Sur­vey on Aus­tralian House Prices

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I have been asked to post a sur­vey to gauge inter­est in a poten­tial finan­cial prod­uct related to Aus­tralian house prices. If you are inter­ested in such a prod­uct, please click here to take this sur­vey.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Anti­Moral­Haz­ard


    view EVERYTHING with a does of scep­ti­cism, unless you really con­vince your­self to the mer­its of a par­tic­u­lar posi­tion.”

    I’m afraid your ‘hypoth­e­sis’ must be viewed with a TRIPLE dose of scep­ti­cism whereas oth­ers’ can be viewed with a sin­gle dose of scep­ti­cism. You’ve posted non­sen­si­cal charts and expects to be taken seri­ously?

    With­out deeper under­stand­ing of what those “things” are, any asser­tions that “neg­a­tive gear­ing = exu­ber­ant prop­erty prices” is just a spec­u­la­tion, in my opin­ion, as there may be other, more promi­nent fac­tors dri­ving the prices up.”

    Of course, those who ben­e­fits from the sta­tus quo will ben­e­fit from delays caused by analy­sis paral­y­sis.

  • Anti­Moral­Haz­ard


    So, which exchange rate did you use to pro­duce that graph?

  • Anti­Moral­Haz­ard


    Since you think there’s a lot of myths in this blog, how about YOU point­ing out what the prob­lems with the var­i­ous posi­tions with evi­dence?

    Intro­duc­ing var­i­ous dubi­ous ‘hypoth­e­sis’ does not prove any­thing at all.

  • Anti­Moral­Haz­ard


    Let me pro­duce an equally dodgy chart that con­tra­dicts your charts.

    It shows a clear uptrend in UK wages since Jan 2000. On the other hand, your chart implies a fall in UK wages.

  • Anti­Moral­Haz­ard
  • TruthIs­ThereIs­NoTruth


    Uni­ver­sal “laws of eco­nom­ics” apply to all coun­tries equally but because each has a dif­fer­ent set of con­di­tions, the out­comes will be dif­fer­ent. ”

    Firstly well said, I’ll add that there no uni­ver­sal laws, or at least they are in a con­stant state of flux. But even that is not a ‘uni­ver­sal law’, some­times the laws do not change. 

    On neg­a­tive gear­ing. The argu­ment has turned into whether or not –ve gear­ing has con­tributed to higher prices. I agree to an extent that this is very dif­fi­cult to prove but by reverse logic, if –ve gear­ing was taken away surely you must agree that prices would drop. Whether you can con­clude from that the reverse cau­sa­tion is another mat­ter.

    Hous­ing is a pub­lic util­ity, in the sense that it serves to house people,(not in the communist/socialist sense). Point is that over the long run the amount of hous­ing should roughly match the need to house peo­ple. Ignor­ing hol­i­day homes and home­less­ness every­one needs a roof over their heads. Now some peo­ple will never own a home whether by choice or eco­nomic cir­cum­stance, there­fore there is a need to have peo­ple will­ing to front up cap­i­tal to allow peo­ple to be housed in exchange for rent. 

    But in the mid­dle of it we have investors com­pet­ing with peo­ple that do want to own a home in the same space. Gen­er­ally investors have an advan­tage here because pre­sum­ably they are wealth­ier and have greater access to lever­age. From this per­spec­tive it is fun­da­men­tally unfair for investors to receive a rebate from inter­est pay­ment, as a first home owner I would like the same thing on my inter­est pay­ments!!!

    But investors are peo­ple too, right… They also need a place to live. So to take advan­tage of –ve gear­ing, you gear up the invest­ment prop­erty to the max and pay­off the place you live in asap, this is a wealth trans­fer mech­a­nism in the direc­tion of peo­ple who are in a posi­tion to have a port­fo­lio of invest­ment prop­er­ties.

  • Anti­Moral­Haz­ard

    Another aus_ed-style dodgy chart…

    It shows that UK and AUS aver­age wage growth are almost iden­ti­cal, until when the UK hous­ing bub­ble burst.

  • slaphappy

    TruthIs ThereIs­NoTruth

    You’ve adopted a fair and rea­son­able approach.

    How­ever, its hard to imag­ine investors are crowd­ing would be owner occu­piers in the new home mar­ket.

    Investors can claim depre­ci­a­tion on fix­tures and fit­tings for the first 7 years on a newly con­structed home and since rental yields are lower these prop­er­ties gen­er­ate a higher pro­por­tion of rental loss.

    Investors also face the risk of rent delin­quency which is itself a rental loss.

    If neg­a­tive gear­ing were to be abol­ished the ten­ancy laws would need to changed to allow own­ers to evict rent default­ers in a timely man­ner.

    Rental bonds would also need to be increased sub­stan­tially to cover the cost of poten­tial prop­erty dam­age.

  • space­bar

    FWIW, Weis­s­rat­ings has just intro­duced a sov­er­eign debt table on 47 coun­tries. Access is free but requires a reg­is­tra­tion. From the home page go to “Rat­ings and Research”.

    Aus­tralia scores “C+”, China on top with “A” and Greece holds the bot­tom spot with an “E”. The bot­tom seven coun­tries are con­sid­ered “vul­ner­a­ble” and the oth­ers “secure”.

  • aus_ed

    Sov­er­eign debt com­par­i­son on Wikipedia – Aus­tralia towards very bot­tom (rank­ing in oppo­site direc­tion to Weis­s­rat­ings):

    = = =

    If we have more arti­cles in the media about neg­a­tive gear­ing in the com­ing week then, I think, the chance that it will be “addressed” in the com­ing bud­get is pretty high… (look at the bot­tom graph; copied from Google Trends for “neg­a­tive gear­ing”).

  • aus_ed

    Anti­Moral­Haz­ard — Yes, it’s exactly the same data. Now, just apply a rel­e­vant exchange rate to the orig­i­nal data to com­pare “apples with apples” (oth­er­wise you are only com­par­ing rel­a­tive change rate over time). [13500DO018_201103 Aus­tralian Eco­nomic Indi­ca­tors, Mar 2011 table 8.6] . I have cho­sen A$ but it you pre­fer to present it in Pounds, you will get a “hockey stick” type of graph which can really make one “feel rich”. 😉

    Why we always have to put our­selves down so much… we ARE amongst the world’s top economies. It’s very appro­pri­ate to look into the future in prepa­ra­tion for “what’s behind the cor­ner” but dri­ving the agenda of the day based on mis­con­cep­tions or other pop­ulist views can only lead to a dis­as­ter as ener­gies are con­cen­trated on minor things and not the ones that can really make a dif­fer­ence for bet­ter.

    Regard­ing “neg­a­tive gear­ing” dis­cus­sion, “if –ve gear­ing was taken away surely you must agree that prices would drop”. Agree on the basic premise of that con­clu­sion. How­ever, my hypoth­e­sis is that the price drop would be lim­ited only to the prop­er­ties in the mid­dle price range for the rea­sons I out­lined in my ear­lier post. And if other fac­tors than “neg­a­tive gear­ing” are dri­ving the prices up, they will be back at cur­rent lev­els in no time. There­fore antic­i­pated “ben­e­fit” of “cheaper hous­ing for all” may be just a wish­ful think­ing (mak­ing the whole argu­ment for drop­ping the neg­a­tive gear­ing tax con­ces­sion a total fur­phy). But I can also see a pos­si­bil­ity of even worse sce­nar­ios that can put the whole econ­omy into a tail spin, some of which I tried to out­line before. Now, before any­one starts attack­ing me again on this issue, in con­trast to the posi­tion oth­ers have taken in this debate, I am not claim­ing this “will hap­pen”. This is only a hypoth­e­sis that I draw based on my cur­rent knowl­edge and infor­ma­tion I have on hand and, as any hypoth­e­sis, it needs to be thor­oughly tested (time to do it prop­erly is a fac­tor for me). 

    And to put the record straight, for me it is not about prov­ing some­one is wrong – only about point­ing out that some con­clu­sions may not be the only pos­si­ble inter­pre­ta­tion of the phe­nom­e­non, and there­fore should be stated with rel­e­vant caveats and not pub­li­cised as a gospel. 

    Unfor­tu­nately, I can­not devote the time needed to argue each point dis­cussed here with “full length ana­lyt­i­cal paper” and can only point to some evi­dence con­tra­dict­ing “widely held beliefs”. So, just to recap on a few main points I have made regard­ing some of the asser­tions in the dis­cus­sion:

    prop­erty investors = rich” [not true as major­ity earn < $80K pa]

    house prices grow fast and incomes not at all” [not true as increase in prices can be explained to a large degree with the rise in house­hold incomes]

    with neg­a­tive gear­ing in place, prop­erty investors always lose money on rent to claim tax deduc­tions ” [not true, only in the last 7 years and loses are dimin­ish­ing]

    houses in Aus­tralia are expen­sive” [not in com­par­i­son to other cities like Lon­don and espe­cially when one con­sid­ers we do earn sig­nif­i­cantly more on aver­age than peo­ple in the UK; pos­si­bly, we are just catch­ing up to the rest of the world…] 

    neg­a­tive gear­ing = high prop­erty prices” [not sub­stan­ti­ated as economies with­out neg­a­tive gear­ing also expe­ri­enced high prices]

    abo­li­tion of neg­a­tive gear­ing will not increase rents since in 1985 only 2 cities recorded jumps” [incor­rect con­clu­sion since this state­ment ignored what hap­pened before the event and dif­fer­ences in local con­di­tions]

    I think it is enough to shake some of the foun­da­tions for the pre­vi­ously drawn con­clu­sions on neg­a­tive gear­ing.

    Regard­ing hous­ing as a util­ity, it is also pop­u­larly con­sid­ered “the biggest invest­ment one will ever make”. Pos­si­bly, because houses pre­served the value very well in the past (at least as far as the last 3 gen­er­a­tions of Aus­tralians are con­cerned). There­fore, any action that under­mines the future value of that asset is not in the best inter­est of this coun­try and motives behind such action should be ques­tioned. If the level of debt is a per­ceived prob­lem, it won’t be solved by abo­li­tion of neg­a­tive gear­ing and/or by bring­ing house prices down.

    How­ever, by cre­at­ing uncer­tainty about the long term value of that asset media, amongst oth­ers, cre­ate a conun­drum for would be buy­ers… “I would like to own a house but I won’t buy now because the prices are too high and every­one is say­ing they will fall”… “The prices are falling so I won’t buy now because the prices will fall fur­ther”… “Wait, prices have jumped 10% in a quar­ter, so I won’t buy now because every­one is say­ing the prices will fall soon” … and the cycle of inde­ci­sion goes on and on… The bot­tom line is that if you want to own a prop­erty in this coun­try, and hold a full time job, you can afford one. Maybe not in a prime posi­tion with “har­bour views” for a start but there are plenty of bar­gains around. And why not join­ing the “dark side” and buy­ing an invest­ment prop­erty first? Ah, yes, the risk of buy­ing now… The point I am try­ing to make is that, in the end, it is not about the com­pe­ti­tion from investors or other home buy­ers but rather the deci­sion to buy itself. 

    And to fin­ish off, you may argue that sav­ings don’t make us wealth­ier but I bet those peo­ple attend­ing royal wed­ding would be quite presently sur­prised how far 1A$ can go in Lon­don these days. 😉

    Have an enjoy­able week­end every­one and we shall con­tinue next week… 

    By the way, Steve, that ques­tion is still haunt­ing me – appre­ci­ate your com­ment when you have a moment:

  • Anti­Moral­Haz­ard


    Now, just apply a rel­e­vant exchange rate to the orig­i­nal data to com­pare “apples with apples””

    Rel­e­vant’ exchange rate does not make it rel­e­vant as a base for com­par­i­son. You’re still not com­par­ing apples and apples because you are com­par­ing ABSOLUTE prices expressed in com­mon cur­rency. If the aver­age British worker lives in Aus­tralia but earn British wages and buy British houses, then you can argue that it is rel­e­vant.

    The aver­age Chi­nese earns much less than Aus­tralians in AUD terms. Does it make the Aus­tralians much richer? Con­sider the fact that the yuan buys much more in China than in Aus­tralia. Using your unsound think­ing, it can be con­cluded that China has no prop­erty bub­ble because their houses are very ‘cheap’ in AUD and that house price in China are just ‘catch­ing up’ with Aus­tralia.

    but dri­ving the agenda of the day based on mis­con­cep­tions”

    How about apply­ing that to your­self first? Your think­ing aren’t intel­lec­tu­ally sound in the first place. Why should we take you seri­ously?

    my hypoth­e­sis… ”

    I have a hypoth­e­sis too. My hypoth­e­sis is that you are a troll and have a hid­den agenda. Fol­low­ing your exam­ple, I will say that “I can­not devote the time needed to argue each [of your] points [and charts] dis­cussed here with ‘full length ana­lyt­i­cal paper’ and can only point to some evi­dence” that you are a troll.

    Fol­low­ing your exam­ple, I will say that “to put the record straight, for me it is not about prov­ing” that you are a troll.

    Fol­low­ing your exam­ple, I will say that “view [aus_ed’s charts] with a does of scep­ti­cism, unless you really con­vince your­self to the mer­its of [aus_ed]‘s par­tic­u­lar posi­tion [and inten­tion].”

    Remem­ber, it’s just a hypoth­e­sis and fol­low­ing your exam­ple, I will say that “to put things into per­spec­tive, just some thoughts, not based on any spe­cific analy­sis” to accuse you of being a troll.

    So, aus_ed, this is just my hypoth­e­sis. Using your own words, “I am not claim­ing this” as a fact. I’m just sug­gest­ing that, yous­ing your own words, the “pos­si­bil­ity” that you are a troll.

  • DrBob127

    I think this rep­re­sents a pretty big neg­a­tive credit impulse:

  • Philip

    Well DrBob it appears that accel­er­a­tion of home loan lend­ing is slow­ing. Either it is an anom­aly or the peak of the bub­ble has been reached.

  • DrBob127

    Phillip, I’m not sure what it means. but I know enough to rec­og­nize it when I see it. Per­haps the Prof can inter­pret?

  • kys


    The alarm­ing fren­quency and length of your posts really stun every­body here. I won­der if you are one of the heav­ily geared, multi-prop­erty “investors”? Would you like to let us in to your secret? How large are your prop­erty port­fo­lios? Any­way, your trep­i­da­tion and des­per­a­tion are deeply felt and sym­pa­thised in this blog.

    I would also like to thank you for your relent­less efforts to demon­strate var­i­ous spec­u­la­tions of your own. Unlike the prop­erty mar­ket, spec­u­la­tion in this blog won’t bring you a for­turn, and we are in no posi­tion to com­pen­sate your loss, but undoubt­edly your “opin­ions” have enriched this dis­cus­sion.

    Here is a “sum­mary” of your key points I espe­cially pre­pare for read­ers in this blog, new and old, who have got lost in your mumbo jumbo.

    —We are amongst the world’s top econ­omy because our house prices, labour costs and Assie dol­lar all show a “hockey stick” type of graphs.

    [I promise you thou­sands of hedge fund man­agers would love you to death for your superla­tive insight into our “top of the world” econ­omy.]

    —Prop­erty investors are not rich because most of them earn less than $80k p.a., but be hon­est, is $130k repayable over 30 years @7% p.a. for “some­one” earn­ing $100k p.a. such an extreme debt prob­lem?

    [I am won­der­ing who are those “some­ones” hid­ing behind the ordi­nary moms and dads?]

    —If neg­a­tive gear­ing was taken away, the back-of-the-enve­lope cal­cu­la­tion would be up to 20% but more likely 10–15% drop, lim­ited to prop­er­ties in the mid­dle price range. They will be back at cur­rent lev­els in no times.

    [This hardly sounds like a dis­as­ter for a 24-year unre­lent­ing bull run– 160% rise in the real house prices and 500% rise in the nom­i­nal, com­pared with a slightly above 100% increase in nom­i­nal wages dur­ing the same period.]

    —There is also a pos­si­bil­ity of worse sce­nar­ios that can put the whole econ­omy into a tail spin.

    [I though our econ­omy was on the top of the world..?? By the way, Why do you have to put our­selves down so much?]

    —Suf­fer­ers from this dis­as­ter would include: future gov­ern­ments, mid­dle class home own­ers, renters, upcom­ing retirees, investors, real estate agents, mort­gage bro­kers, bankers, retai­lors, local coun­cils, state gov­ern­ments.….…

    [I didn’t know we were all doomed. My apol­ogy. but can I do some­thing about it??]

    —Any action that under­mines the future value of hous­ing is not in the best inter­est of this coun­try and motives behind such action should be “QUESTIONED”!!!

    [Hor­ri­ble! I’d bet­ter keep my mouth shut.]

    —Why not join­ing the DARKSIDE and buy an invest­ment prop­erty first?

    [OK, but ther’s some­thing quite sim­i­lar.….….]


    I think the foun­da­tions for the abo­li­tion of neg­a­tive gear­ing are just rock solid as before. Read­ers here are sug­gested to review AK’s com­ments, and please read this Wikipedia arti­cle for under­stand­ing the issue. Don’t trust spruik­ers. Don’t take for granted what spruik­ers are say­ing. Make your own judge­ment based on your own research.

  • Anti­Moral­Haz­ard

    Well said, kys!

    I sug­gest to every­one not to feed trolls by ignor­ing them. Don’t even bother to read their com­ments.

    More infor­ma­tion about trolls:

  • Anti­Moral­Haz­ard

    To add fur­ther, trolls put up their DODGY charts and call them ‘evi­dence’. But they call full analy­sis research as ‘not enough evi­dence’ and require alter­na­tive ‘inter­pre­ta­tion’.

    And they con­tra­dict them­selves with their mumbo jumbo.

  • aus_ed

    Anti­Moral­Haz­ard & KYS – what can I say… Is a per­sonal attack on me the best you can bring to this dis­cus­sion? How about point­ing to some research that con­tains the evi­dence that neg­a­tive gear­ing was a sin­gle, or at least a major, cause of prop­erty price “bub­ble” in Aus­tralia, and to what extent? At least I could have a point of ref­er­ence to a log­i­cally formed argu­ment…

    = = = = = = = = =

    Since China was brought into this dis­cus­sion, those who fol­low this thread may find it of inter­est:

    - unfor­tu­nately, the is no “one China” – it’s a very diverse coun­try, eco­nom­i­cally and cul­tur­ally so, any coun­try-wide sta­tis­tics will suf­fer from a “sin­gle num­ber syn­drome”; all in all, there are regions with cheap hous­ing but also those with prices com­pa­ra­ble to Aus­tralia.

    - a fac­tor that con­tributes to the “over­build” (as many see it) is that local Chi­nese author­i­ties often require direct invest­ment in hous­ing infra­struc­ture to coin­cide with indus­trial invest­ments by for­eign­ers;

    - for many Chi­nese, invest­ment in houses is a hedge against infla­tion – they have plenty of sav­ings in the banks that earn no inter­est at all… 

    - and then there is a cul­tural aspect, very often for­got­ten in the debates on “hous­ing bub­ble in China” – only new, never occu­pied houses or apart­ments are truly a valu­able com­mod­ity. Once some­one moves in, the prop­erty loses its attrac­tive­ness, and hence its value…

  • aus_ed

    Some old news from 2010 but quite inter­est­ing in the con­text of the dis­cus­sion about “the need to reduce prop­erty prices”… It looks that prices have noth­ing to do with why prospec­tive first home buy­ers can’t buy a prop­erty:

    …‘Tighter lend­ing restric­tions which require gen­uine sav­ings con­tri­bu­tions of around five per cent towards the prop­erty pur­chase means that many first-time buy­ers are fac­ing prob­lems get­ting finance approved,’ Loan Mar­ket national oper­a­tions and risk man­ager Ivan Kara­matic said.

    In a sep­a­rate Loan Mar­ket sur­vey of 215 mort­gage bro­kers it found that 86 per cent cited a lack of sav­ings as the sin­gle biggest rea­son appli­ca­tions from first time buy­ers were declined.”

    And here is a recent media story about a sig­nif­i­cant increase in sav­ings, as per one of my ear­lier graphs:

  • Anti­Moral­Haz­ard

    Reminder all read­ers: Aus_Ed is a troll. Don’t feed trolls. Ignore him.

    More infor­ma­tion about trolls:

    I couldn’t be both­ered to read his posts.

  • aus_ed

    And one more com­ment, regard­ing mort­gage debt by the type of bor­rower — to illus­trate that investors may not be the group respon­si­ble for push­ing the prop­erty prices up. I was intrigued by this graph pre­sented in one for the anti-neg­a­tive gear­ing sites ref­er­enced in ear­lier dis­cus­sions :

    I want to find out a bit more what’s behind that drop in “par­tic­i­pa­tion” by prop­erty investors, whether pro­por­tional or actual, as demon­strated on the graph with a declin­ing line from about 2005. So, I located the orig­i­nal data and cre­ated another graph that in my opin­ion clearly points to reduc­ing com­petion in the mar­ket from prop­erty investors. For clar­ity and to high­light the details I have shown only the last 3 years of monthly data. Feel free to draw your own con­clu­sions…

  • Anti­Moral­Haz­ard

    Reminder all read­ers: Aus_Ed is a troll. Don’t feed trolls. Ignore him.

    More infor­ma­tion about trolls:

    I couldn’t be both­ered to read his mumbo jumbo..

  • Anti­Moral­Haz­ard

    For those who wants to find out why neg­a­tive gear­ing pro­voke such an emo­tional response from that per­son, please take a read at this Face­book page

    You will find links to arti­cles about neg­a­tive gear­ing from Saul Eslake, for­mer chief econ­o­mist of ANZ and cur­rently head of Grafton Insti­tute.

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