The newly reformed Jessica Irvine is on the case again today with desperate attempts to restore house prices:
At some point, “zombie” firms and jobs – kept alive only by regular transfusions of government support – must be shot in the head.
CBD cafes, travel agents, airline workers, traditional storefront retailers: how many of these will survive? Surely, not all.
…For decades, Australians have built their wealth and funded their retirements through rapidly rising home values.
…And yet, with all their chips on property, Australian homeowners are easily spooked by the prospect of price falls. Without anticipated price gains owners must re-adjust plans, seeking returns elsewhere or curbing their spending to meet a more limited, anticipated future income stream. That bodes ill for household spending, which bodes ill for economic recovery.
…Australia has done remarkably well to come this far and avoid so much pain for so long but a reckoning is coming. At some point, we must close the door on the pre-COVID-19 economy and make way for the new, whatever that looks like. Exactly how much the transition hurts – and whom – is entirely a matter for the government.
No, Jess, it isn’t. There is such a thing as economic gravity and it is going to assert itself as:
- we hurtle off the fiscal cliff;
- we run out of monetary easing;
- unemployment remains the highest since the Great Depression (no matter what the corrupt ABS says);
- immigration cannot be restarted with numbers of substance and rents crash;
- property investor calculus collapses;
- China decoupling intensifies;
- virus outbreaks continue, and
- we’re subjected to repeated policy errors by Dumb and Dumber at Treasury and RBA.
I have no better notion of where house prices are going than the next bloke. All I can do is line up those risk factors and tell you that they resemble end times for property.
So what if the Government succeeds in a short term boost to prices? What then? They’ll be the highest ever with the worst ever economic outlook.
A much better idea would be to not fight it. Let house prices burn and let the market clear. Banks have record capital. Sure, support them where needs be to prevent it from turning unruly. Just as Jess said before she freaked out:
For those of us fortunate enough to have them, our homes are our sanctuary. Shelter from both the elements and prying eyes, our homes are places where we can grow roots, drop our bundles, and just be ourselves.
If, that is, we’re lucky enough to have access to a safe, secure and affordable home to begin with.
Another likely impact of this crisis is that it will be some time before home owners see any capital appreciation in the value of our homes, given the hit to incomes and jobs.
We’ve all seen the headlines of potential falls of around 30 per cent − on a worst-case scenario − in home values, according to the nation’s biggest lender
…But then I wonder: is that such a bad thing? Do we really want to go back to normal on housing?
…take this opportunity to fix that broken housing tax system. To reduce concessions for negative gearing and capital gains on housing. To abolish stamp duty in favour of a broad-based land tax.
…we could have a real chance at halting – for decades to come – the runaway growth in housing prices we have come to expect.
It could give young Australians the chance to jump the hurdle into ownership, and the security of tenure it brings. And while we’re at it, we could also rethink the way we treat renters.
Let the restructuring of the Australian economy in the post-China era transpire.
