Professors: Property bubble has engulfed society

Via Domain:

Forget blue or white collar workers – our society is now broken down by the size of our investment housing portfolio.

New research by academics at the University of Sydney suggests the office room debate about property prices and Australians’ intimate understanding of negative gearing points to how we have become an “asset society”.

Focusing on Sydney, the nation’s most expensive capital city, the research found long-time societal delineations based upon what we did for a job have now given way to whether we own property, have a mortgage or will forever be priced out of the housing market.

Two of the co-authors of the research, Lisa Adkins and Martijn Konings, said there had been a breakdown in the traditional way people measure their own worth and place in society as wages stagnated and house prices soared.

Domain would say that. And no doubt it is true at the margin. As Grattan recently showed, this is largely a generational class war:

But the kids aren’t sitting around hating themselves owing to their greedy parents, and they are the future.

The critical question about whether this is a cyclical phenomenon or structural behavioral change is macroeconomic not social. The Aussie property bubble is a social contract that relies upon several assumptions:

  • it is sustainable in macro economic terms;
  • future Australians will make the same agreement, and
  • mass immigration is unstoppable.

Each of these is highly questionable:

  • Things look OK for the bubble today but its unquestionably supported on a fiscal foundation that is itself still a function of Chinese growth and commodity prices. Given China is going ex-growth though the 2020s, that fiscal support will come intensifying pressure.
  • Why would priced-out kids support it as their voting power increases?
  • The mass immigration economic model is clearly unsustainable in a world of deglobalisation. Yes, it is possible that Australia will give away its freedom in return for higher house prices but if it does it will rank as the dumbest nation in history.

So, for me, despite the various ebbs and lows in the property cycle, its overall predominance is part of a larger cycle that has already peaked and is dying the death of one thousand cuts as we speak.

In short, it’s still a bubble not a structural social change and will be viewed as such in the lens of history (provided it is not written by the Chinese Communist Party of Australia).

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