Bubbletopia: Australia’s Land of the Never Never
Bubbletopia: Australia’s Land of the Never NeverBy Paul Egan
Has a cruel delusion befallen this grand antipodean paradise? Girt by sea, but apparently without boundless plains to share. Eye-watering housing prices require debt contracts written in blood or the sacrifice of one’s first born. Perhaps it is my wicked imagining, for the usurers chime in unison that we are in a bubble-less sanctuary, with minor debt overhangs (hang overs?), frothy sub-pockets and minor bouts of exuberance that is treatable with minor antibiotics. For instance, CBA’s head usurer, Ian Narev, boldly proclaimed in recent times: “…we don’t think we have a housing bubble.”[1] Ian is not alone in his assessment: ANZ CEO Mike Smith: “We’re a long way from a bubble. There has been an adjustment back, in terms of the market.”[2] Westpac CEO Ms Kelly: “… said she believed that Australia was ‘nowhere near’ a housing bubble.”[3] NAB CEO Cameron Clyne: “We don’t see, certainly in the housing market, we don’t see a bubble emerging.”[4]
The Big Four must be doing ‘God’s Work.’ Clearly, a heavenly state of profit growth and ROE is divine providence, unrelated to a credit flood in the residential market. Being nowhere near, a long way from, adjusting back, and far from the emergence of bubble, there is only one possible explanation remaining: “We’re different here.” How do we know? Why, FIRE sector mouthpieces guarantee “It’s a structural upwards permanent plateau reflecting a chronic housing shortage and idiotic government policy, Chinese investors, Siberian investors, the mining boom, the dollar, RBA jaw-boning, RBA buzz-cuts, interest rate levering, consumer pop psychology, and Chinese princelings with suitcases full of freshly laundered cash,” allowing every residential property investor to win a prize. Please forgive those deluded classical and post-Keynesian economists for thinking this is simply a Ponzi-financed credit bubble, driven by rabid investors seeking a quick buck in financialized dwellings, spurred on by mere 100s of billions of tax breaks over the decades and the obscene privatization of geo-rent.
The items you list certainly affect land prices, Robert, but once it’s understood that land prices are the private capitalisation of land rent lost to the community, it can be seen that these are actually secondary considerations. The public capture of more land rent by way of rates and land tax could reduce land prices significantly. (i.e. There’s less land rent in private hands to be capitalised.)
High land prices in Australia are primarily the result of low interest rates, population growth through immigration and reasonably full employment. Prices won’t fall until interest rates rise a lot (unlikely in the near term), immigration is ceased (very unlikely) or unemployment spikes (starting to look probable).