T‑Shirts for Kosciousko

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As is wide­ly known, I will be walk­ing from Aus­trali­a’s Par­lia­ment House to Mount Kosciousko–a dis­tance of 225km–as the result of los­ing part of a bet with a well-known “bull” on prop­er­ty in Aus­tralia, Rory Robert­son. I am oblig­ed to wear a T‑Shirt with the words “I was hope­less­ly wrong on house prices: ask me how” embla­zoned on it.

As I explain on www.keenwalk.com.au, I was ambushed with this bet in front of an audi­ence of 80–100 peo­ple at Par­lia­ment House. I have respond­ed in kind by turn­ing the walk into a protest about the man­ner in which keep­ing prop­er­ty prices high has come to dom­i­nate eco­nom­ic pol­i­cy in Australia–with what I pre­fer to call the First Home Ven­dors Boost being the most out­ra­geous exam­ple of that.

The designs for the T‑Shirt con­tin­ue this theme. I will pro­duce at least 3 of designs shown below.

Design No. 1 high­lights the impact of the First Home Buy­ers Grant over the last 30 years. It was first intro­duced in 1983 by the Hawke Labor Gov­ern­ment, then expand­ed in 1988 as a way of boost­ing the econ­o­my when it was feared that the econ­o­my could enter a reces­sion. It was rein­car­nat­ed by Howard in 2000 as a tem­po­rary boost to help the hous­ing sec­tor adjust to the GST, then tem­porar­i­ly dou­bled in 2001 as part of a stim­u­lus pack­age to avoid a reces­sion, and of course most recent­ly dou­bled again in Sep­tem­ber 2008 by the Rudd Gov­ern­ment as part of its anti-GFC pack­age.

The First Home Owners Grant and House Prices
The First Home Own­ers Grant and House Prices

The graph shows the ratio of house prices to house­hold dis­pos­able income from 1980 until now, with the dates on which the Grant was either intro­duced or dou­bled marked by the dot­ted lines. It’s obvi­ous that the Grant trig­gered growth in the real cost of hous­ing every time, with its most spec­tac­u­lar “suc­cess­es” being in 1988 and 2001.

Unlike some com­men­ta­tors, I don’t blame the gov­ern­ment entire­ly for the house price bubble–there I point the fin­ger at a finan­cial sys­tem which is always will­ing to finance a Ponzi Scheme when one can be found. But it’s clear that the First Home Own­ers Grant seed­ed the Ponzi Scheme by set­ting off a buy­ing fren­zy every time it was intro­duced.

Design No. 2 high­lights what has always been the main game for me: the growth in Aus­trali­a’s debt to GDP ratio, dri­ven by lend­ing for spec­u­la­tion rather than lend­ing for pro­duc­tive invest­ment. This is the third debt bub­ble in Aus­trali­a’s eco­nom­ic his­to­ry since 1860, and it is by far the biggest.

Debt: the engine beneath the bub­ble

Since noth­ing has been done about this debt level–in fact, Aus­tralia has in part got out of the GFC by encour­ag­ing debt lev­els to grow once more–this is still the force that I expect to see dom­i­nate Aus­trali­a’s future eco­nom­ic per­for­mance. If pri­vate debt con­tin­ues to rise, then the appar­ent post-GFC boom will con­tin­ue. But if the house­hold sec­tor joins the busi­ness sec­tor in delever­ag­ing, then the change in debt will dri­ve aggre­gate demand down and Aus­tralia will find that the GFC is not quite behind it.

The most recent data indi­cates that the bub­ble in house­hold debt burst in the month that the First Home Ven­dors Boost expired. In “Home loans slump most in a decade”, Chris Zap­pone notes that the ABS has report­ed that:

The num­ber of home loans plum­met­ed by 7.9 per cent in Jan­u­ary, the biggest fall since June 2000, after the phas­ing out of last year’s first-home buy­ers’ grant boost and inter­est rate ris­es sapped demand.

Jan­u­ary’s result fol­lows a revised 5.1 per cent drop in Decem­ber, the Aus­tralian Bureau of Sta­tis­tics report­ed, cit­ing sea­son­al­ly adjust­ed fig­ures. Econ­o­mists had been pre­dict­ing a 2 per cent increase in Jan­u­ary

Total hous­ing finance by val­ue fell by 3.3 per cent in Jan­u­ary, sea­son­al­ly adjust­ed, to $21.2 bil­lion.

Design No. 3 shows just how far out of line Aus­trali­a’s house prices are with the rest of the world. Japan had its own Bub­ble Econ­o­my peri­od in the 1990s, which drove Japan­ese real estate prices up to a peak from which they have spent the last 20 years descend­ing; the USA’s bub­ble took off in 1998 and peaked in 2006; but both these are dwarfed by Aus­trali­a’s roller coast­er rise ever upwards.

The Kan­ga­roo Bub­ble vs the Set­ting Sun and the Very Bald Eagle

Nom­i­nal prices only ever fell once–in 2008 pri­or to the First Home Ven­dors Boost, which set off the lat­est bub­ble. Unfor­tu­nate­ly, both sides of Aus­tralian pol­i­tics mis­tak­en­ly iden­ti­fied falling house prices as the cause of the GFC, and there­fore agreed to this pol­i­cy to inflate house prices even fur­ther, which was dis­guised as a means of help­ing new buy­ers into the mar­ket.

(Of course, the real cause of both the appar­ent pros­per­i­ty before the GFC, and the GFC itself, was not the bub­ble in house prices and its burst­ing, but the bub­ble in pri­vate debt that pro­vid­ed the lever­age that drove house and share prices up, and its burst­ing in 2007-08. This real cause was ignored by all politicians–and all but a hand­ful of economists–until it was too late.)

Design No. 4 shows that Aus­tralian house prices have fall­en when adjust­ed for infla­tion, and Aus­trali­a’s infla­tion rate has been high­er than that of Japan or the USA. But even after adjust­ing for infla­tion, our house prices are twice as high as Amer­i­ca’s, and 2.5 times as high as they were back in 1986 when the ABS began record­ing them.

The Kan­ga­roo Bub­ble vs the Set­ting Sun and the Very Bald Eagle

Final­ly, Design No. 5 empha­sis­es the fol­ly of pro­ject­ing cur­rent trends in asset prices into the infi­nite future. This is the famous Heren­gracht Index, which tracks the real price of hous­ing on Ams­ter­dam’s wealth­i­est canal from 1628–just before the Tulip Bubble–until 1973.

350 Years of data from the land of tulips

350 Years of data from the land of tulips

If you had been born in, say, 1735, you might have died as an 85-year-old, con­vinced that house prices always fall, com­pared to con­sumer prices, since for most of that peri­od house prices did in fact fall in real terms. How­ev­er if you had been born in 1820, you might have reached our mod­ern retire­ment age con­vinced that you could live off ris­ing wealth from your hous­ing assets–since they would have risen since you were born–only to find them declin­ing for the next 60 years.

Final­ly, after focus­ing on the housed on the front of the T‑shirt, the back turns its atten­tion to those with­out homes: the logo is for Swags for Home­less, the bril­liant Aus­tralian char­i­ty that is doing some­thing now for the home­less, by pro­vid­ing a home­less per­son with a light, water­proof, fire­proof portable bed for every A$60 dona­tion that it receives. Click on the image below to make a dona­tion to this very worth­while cause.

As not­ed, I’ll pro­duce at least three of the above designs. The min­i­mum order I can make is for 15 copies of each T‑Shirt, and the pro­duc­tion costs are rough­ly $50 each. I will need to wear about 14 of these myself on the run; the oth­ers will be avail­able for any­one who is will­ing to do the whole Walk with me (so far there are 3 tak­ers).

I will also pro­duce more copies if peo­ple are inter­est­ed in buy­ing them. If you’d like to buy a T‑Shirt, then please make a dona­tion to The Walk of $80 or more (for an Aus­tralian address) or $100 (for an over­seas address) using the donate wid­get there. Be sure to spec­i­fy which design (1 to 5) and your mail­ing address in the Com­ments field for the dona­tion.

Designs 1 and 2 are cer­tain­ties; I’ll also pro­duce either Design 3 or Design 4, depend­ing on feed­back here. Design 5 may be pro­duced if there is enough demand. If you want any of Designs 3–5, be sure to spec­i­fy a fall­back Design if we don’t get enough orders to go ahead with all 5 T‑shirts (if you spec­i­fy Design 3 or 4 and we actu­al­ly make the oth­er, we’ll auto­mat­i­cal­ly swap over since there is not a lot of dif­fer­ence between them).

Final­ly, if you want some anti-bank para­pher­na­lia that is a bit more gen­er­al than what I’m offer­ing here, take a look at the site “I hate the nab”, where there is a range of T‑shirts and oth­er items for sale.

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