In 2005 Dean Baker and David Rosnick forecast the collapse of the US residential market.  They have every right to hold their heads high, unlike most financial analysts who still can’t get it right. They show the following factors were elementary in their identifying the US real estate bubble:-

1) a sharp divergence between house sale prices and rents – yields became incredibly low (as in Australia at the moment – under 2% in many cases!)

2) an extraordinary rate of housing construction (so where exactly was the purported “shortage”?)

3) a sharp decline in the rate of savings (If you’re paying off incredibly high mortgages, you’re unlikely to have much, if anything, left to save.)

These mainstream and banking explanations for high land prices were found to be well short of the mark:-

1) a shortage of land (The poor old neo-classical economist always says: “Prices must be high because of a shortage of supply”, but not so. Land prices are high because the government isn’t capturing enough of the annual rent of land, therefore more and more land rent is available to be privately capitalised into high prices! Basic stuff!)

2) environmental restrictions on buildings  (C’mon!)

3) growing incomes  (Not borne out by the facts – see Point 3 above. Maybe for the 0.1%?)

4) a growing population  (Then why does my chart which puts Australia’s total land price over GDP–which thereby accounts for the growing population–still show an incredibly rapid escalation in land prices?)

There are facts explaining our high “housing” (rarely land) prices, and then there is the nonsense put forward by banking apologists.