Property locusts pointlessly buzz Depressionberg Unstimulus

Here is the problem for Depressionberg Unstimulus in black and white from a hilarious buzzing swarm of property locusts, at the AFR:

David Harrison, head of one of the country’s biggest property fund managers, Charter Hall [said] “They are showing leadership. They are borrowing money. They are subsidising the economy that needs to be subsidised,” he told a Property Council of Australia forum on Wednesday.

…”Corporate Australia needs to get out of the foetal position and get on the front foot and grow.”

But to properly support housing construction, an extension to the successful HomeBuilder program beyond the end of this year was sorely needed, said Stockland’s chief executive, Mark Steinert.

“With very low levels of population growth it is more likely that new construction will reduce rather than grow, particularly in apartments, which has been affected by the reduction in foreign students and the reduction in skilled migration.

There’s your Depressionberg Unstimulus problem right there. Massive oversupply of property in retail, in residential, in office, in all of commercial. Massive oversupply in everything population-ponzi related, work-from-home related and person-to-person services related.

In point of fact, massive oversupply in everything Australian economy-related, given we’ve spent the better part of twenty years restructuring ourselves purely towards the above as our growth drivers.

This debilitating economic condition of too much supply and not enough demand is called “under-utilisation”, or the “output gap”, and Australia’s is immense. The worst its been in modern history:

Such an output gap is hugely deflationary. It is enormously destructive to the budget; a gigantic drag on wages, on profits, on income and living standards. It’s the kind of stuff that leads directly to Japanification of your economy. The zombie economic state of deflating asset prices driving interminable balance sheet rationalisation and falling discretionary income.

The way out of it is to do two things.

On the fiscal side, you pump prime everything in sight. Juice demand with direct public spending and investment to backfill the hole left by falling private demand. Only once demand has lifted and stabilised do you then you add incentives to lift productive investment.

On the monetary side, you slash, burn and print to lower borrowing costs and increase discretionary income plus crash your currency to boost external demand and the demand for your import-competing sectors.

So, what did the Depressionberg Unstimulus prioritise to fix the output gap? Did it deploy large public spending and investment to boost demand to help backfill this unprecedented economic slack? No, it focused almost entirely on incentives to boost supply-side investment to increase it.  What has the RBA done? Next to nothing so far with only a little more in the offing.

And so we get this spectacle of the politically partisan locusts from the glory sectors of yesteryear excitedly buzzing around their Game of Mates stimulus honeypot, swan-diving into it, yet coming up empty because it only tells them to invest more in stuff that they already have too much of and to do so will reduce profits and return on equity.

David Llewellyn-Smith
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Comments

  1. Is it just me or are advocates for demand-side economics AND low/no immigration taking a contradictory stance?

    • Only if you don’t read what we say. We agree entirely with policies that repair competitiveness but you’ve got to support demand while you do it otherwise the adjustment all lands on households.

  2. Nah, I think there is plenty in there for the property locusts.
    The change in thresholds for the 5% deposit scheme (to nearly 1 million in Sydney) will guide prices higher. The junking of responsible lending laws opening the flood gates on dodgy loans. The lack of stimulus will also force the RBA to cut harder and do more QE. All of this is bullish for the property industry.

    • Meh. Sydney ain’t going anywhere. Brissy, Adel, Perth sure.

      No guarantee Labor will pass irresponsible lending.

      Note, as well, I was talking more about construction in this post…

      • happy valleyMEMBER

        Hope not, as otherwise the first Strayan bank will go belly up within a year. Fancy being a board member of any bank – you’d have to have absolutely no decency or integrity. But I guess that inasmuch as we have defacto depositor bail-in, board members have no worries.

        • Jumping jack flash

          “you’d have to have absolutely no decency or integrity”

          sounds like the first couple of things bankers have removed once they attain the title.

    • Strange EconomicsMEMBER

      And 2500 tax cuts in the property investor income group and high mortgage group is perfect targeted for property price support.. At 2% they can now borrow another 120K. (as capital is never repaid). .
      And the new Irresponsible Lending Laws (ILL for short) too.
      So much for a 10 % (or 100k) price drop.

    • Jumping jack flash

      Agree completely.
      While the budget itself may not have had much for property locusts, there is plenty being done for them.

      and just wait until they start working on the details of “advanced manufacturing”. That will be the ticket to reopening the immigration floodgates, and opening them wider than ever before.
      “In the name of COVID, we have a country to rebuild, and jobs to create, and no local advanced manufacturing skills! Only skilled migrants can provide us with the skills and create the jobs we need to recover.”

  3. happy valleyMEMBER

    So, Cormann is off to head up another useless sheltered workshop, the OECD. Pfft. Good riddance.

    • No surprise there, just have a look at his work history. Other than 3 yrs as a Health Insurances Manager with HBF (politically connected appointment, imo) he’s been sucking on the tax payer funded political tit since he was 25. Like most of them he’s never actually worked.

      • happy valleyMEMBER

        +1 And there’s Josh Rainbowberg apparently telling the National Press Club yesterday that Cormann’s the best finance minister Straya has ever had – that also tells you all you need to know about Joshie?

  4. “you slash, burn and print to lower borrowing costs and increase discretionary income”
    Sounds good, except – what do we think any rational person will do with an increase in disposable income?
    Either (1) save it; things aren’t looking so good in the near future or (2) Do as they’ve all been taught to do since Form 1 Economics – buy investment property or 9.
    Households are going to bear the brunt of the coming calamity, and if one good thing comes out of that it will be that they remember for a generation what they did wrong – just as those in the 1930s did.
    I’m not advocating it as solutions, but we are past the stage of being sensible; rational or kind. Experience is going to be the only teacher we have left.

    • Arthur Schopenhauer

      With one third renting, one third with owning and one third with a mortgage on their PPR, there is a lot of fragility.

      If you’ve lost your job and are renting, you are in trouble as of this month.

      • Goldstandard1MEMBER

        “If you’ve lost your job and are renting, you are in trouble as of this month.”

        How is this different to….

        “If you’ve lost your job and are a home owner with a mortgage with less than 6 months of living expenses saved, you are in trouble as of this month”?

        Anyone who think they are sweet owning vs renting is in la la land in this crisis.

          • Goldstandard1MEMBER

            I just think it’s more stressful to own hoping prices will go up with rents going down or maybe not even being paid and not being allowed to evict, VS a renter with savings that can move or not pay for a while.
            Both situations come down to being able to stay alfloat for the next 2 years but the home owner MUST pay mortgage or sell. Simple.

  5. “Massive oversupply of property in retail, in residential, in office, in all of commercial”

    Care to provide a scintilla of evidence for that incredibly sweeping statement?

    • Sure.

      Evidence of the oversupply in residential property is:
      * A school teacher can rent a house next to her school for less than 1/3 her teacher’s wage.
      * A granny can rent a granny flat for less than1/3 her pension.

      I’ll quickly search the internet for some example of this in Sydney and get back to you the moment I have found them.

      • Ah, I kind of thought the prevailing theme at MB in Sydney was massive overpopulation = high demand = high house prices. Sure there might be a bit oversupply in generic apartments but that will work itself out in the normal course.

        In any event, that’s one sector (resi) in one market (Sydney). Talk me through the oversupply in industrial warehouses. What about healthcare property? What about office space in Adelaide? Because according to MB, it’s every sector, commercial and residential, in Australia.

        If you can’t tell, the original statement was hogwash.

  6. From a realestate agent, seems fair;
    In the booming markets of recent years, the market
    tended to rise as one. As market conditions become
    more unpredictable during COVID-19, the market is
    no longer performing in unison as one. To transact
    prudently, remember there are markets within markets.
    Apartments are underperforming houses. Conversely,
    luxury apartments with views that appeal to baby
    boomers are performing better than generic poorly
    constructed high-rise apartments on busy roads and/
    or in suburbia.
    When assessing the market’s performance at large,
    forget the reported auction clearance rate of 60% to
    70%. That’s a very questionable number given so
    many failed auction campaigns go unreported. The
    true auction clearance rate in Sydney is closer to 50%
    than 70%

  7. Jumping jack flash

    “There’s your Depressionberg Unstimulus problem right there. Massive oversupply of property in retail, in residential, in office, in all of commercial. Massive oversupply in everything population-ponzi related, work-from-home related and person-to-person services related.

    In point of fact, massive oversupply in everything Australian economy-related, given we’ve spent the better part of twenty years restructuring ourselves purely towards the above as our growth drivers.”

    This!

    Debt-fueled demand is an amazing thing.

    20 years of using debt growth instead of actual production and productivity growth. And to top it off, the last 10 years of that has had grossly insufficient debt growth, compared to the golden age of debt back in 2006, to prevent total economic collapse.

    100 billion dollars redirected from spending to the banks each and every year will start to become a fair drag on the economy.
    And as a result of that constant drain, or perhaps “misallocation”, the whole place was sagging dangerously up to and including the end of 2019. Businesses imploding everywhere. Rampant wage theft.
    Nobody could point at the state of the economy at the end of 2019 and say that everything was fine.

    How fortunate it was the virus came along so the government had an excuse to create and spend the required amount of debt to fill in the space where 10 years of missing debt growth should be, plus add enough on top of that to get the required amount of economic growth to “heal” the broken economy.

    Broken by the virus, of course.

  8. Ailart SuaMEMBER

    “How fortunate it was the virus came along so the government had an excuse to create and spend the required amount of debt to fill in the space where 10 years of missing debt growth should be”

    Yeah, very, very fortunate the the virus came along when it did. Virtually impossible to discover its origin and very fortunate that it’s really only fatal to those who’ve reached the twilight of their lives. What’s it called again? Coronalab13. The truth is out there…