About

BRYAN KAVANAGH

I’m a real estate valuer and research associate of the Land Values Research Group. I began working in the Australian Taxation Office in Melbourne in 1971 and the Commonwealth Bank of Australia in 1989 before co-founding a private valuation practice in 1997.

COGNITIVE DISSONANCE?

As far back as 1973 I noted an analytical disconnect between the economy and what has occurred within the real estate market.

A large part of the Australian Taxation Office, including the valuation section in which I was employed had, in fact, moved into the WH Holmes Building, a new building at 270 King Street, Melbourne, just as the builder Mainline Corporation went broke in 1974. It became generally accepted that the collapse of Mainline Corporation and Cambridge Credit, the finance arm of the National Bank of Australia, were the harbingers of the Australian recession of 1974-75.

INQUIRY

I wondered why federal Treasury and the Reserve Bank of Australia had done nothing to curb the real estate bubble that had spawned the bust, and concluded that while they and the Australian Bureau of Statistics obviously had figures on the level of borrowing and debt, they had little data on Australia’s aggregate real estate sales.

This was confirmed years later in 1988 when I inquired  with the Australian Bureau of Statistics, the Reserve Bank of Australia and federal Treasury. They didn’t collect real estate sales data from the Australian States and Territories and collate them into a national total for analysis, I was informed.  So, shortly afterwards I undertook the task under the aegis of the Land Values Research Group of which I became the director following the death of the late great Allan Hutchinson.

RESULTS

After estimating the Australian real estate market back to 1972, I noted that a real estate bubble appeared to develop when total real estate sales rise to more than 19% as against GDP (or 18% seasonally adjusted). I nominated the chart of Australia’s total real estate sales divided by GDP as the ‘Barometer of the Economy’ and consider it an unmatched economic model, insofar as the real estate market not only reflects all externalities, but leads and directs the economy.

The current director of the Land Values Research Group, Dr Gavin Putland, has improved the ‘Barometer’ by adding to it the annual rate of change, creating thereby the Kavanagh-Putland Index.

Although real estate market turnover is smaller than GDP, it is much more volatile, and can be shown to direct the greater economy (as recently in the US and elsewhere).

The current real estate bubble peaked at a ratio of 30% against GDP (29% seasonally adjusted) and has remained well above the 19% level (18% sa) for much of the period 1999 to 2009, so it is more than obvious to me that (unless we’re re-writing history) we’re looking at more than a recession when it bursts: it bears all the hallmarks of an economic depression. [Refer to the large chart in my post of 25 May 2009.]

“WE’LL ALL BE ROONED”, SAID HANRAHAN

Clearly, the study of economics remains unscientific because it resists incorporating national real estate markets and the full quantum of land and natural resource rents into its analyses. It follows, therefore, that media commentary on business and economics also remains superficial because although some commentators have made the real estate connection they’ve not developed it, nor taken it through to its logical conclusion. Maybe they don’t want to sound like doomsayers?

Nor do I!  But if you jump off a cliff, you’re going to go splat at the bottom.  I figure that pointing to certain economic verities and proposing the only way we can eliminate these repetitive boom-crash cycles certainly aint doomsaying.  It offers a way out.

Other analyses of the GFC are all over the place because people haven’t defined the problem, so I’ve come to the conclusion that it might be cathartic to do a commentary from my point of view as this depression unfolds.  (Although my blogsite was launched on 26 August 2009, you’ll see I’ve also included some earlier items.)

“The Depression” blog might even help to fill the void about the incredible extent to which maladjusted real estate ‘markets’ control and direct economies. I hope so.  They aint real markets until we capture their rent.

And … you’ll find no twee obfuscations about the parlous state of the study of economics here!