worth a read.....this is what we are seeing before our very eyes IMO:
Long term readers will recall that I see Australian property not as a “market” but a highly-distorted quango (for you debs!!....just for you!) that has largely eaten the economy. Recall the 2011 post that laid out this view:
When the baby-boomer generation first took power and reshaped Australia in the 1980s, the promise was for a new kind of meritocracy. The old “Australian Settlement” described brilliantly by Paul Kelly in the End of Certainty - a protectionist social contract between unions, industry, government and the people – was swept aside in favour of a neo-liberal vision. The new world demanded an open, more dynamic Australia. An Australia that rewarded entrepreneurial effort and flexibility. A productive Australia.
For a while it worked. Australia dropped its tariffs, deregulated government enterprise, most especially the banks, and after a false start at the end of the eighties, embarked on an historic productivity boom.
But at some point a distortion began to grow at the heart of the new vision. It’s dark seed was sown by the original architects of the new world when they back-tracked on the removal of negative gearing tax policy for housing in the 80s.
By the late 1990s it had become a cancer eating away at the achievements of the baby-boomer generation and a second wave of bipartisan supporters of the new vision took power only to further deregulate finance and install fabulous capital gains tax privileges on property investment.
As we entered the 2000s, the new vision threatened to stall and the same baby-boomers that had convinced us all to embark on their neo-liberal journey deployed new, more direct subsidies for houses, in the form of first home buyer grants that sought to co-opt the baby-boomer’s children in the same now rapidly distorting vision.
Through the 2000s, the neo-liberal vision became virtually unrecognisable.
The dynamic and open Australia mutated into a speculative abomination based almost entirely on houses.
Our precious capital, freed in the 80s to find the most productive outlets possible became instead the key stone in a system of offshore borrowing and asset inflation.
The final death knell of the new vision surely came in 2003 when the old national good luck arrived in the nick of time. As the housing quango (!!!!) lay dying in 2003, along came a commodities boom the likes of which nobody has seen in century. The transformation was complete. The entrepreneurial vision of those pioneering 80s baby-boomers replaced with happy-jack dirt salesmen and a bloated entitlement state that now had the money to keep its most hideous progeny, the great, quivering housing sack that hung from its belly, alive.
In 2008, when the world woke up and the mutated vision was revealed in all its horrible form, the government deployed every available mechanism to keep the thing alive. Unheard of guarantees across the financial system, moral hazards like leaves in the wind, wholesale immigration, massive direct subsidies, huge general stimulus.
I could just as easily add one final paragraph today:
As Australia plodded through its post-mining boom years, the sensible policy choices of addressing the aftermaths of Dutch disease and failing competitiveness, which would return Australia to a productive economy, were spurned by a central bank focused on the short term considerations of renewed asset inflation.
Ignoring the lurid warnings of crashed Western asset markets and economies of just a few years earlier, housing inflation was adopted as a macro-economic stabiliser to offset tumbling mining investment.
The new baby-boomer Coalition Government chimed in by auctioning the nation’s soul to the highest Chinese bidder via special visa programs designed to suck corrupt capital largely into real estate.
I have often wondered how it is that Australia’s politico-housing complex will end. It has led a charmed life and proven remarkably innovative as well. But there is only so long that a nation’s elder generation can gorge open-mouthed upon the plump flesh of its young before they, or some rare ethical elder, fights back (this is us here, guys and gals and poster-ers !!!). Most of us are parents after all, and baby meat don’t taste so good when it’s your own progeny.
Some readers argue that it will end in a great and cleansing crash. I can see that having some benefits, though I worry about the experience of the UK, the closest comparable context, which showed that a crash unleashes hitherto undreamt policy extremes to revive the cancer. Even so , it must be said, it is still dying.
My central thesis has been that it will take a political shift to destroy the great choking goiter. On that, I’ve mused that an Australian Youth Party based upon liberal principles could restore market discipline to the housing market and economy more widely.
Though nothing has come of that, another interesting phenomenon is transpiring that suggests the end of the complex is approaching, whether via a controlled reform or disorder. Pressure is rising within the polito-housing complex itself from political actors, some deliberately and others unwittingly.
Consider. Just now we are embarked upon a generational financial inquiry. I have been hard upon its leaders, David Murray especially, but his public appearances and utterances have been convincingly dedicated to restoring resilience to the financial system, rather than the politico-housing complex narrative of funding future growth, perpetuated largely by the banks. The only way to restore resilience is to dramatically increase capital levels and that, by definition, means less lending. If Murray and his team deliver it will be a major step forward in reforming the bubble away, though the inquiry and any subsequent regulatory and legislative change are two very different things.
Even more interesting and unsettling, the vicissitudes of democracy are shoving the complex towards a disorderly end in a peculiar parliamentary mix that is no longer able to bulwark key bubble supports.
The Government has embarked upon a campaign of Budget repair that is designed to boost the complex by ensuring that public bank guarantees are sound. However, even if it doesn’t understand the economics, the senate can see the extraordinary unfairness in the Budget and won’t let it pass. The impasse has reached a point so worrying that the four major bank economists feel it necessary to take the extraordinary step of appearing together (there could be a job for the ACCC here?) at the national business daily to hose down concerns about the politics and existence of the bubble, which are in fact the same thing. One can only wonder at what dark whispers among the foreign investors that fund the complex have triggered this Megabank (wondering if this should read as : Team Bank Australia?!)display.
The irony is that the only thing that Megabank has achieved is to underline the fundamental problem.
If the Government tries to repair the Budget, it tightens the growth straight jacket so much that households are spooked and the bubble is threatened. If Budget repair is to be adjusted for fairness, it must tackle key bubble supports like tax expenditures, undermining its very purpose. If the senate prevails and no fiscal tightening is achieved, the lack of Budget repair ensures that Australia enters the next external shock with insufficient fiscal fire power to guarantee and bail out the banks.
The politco-housing complex has turned upon itself and whether by benign design or malign neglect it’s Waterloo is coming.
http://www.macrobusiness.com.au/2014/08/the-politico-housing-complex-has-begun-to-eat-itself/
....IMO....very, very scary
