SocialMotive

The slight flurry of newspaper articles on the housing market turned into a blizzard this week (a ‘best of’ collection is at the end of the post).  It is tempting to take up each article in turn and weigh the strengths of their arguments. But that might bore both you, and me, to tears.

Instead I will throw a curve ball. Please bear with me. Animal Spirits was written by two US economists – George A. Akerlof and Robert J. Shiller. They are part of an emerging field of behavioural economics — a branch of economics which has arisen to compensate for the perceived shortcomings of neo-classical thought. Duke University put together a great video primer on the topic.

In Chapter 15 the authors take a hard look at the causes of house price booms. Taking the time to demolish the majority of arguments that are touted by property boom mongers. In their cross hairs, is the argument that house prices will always go up in response to land shortages and population growth.

They argue conclusively that rapid price escalation in the housing market, is driven as much by human psychology, as it is by any of the economic factors cited in the press.  In particular our intuitions and foibles as they relate to fairness, confidence, story telling and money illusion. Read the rest of this entry »

Today The Age reported that our mortgage debt topped AUD$1,000,000,000,000. Something seems odd when in twenty years household income only goes up 3x, but investors manage to take on 30x the amount of debt.

I still remember coming back in 2002 from London with cash in hand and rather naively calling the top of the market. A friends renovated spacious 1 bedroom in Glen Iris sold for $160k and we thought he had made out like a bandit. An agent offering a 2 bedroom in Carlton for $260k was taking you for a ride.  In today’s market both of those places will have doubled in price.

Real-estate agents use phrases such as “it looks like the market will be good this year” in response to glowing predictions of future house price growth. I’ve met agents I like personally. Unfortunately, as an industry they are like carrion — feeding off the dying hope of a generation priced out of the housing market. Read the rest of this entry »

Debt? We didn’t do it. They did.

Three newspaper pieces stood out this week. All of them proving that I can still be shocked by some politician’s innate ability to confuse a relatively straight forward subject matters.

For those who are too busy to read the broad sheets, here is a upshot of three topics that appeared in The Age newspaper between the 9th and 11th of February. Senator Joyce got strung up for questioning Australia’s debt levels by a hardball Labour party.  Australia’s largest bank, CBA, opined that Australia cannot afford to adopt conservative international liquidity standards. Vic Urban’s got taken to task for daring to sell affordable housing in Melbourne at a bargain base price of around $800k .

I thought I would take the time to clarify exactly what debt is, why it matters and how it relates to our housing obsession. If anyone finds a better explanation – send me the link. Read the rest of this entry »

Superannuation is one of the more lauded policy innovations in Australia. It has spawned a multi-billion dollar industry and a slew of high paying jobs. It absolves Government of considering how it will support a minimum living standard for future generations of retirees. It provides a way for individuals to minimise their tax on retirement savings.  Our media limits itself to a relatively safe territory of reporting on the relative performance of funds and the ever present threat of policy changes by the Government. What are we missing?

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Property has an enormous pride of place in the Australian consciousness. The price of a property goes up and there are sighs of relief from real-estate agents and politicians. Any talk of prices going down is referred to as a ‘threat’ to our common prosperity and wealth. If only it were that simple.

For the great majority of the population who purchased their first property before the year 2000, the ever escalating prices appear like money growing on trees. Our banks even let you get hold the cash without having to sell the property. What can possibly be bad about that? It turns out it may not be quite the win-win most individuals expect.

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