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.