Cameron Kusher illustrates it nicely:
Time and time again we have seen governments of all political leanings turn to housing stimulus in economic downturns. Here’s why it stacks up.
Let’s run through some numbers.
The total value of household assets in this country is $13.5 trillion, so says the March figures from the Australian Bureau of Statistics.
Of this $13.5 trillion, more than half ($6.9 trillion) is made up of residential land and dwellings.
To put that into context the other large components were superannuation ($3 trillion or 22.1%), currency and deposits ($1.2 trillion or 8.8%) and shares and other equity ($1 trillion or 7.6%).
With half our wealth tied up in it, it’s no surprise this country is obsessed with property.
Then consider that until recently you couldn’t touch your superannuation until retirement, and you are still limited as to how much you can withdraw (up to $10,000 last financial year and up to a further $10,000 this financial year), so of the wealth that you have free access to it’s housing (and housing equity) that’s overwhelmingly the largest.
Of course, a lot of the wealth in residential land and dwellings does have liabilities (debt) associated with it. The ABS doesn’t publish residential land and dwelling liabilities, but separate data from the Reserve Bank (RBA) showed that at the end of March 2020 there was $1.8 trillion in owner-occupier and investor housing debt.
Although this figure may not be exactly comparable, it is a good proxy and suggests that the value of the debt against the total value of residential land and dwellings is approximately 26.6 per cent.
Housing is the largest source of household wealth and it is also the largest source of debt, while at the same time the property sector is one of the largest sectors of employment in the country.
So why is this important?
There is a wide range of research showing that there is a multiplier effect for every dollar spent on housing leading to additional spending throughout the economy.
That’s a nice description of how we ended up with the most expensive house prices in the world and not much else.
There are many ways to stimulate an economy, house prices being the most stupid given that’s what leads you to today’s impasse:
- debt saturation and the Keynesian “pushing on a string”;
- demand deficit;
- wealth and inter-generational inequity;
- weak wages (via hollowing out and immigration to support prices);
- rentier capitalism (see Mr Kusher);
- secular stagnation.
But no, let’s DO MORE OF IT!
