in place, is the AUD.

        They understood the mechanism and the cynicism of our political class and were correct.

        The odd part is that many have egged the process on by calling on cuts to the target rate and refused to demand that APRA explicitly regulate unproductive credit creation.

        If there is going to be a correction it will have to be externally imposed because it will NOT come locally. Our political class across the board are either captured or are simply too scared.

        Plus there are swarms of free lance private bank apologist desperately trying to confuse the issues and run the “we must start with the bigger sociological analysis first”.

        Vanishing foreign investors/buyers for our assets
        Collapse in the Terms of Trade
        Collapse in exports of goods (dirt) and services (dodgy degrees)
        Rising US/offshore interest rates / which will drive down the AUD unless CAD Australia raises rates.
        Vanishing immigrants – unlikely

        These are the only things that will “pop” the bubble.

      • ceteris paribus

        Peachy, you missed your calling. You should have been a lawyer. Requiring evidence. Bravo.

      • @ Peachy “Turns out we didn’t have enough imagination.”

        More like: “Turns out we didn’t have enough immigration.

        If there’s one reason the govt will continue with packing more people in to our overcrowded cities, it will be falling prices.

      • @pfh – we are in agreement
        @cp – who told you that I’ve been banned from practicing law?!

      • Peachy, I’ve read HnH for years, even back in the day and the inaugural post

        Interesting to read through times past and I don’t hold anyone to forecasts right or wrong (I once somewhat lightheartedly said iron ore had a floor of $120 – it did for a short while 😉 ). I came to Macrobusiness early on, when Miners were being given a hard time…

        Other good bloggers from the era: Delusional Economics, BearFella and of course Unconventional Economist.

        If I had to say anything it is that perhaps HnH is a little more peeved with our situation in 2018.

    • What mattress is likely voters and degree of coordination in voting strategies. Young renters less likely to vote so their electoral clout relatively weak. Their views also less supported by organised lobby groups as financially less significant. This will only shift when owner occupied parents vote for their children’s interests over theirs. This is a hook I think many would respond to… (pay now or pay forever … queue images of 60 year olds living with parents…)

  2. “If young people and their parents don’t like that, the answer’s more pressure at the ballot box. Wheels that squeak more”

    Oh yes great!!! Given 58% of people now live in Bris, Sydney and Melbourne and their satellite cities, we’ll get a vote for pouring more money into those cities, while incurring more and more debt and destroying the rest of productive Australia.
    This is NOT a simple problem. This is NOT a problem that results from the last 10 years. This is NOT a problem that can be solved by releasing more land or building higher buildings. This is NOT a problem that can be fixed with Fast Trains to deliver more commuters from further away into city centres. This is NOT a problem that can be fixed by more urban trains or freeways.
    The stupidity of commentators like Gittins has been, and is, monumental.

    • They say dont shoot the messenger
      But these guys were more than messengers, they added to the message for their own benefit.
      For me, they should go.

      • Sadly I am sure you are right. The politicians, commentariat,, Banks, RBA, and Treasury will just keep on inventing new myths in order to maintain their positions. It’s all beyond saving.

      • Remember, a nation’s strength flows from the Force. But beware. Greed, fear, laziness, sense of entitlement. The Moron side are they. Once you start down the Morom path, forever will it dominate your destiny. Do not… do not underestimate the powers of the Emperor or suffer Zimbabwe’s fate you will.

      • I would give serious consideration to the view that ‘they’ know full well what the problem is but are motivated by self-interest instead.

        If the only bona-fide solution to the problem involved financial (or career) impairment there is no way that ‘they’ would give it serious consideration.

        My mother always says: “the Govt have our best interests at heart”. My mother (and others who think the same) are wrong.

      • Dominic, I must say, not to put too fine a point on it, my jaw dropped. Are you serious about “the Govt have our best interests at heart”?

        There has been a clear pattern.

        Australia has been accumulating CADs for decades – living beyond its means. The logical consequence of doing so has been perpetually depreciating AUD against the currencies of the creditor nations, which has made cheaper for the foreign interests to buy Australian assets over time. The loss of purchasing power of AUD and the concomitant loss of wealth has been real but it does not immediately feel that way. It has certainly been a great and seemingly harmless way for the pollies to kick the can down the road. In time, the electorate became accustomed to living beyond its means and developed a dangerous and appalling sense of entitlement.

        More recently, the pollies discovered that introducing measures to inflate house prices is a popular and seemingly harmless way to increase revenues without being seen to raise taxes. Swelling stamp duty receipts enabled them to promise delivering big without taxing – no pollies can resist such temptations.

        There is a problem though – if a free lunch sounds too good to be true it probably is.

  3. I’d caveat this in saying it is only the low-middle class young people and their parents impacted by this that will vote against it. For example, if you are young but from a well off family and anticipate you will be given $200k to enter the market, then both you and your parents will cheer on the boom forever more. It is only those who are not as fortunate that will this vote against the boom.
    Unfortunately this shrinks the voter base even further as it is only the young low-middle class and their parents which care. I’m not sure this is enough to steer the ship.
    For reference we have friends in mid-late 20s who have been given the following gifts to enter the market:
    – $100k
    – $200k
    – $250k
    – $300k (half the purchase price)

    We stand in stark contrast to them

    • You’re assuming this will go on forever. It won’t. Your friends and their parents, collectively, will be wearing some severe financial losses in the years to come and you can be a bit more cheery at BBQs ..

    • How many of these gifts are from the parents redrawing on their home loans to help their kids?

      • This.
        The inter generational thingy we’ve got going on here will end up with the parents being the pissed partygoer who starts a fight and ends up falling on the toddler’s table.
        The emergency ward/lockup is a bitch when the coke starts to wear off.

  4. I give Gittins no credit. His job was to call this out 5 years ago when it could have had a positive impact.

    • Exactly. Gittins himself has been part of the problem. Now he’s trying to distance himself from it.

    • 5 years ago?! FFS, why do people in this country have such shit house memories? Honestly, I feel like Buck Rogers did when he awoke in the future and nobody could understand where he came from. Some of us out here saw what was happening 20 years ago. There were massive surges in prices back then. This is a bubble on a bubble in a bubble. It was wrong then and should have burst just as much as it is wrong now and should burst. Wiley is right, when this suckers blows it’s gonna be apocalyptic.

      • Agree Kolchak, but I don’t know about 20 years ago. Certainly 15 years ago – in 2003 there was already talk of a housing bubble after a run-up from about 1996. There were warnings that the boom had already run its course. Who knew then that the bubble hadn’t even started? By 2007, it was obvious that this bubble had to pop. And it started to but then Krudd “saved” the day with a much bigger bubble. And now it’s too big to allow to pop.

      • 2003, when John Howard was declared to be a “man of steel” by the American halfwit George W.

        Australia was distracted by going into Afganistan when we really should have be putting up interest rates and putting the capital gains tax back in place.

        Thats when our government decided to sacrifice first home owners and Australia’s future to property developers.

  5. Wow this is interesting. His article in the smh was open for comment this morning and a lot of people added supportive comments. Just checked it and they’ve closed the comments…they are not view-able anymore!

    • I think Fairfax just can’t afford decent IT support anymore. There’s an article by William Bourke (SAP) that had comments, then no comments, then comments again and now no comments. I’ve noticed that happening on the ‘new’ (but poorly managed apparently) Age website on other articles.

    • Yup, the editor had a terse call from a few of their better clients (RE advertisers) and he did as he was duly told.

  6. Kormanator_T800

    We are now looking at the possibility of a so called perfect storm in the Australian savings industry. Rarely in our history have we faced such a simultaneous set of dangers.

    The government is getting ready for bail-ins from savers:
    The “Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017”, was made law by the Senate in December just before going on holidays.

    It grants APRA and Government wide-ranging new discretionary powers to confiscate bank deposits in case of a crisis. The definition of a crisis is vague, maybe this “perfect storm” is a crisis?

      • Kormanator_T800

        You can read it here:

        Financial system stability is good for the welfare of the people therefore we must ensure financial system stability even if it means sacrificing the welfare of the people.

        Once the Bill is understood as potential confiscation of bank deposits to “bail-in” insolvent banks, a loss of confidence could precipitate a financial system
        instability which the Bill is supposed to prevent.

      • Just on a quick read I can’t see anything that, whole we are confiscating the property of the prudent, confiscates the property of all these criminal pricks that have brought this on!!!
        Funny that!

      • Or here:

        “On February 14 2018, the Federal Parliament passed the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017, which gives the Australian Prudential Regulation Authority (APRA) extraordinary powers during a financial crisis, including the possibility to confiscate deposits in order to rescue collapsing banks (“bail-in”).”

      • – The Financial Claims Scheme is administered by APRA and only activated during a financial crisis
        – APRA mandate under the FCS is the joint and conflicting responsibility of looking after “depositors interests” and “the stability of the financial system”
        -The 250K deposit guarantee has to be activated during a crisis. It is not active before this.
        – During the senate inquiry in Feb 2018 there was a lot of resistance to modifying the wording of what financial instruments could be candidates to be bailed in. A bunch of submissions wanted the wording to explicitly exclude deposits. This suggestion did not get up.
        – Each ADI is only funded under FCS to 20 billion initially (The big four will run out of this pretty quickly)
        – Martin North suggested it might be possible that deposits could be bailed in before the FCS was activated during a crisis.
        – This means you just become another unsecured creditor. The NZ banking system as I understand it can bail depositors funds in. Caveat emptor

    • Korm
      Thanks!!!! JHC!!! These pricks KNOW this is coming!!!!! I was going to say hang the lot but I think Wiley’s sentence a lot better….just put ’em out there and leave ’em

    • I’m calling bullsh1t on that confiscation claim. There’s nothing in the leglisation giving those powers. Your quote comes from a single letter submitted by a member of the public during the consultation process. Show us the clause in the leglislation that allows for confiscation or admit you’re wrong.

      • Yep. Depositors are the most senior debt holders* and so first shareholders and then bond holders holders would have to lose the lot before depositors are touched.

        It’s is very remote. I know the banks are f”led in a property downturn but it is very remote.

        *”covered bonds” are more senior than deposits. There are not too many of those around, at last count.

      • On a QUICK perusal the legislation looks all encompassing and all powerful. In addition you may not lose your deposits. They will be converted into shares. – of some sort or, alternatively, frozen for a few years. Either way if you are running a small business and manage it without much debt and a positive cash balance you will be well and truly screwed.
        Too many look at this as a scenario that, no matter what, you will still be getting your wage every week. So savings don’t really matter. Probably true if you work for the government.

      • When the sh*t hits the fan the gov will do what ever it needs to survive.

        Remember Cyprus in 2013? If you had over $100,000 Euros in the bank, they took it.
        Dont think it couldnt happen here. Scott Morrison is only looking for an excuse to rip the money out of your account.

  7. “Gittins: Only your vote can burst the housing bubble”

    Guaranteed to turn voters off! Most do not want a housing price collapse.

    Anyway I suspect (as you suggest) the boom is nearly over and if so, direct action or market interference at this stage could have regrettable consequences.

    • as the jails are already near full, looks like we are going to have to open a new facility say out on the shores of Lake Fromme.For all these finance types.
      some would say why jail em, well for their own protection from the public,
      and so their family is forever tarnished.

      • Wow yes! Spot on location. I was always promoting gaols West of Quilpie somewhere on a hard gibber rock hill. Your site is waaaay better.
        Mind you, before going to Lake Fromm, I’d give them a bit of time in stocks, naked, down at the local shopping centre somewhere with a good supply of canes on hand for ordinary people to be able to give them a good flogging

    • SchillersMEMBER

      Most might not want a house price collapse, but a majority of voters want lower house prices. As in housing that is more affordable than it is today. If not for themselves then certainly for their children. I personally know plenty of boomers who abhor the recent mega inflation in house prices because of the effect it has had on their families. As at least 50% of voters DO NOT own their own home, ALL of these want lower prices. Some owner occupiers want lower prices so they can upgrade without having to take on massive debt loads. Many business owners (myself included) want property prices to fall because of the connection between land prices and commercial rents.
      Apart from investment property owners I reckon the majority of people who vote now want lower, not higher house prices.
      The worm has turned.

  8. The one thing nearly everyone agrees on is a lower immigration rate. And on Q&A on Monday night, Tim Flannery said, “So unless we, the people, speak up on this, and are heard and control the agenda, special interest groups will see population growth continue.”

  9. FiftiesFibroShack

    It seems the banks are getting let off the hook a little here. Sure, the CGT discount started it, but without the willing bankers throwing fuel on the the credit boom the housing market wouldn’t be anywhere anywhere near where it is today.

    • Banks are owned by shareholders, who hold the bankers arse to the fire to ensure they make money.
      there are n times more shareholders than bankers,
      so essentially you are saying shareholders applauded the desire of the public to commit financial suicide.
      going to be some interesting legal cases to come out of all of this.

      • FiftiesFibroShack

        Yeah, the instos and informed shareholders. I should’ve included the regulators in my original comment too. RBA as well.

    • Yup!! RBA had this housing bubble as stated policy and the reason why they were lowering interest rates. Interest rates are the prime culprit in all this. Without the RBA lowering rates there would not have been the demand for cheap money and private banks would have been very limited in what they could do.
      Of course the Fed printing Trillions of the world reserve currency did not help.

    • Exactly – Sydney’s falling at an annualised rate of 9% p.a. right now., and the only capital city not falling – Brisbane – is growing at an anemic 0.4% p.a.
      It might not have popped but there’s a distinct hissing sound.

  10. Ross Gittins speaking at 6pm tonight. Newcastle Institute forum. Souths Leagues Club Merewether. Topics: Rent-seeking, the ‘game of mates’, and the stuff-ups of economic reform

  11. Jumping jack flash

    “.. the conclusion that the politico-housing complex has entered its sunset days is real.”
    We can only hope

    “So, who pushed housing prices so high? We did. Who failed to do what was needed to counter the increase? Our governments.

    The feds failed to limit the growth in demand (by limiting immigration and fixing the tax system), while the states did too little to increase supply (by discouraging the building of new homes on the outskirts and by permitting a first-in-best-dressed mentality by people in inner and middle-ring suburbs).”

    He conveniently ignores the availability of cheap debt, the decoupling of risk and interest rates, and the substitution of LVR in place of an actual measure of debt risk.

    If there wasn’t “risk-free” cheap debt available to enable it to happen, none of this could have happened, despite everything else he mentions being done to cause it to happen.

    you don’t become the second-most indebted nation on earth, with one of the smallest populations in the OECD, with prudent lending standards, sound controls, and a sensible measure of risk.