Economic conundrums
Economics - - Posted on March, 18 at 10:03 pm by Ken L
A man should know his limitations, as Dirty Harry used to say, and I don’t profess to be an economist. Maybe that’s why I puzzle over stories like these:
1. Australia has just enjoyed 14 years of uninterrupted economic growth. Unemployment is lower than at any time since 1974. The nation is awash with money. Yet the organisers of the Sydney Easter Show have tried to increase the number of free activities in recognition of the ‘hardship out in the communities’. Does this mean that just as large parts of the outback are condemned to be perpetually in drought, Australians are destined to be in eternal economic hard times? I guess economists will need to redefine a recession as ‘not being able to afford all the stuff we want right now’.
2. The front page story in the SMHerald, faithfully plagiarised by ABC News 12 hours later, reported that more old people than ever still have a mortgage. Now as an irresponsible lifelong renter I haven’t paid a huge amount of attention, but haven’t banks spent enormous amounts of time and money in recent years persuading people to turn their mortgages into a permanent source of cash to buy cars and boats and take overseas holidays? In which case, I’m at a loss to understand why anyone is surprised that retirees still have their mortgages. Wasn’t that the banks’ whole idea?
3. We continue to suffer a ‘housing crisis’. Politicians from both parties put on their solemn faces and declare that Something Must Be Done (usually by somebody else). Plain blunt-speaking people call this bullshit and trumpet that we have a problem of supply and demand. Just release more land and more houses will get built and Bob’s your uncle, seems to be their solution.
One thing about all this kept nagging at me. Around here where I live there’s no shortage of houses. The problem is that they are not available for people to live in … they are commodities, traded for profit. Letting anyone live there might spoil their market value, plus involve complications like leases and stuff; it’s much easier just to buy and sell them while they are still in their plastic wrapping.
Anyway I went looking for some data about unoccupied housing and guess what? Other, smarter (or at least more energetic) people thought of my idea ages ago and identified the problem of ‘house hoarding’. The Contrarian Investors’ Journal points out that:
1. There is no overall housing shortage. The increase in the number of dwellings [from 2001 to 2006] far exceeded the population growth and household formation. Furthermore, the increase in unoccupied dwellings is almost triple the increase in population growth.
2. Hoarding could be the reason for housing ’shortage’.
Back in 2001 the ABS noted, in a discussion of Australian housing stock, that:
A further feature has been a considerable increase in the unoccupied share of the housing stock - from almost 4% in 1911 to over 9% by 1996. This reflects the shift from a period of housing shortage to one of housing affluence, with many of the 680,000 unoccupied dwellings identified at the 1996 Census being second or holiday homes.
It’s reasonable I think to assume that this trend has accelerated since 1996.
In other words it seems to me that the economic crises and hardships that preoccupy the media are largely due to our unprecedented national affluence. Oh well, I guess economics always was the dismal science.
Posted in Economics |
March 19th, 2008 at 12:12 am
I think these things need to be done:
1) Release more land for housing
2) Major upgrade of public transport - costing
10s of billions of dollars.
3) Restore CGT to pre-Howard/Costello levels
so that investors back-off and stop
inflating house prices. They’re homes not a
commodity.
4) Massively increase energy efficiency
5) More efficient stormwater and wastewater use
6) More renewable energy
That might even cause a dreaded budget deficit in the short-term. But the for the medium and long-term, it’ll all be worth it
March 19th, 2008 at 12:19 am
As another lifelong renter I have my own pipe dream of a Bear Sterns moment when all these house hoarders have to give them up at realistic prices just to stay afloat. They (self funded retirees) would need to take a big hit of course, but…… not my problem.
March 19th, 2008 at 1:51 am
Hopefully, when the housing bubble bursts and plenty of these greedsters run back to their holes, those houses will be broken up into flats or used to accomodate students etc. Some of Alistair’s ideas will then need to accomodate such transformations.
Your comments are spot on Ken.
Personally, i’m convinced this housing catastrophe overseas was intentional…
caused not only by tax cuts for the rich by Bush which saw heaps of irresponsible investors/speculators sow the seeds and then flame the crop fire…
& the 1999 repeal of the Glass-Steagall Act, signed by Bill Clinton that allowed commercial & investment banks to consolidate (another reason the Clintons should be intensely scrutinised, who knows what effect the 98/99 “impeachment trial” etc. had on decision-making?)…
but also changes to Chapter 7 bankruptcy laws in 2005 (so eagerly pursued by the Busheviks & some of their Democratic Party “Hawk” mates)
…& a negligent lack of regulation of the “housing & financial” systems, not to mention “Ratings Agencies”…& the incompetent/corrupt use of interest rates by Greenspan et al in the Federal Reserve over the past decade…
& the irresponsible promotion of shonky lenders and credit card companies by the mainstream media…
& huge govt debt returned due to an escalating War…based on lies and deceit…
and councils and municipalities being urged to invest in wobbly funds…
which all leads to a convenient “domino effect” resulting in a gradual, ever-quickening financial collapse that spreads its wave across the seas…
& leads to nice little bailouts by the taxpayers via THE FED for some of the swines who ENABLED this crime against the populace…
whilst other mongrels have already bailed w/ huge bonuses and payouts and paid off their mansions, shifted money offshore, bought up shares of weak stocks, made money on the falling US dollar, purchased tangible assets like gold & artwork…& might even own businesses (think Clean Energy…& WAR) that will now benefit from the crash…& in turn can borrow more money for almost 1% interest rates thanks to Mr. Bernanke et al…
and the poor average home owning sucker who was hypnotised by the media (think auction shows etc.), word of mouth, Lenders, squillions of letters and emails offering credit, financial consultants, the Reserve Banks, the Busheviks and so on…well, they get left w/ a ton of misery and a lifetime of debt…& OWN…NOTHING.
And the US taxpayer is left w/ a BANKRUPT & BUSTED government circa…well…just about when the Dems get back into power.
“Nope, sorry people…this GOVT is OUT OF BUSINESS…the door is closed…we can’t afford to provide decent & affordable healthcare, housing & education…or social security…and we certainly ain’t wasting valuable dollars on sewers, parks, libraries and such for YOU…’cause the Federal bank is BUST. No more of them pesky earmarks, ya here?”
Yep, the shelves are empty, the vault has been looted…and the crims are out there telling you they can provide you w/ decent jobs and assistance if you send your son/husband/grandson/daughter/wife/granddaughter to WAR.
WAR IS THE ANSWER to all of your problems friends. Everything else is just too hard. Especially when we need other Nation’s energy. Like them PERSIANS. And Tibetan hatin’ Chinese.
Uncle Sam says: “I want you”
——
WELCOME MY FRIEND TO THE GREATEST CON ON EARTH
…but for the last one.
You can’t say you weren’t warned.
March 19th, 2008 at 8:06 am
I’m not picking on Big Al, but he made an aside that incrementally adds to a trend and opens an opportunity for me to bitch a bit.
Suddenly it is fashionable to blame self-funded retirees (baby boomers, I s’pose) for all the fiscal ills of the country. We are the ones who had the wit to accept that the Government tit was fickle and demeaning; that it was better to work for any wage than to dole bludge; to accept a little less when buying anything at all, than to crave that $100 T-shirt; we recognised the value of the plain wrap brands (well, not so much now); we found the necessity of the 4WD to be actually not necessary at all; saw the stupidity and gulliblity of the credit card; lived on mince, plain bikkies and chicken in order to afford school fees; and get this - we SAVED our money in a bank (not an Australian bank, I mean, how stupid can you get?)
Me, and many like me, saw the future and decided that it was uncertain. Therefore we aimed at self support.
I live on 5 acres of semi rural land and the house that sits upon it has three bedrooms and a study, fully A/C, manicured lawns (when I feel like a manicurist) two modest cars in a tiled 4-car garage. I buzz off on a o/seas holidays every two years blah, blah, blah - you get the picture and, at the age of 57 I own the bloody lot outright. Its a fruits of my labour thingo.
In brief, I worked and went without in order to get MYSELF in the solid position I am in today. Those pesky Jones’ that I didn’t bother keeping up with now ask me for advice and tell me how lucky I am. (Yeah, the harder I worked, the luckier I got.)
Disclaimer - Yes I am smug. Yes I do realise I contribute to the phantasm that is the Carbon Footprint. Yes, after years of “Please” I now say “Fcck You!”
March 19th, 2008 at 1:55 pm
You’re right about at least one thing, mate - you’re no economist.
(1) is pure marketing fluff to cover the fact that entry to the show is currently poor value, causing declining attendances which they’re being forced to address.
On (2,) the bit about more older people having mortgages is not teh evil banks’ fault but teh evil Keating government’s. It’s exactly what critics of compulsory superannuation (including me) predicted at the time. The fact that you’re gonna have a lump sum or pension when you retire means both borrowers and lenders will, very rationally, be much more willing to arrive at retirement carrying mortgage debt (I know I will be - I’ve got more money in super than I will need then and I need the money now).
So compulsory super hasn’t increased saving much, but it has helped drive up the price of houses by making debt more attractive.
On (3), the Productivity Commission took a good long look at this recently. They concluded that in the ACT and NSW (but not elsewhere) a part of the shorter term problem was indeed insufficient land releases. But that wasn’t the longer term force pushing prices up - a combination of inevitable geography, rising incomes, immigration and poor transport policies were the culprits (as noted, I’d have added superannuation). It’s notable because at the time the PC’s political masters wanted it all to be blamed on teh stupid States not releasing enough land - ie their conclusion was inconvenient to Mr Howard.
(4) “price rises are the fault of hoarding speculators” is a popular theme as old as capitalism (it used to be “Jewish speculators”, BTW). It’s rarely true. For one thing, to speculate successfully you’ve got to buy cheap and sell dear - which pushes prices up when you’re buying and down when you’re selling. For another, it would only ever be possible if you’d cornered the market and so can manipulate prices, and I don’t think anyone’s ever going to corner the Oz property market. And just why would any sane property investor deliberately forgo rental income?
March 19th, 2008 at 2:29 pm
I’m always intrigued by the personally abrasive tone of your comments DD. I don’t know if it’s just your personal style or if you’re permanently pissed off about something.
However on topic, I’m not exactly sure which bits of my post, if any, you are disagreeing with. I was chronicling the vagaries of the human condition, not seeking to ‘blame’ anyone for anything or to propose solutions to problems.
Personally I would have thought that a shortage of houses could be partially explained by increasing numbers of people buying second and third properties and keeping them for their personal use as occasional holiday homes or weekenders. I used to know a family who had five. And regardless of whether they are sane or not, I can assure you that many investors in this neck of the woods choose to leave their properties untenanted for long periods. I guess if you can pick up a lazy $50,000 or more per annum in capital gains, why would you bother with estate agents and tenants and leases and bonds and arguments about the hot water system and all that crap?
Of course there might be other explanations for the ABS data I referred to, but offhand I can’t think of any.
March 19th, 2008 at 8:38 pm
I can see what you’re getting at, Ken, and I agree largely with the basics of DD’s argument.
1 - yes, totally agree. It’s just populism. The show organisers will advertise all the free crap to get the punters in the door, but then screw them with all the other crap, so the ‘poor, hardworken families’ will end up spending much more than they planned.
2 - It’s hard to generalise about this sort of thing. I know of retirees who just plan to die rather than repaying their reverse mortgage. To them, that was the idea. Then there are those who are drawing on the equity now and will repay it with super later. I don’t know which is the norm, or if the trend is really all that worrying.
3 - The reasoning on the attached link is sound when it discusses the sheer numbers of occupied and unoccupied dwellings. However I would suspect that a lot of unoccupied dwellings are in Byron Bay, the NSW Hinterland, the Gold Coast etc. The bulk of the hoarded properties, I would guess, are empty holiday homes located in places where the owner (and no one else) actually wants to live. They aren’t tenanted because there is no demand, whereas I doubt very much that there are too many unoccupied inner city dwellings. Surely in most cases you would live in or rent out such a property?
March 20th, 2008 at 11:28 pm
To have multiple dwellings untenanted must mean the owner/s are wealthy. Whether they are owned outright or mortgaged to the hilt, the owners must have a very healthy income to have all that capital tied up and earning zip or to service the mortgages.
Quite frankly, no-one in their right financial mind would do so.
March 21st, 2008 at 11:28 am
‘Prosperity’, Coalition-style …
The darker side of our apparent good fortune
Dewi Cooke and Ben Schneiders, The Age, 8 August 2007
[T]he Bureau of Statistics’ Australian Social Trends report has … highlighted the darker side to our apparent good fortune, in which more than 2.5 million people (including one in five children) live in households with weekly disposable incomes of $262, less than half that of those on the middle rungs of society.
Furthermore, many are struggling to heat their homes, put food on the table and pay their bills.