Steve Keen's Debtwatch

Discussion (12) ¬

1. 
   Skichaser

   June 10, 2011, 9:30 pm | #

   Well done Steve, spot on. Did Tony from the ‘prop­erty lobby’ present empir­i­cal aca­d­e­mic data like your­self at the recent meet­ing ? From the only bits I saw on Late­line, he seemed to walk up and down the stage, in a type of Footy Coach pre­sen­ta­tion, try­ing to win sup­port. Please cor­rect me if I got this wrong. I would also like to say, I com­pleted a BSc in mol­e­c­u­lar biol­ogy over 10 years ago as 30 year old. Watch­ing your pre­sen­ta­tions, and if I had more time and money (tied up in the home loan, ha ha !), make me want to go back to Uni­ver­sity and do an Eco­momics Degree !
2. 
   alainton

   June 10, 2011, 10:21 pm | #

   Straw man argu­ment steve

   Aus­tralia has one of the high­est lev­els of house­hold growth in the world, much higher than pop­u­la­tion growth

   http://www.abs.gov.au/ausstats/abs@.nsf/0/4DBC004FF28D79D3CA256EB6007C9B3F?OpenDocument

   ‘The num­ber of house­holds in Aus­tralia is pro­jected to increase from 6.9 mil­lion in 1996 to between 9.4 and 10.0 mil­lion in 2021, a rise of between 38% and 46%. House­hold growth is pro­jected to be faster than pop­u­la­tion growth (24%) over the pro­jec­tion period. The pro­jected aver­age annual house­hold growth rate for Aus­tralia in Series B (1.4%) is higher than the pro­jected rates for the United King­dom (0.6%), the United States of Amer­ica (1.1%) and New Zealand (1.2%) but lower than the rate for Canada (1.6%).’

   All your graph of pop­u­la­tion shows is a tem­po­rary dip of birth rates 2004–2007 — see here.http://www.indexmundi.com/australia/birth_rate.html

   Rise or falls in birth rates have no effect on house­hold growth for 18+ years.

   Your argu­ment about house­hold size is really an argu­ment about house­hold growth — a hid­den assump­tion. Falling house­hold size is often (but not always) an effect of house­hold growth.

   No one with any knowl­edge of real estate eco­nom­i­cal would argue that pop­u­la­tion causes house price rises, rather that house­hold growth does — if and only if ‘con­cealed house­holds’ have the abil­ity to cre­ate a new house — such as through a mortgage.

   This is not an argu­ment that credit growth doesn’t mat­ter. Easy credit can induce house­hold for­ma­tion, and can cause prices to rise with­out ref­er­ence to under­ly­ing demo­graphic demand if a bub­ble phase kicks off. But hous­ing credit always has an oppor­tu­nity cost. Unless sup­ply is tight in the hous­ing sec­tor why shouldn’t peo­ple bor­row to fund invest­ments in other sec­tors of the econ­omy caus­ing asset price bub­bles there?
3. 
   Steve Keen

   June 10, 2011, 11:56 pm | #

   No, he just walked up and down mak­ing “house prices always rise” state­ments. It was an inter­est­ing win­dow into what an “invest­ment sem­i­nar” must be like.
4. 
   myopia

   June 11, 2011, 12:26 am | #

   When is your book out Steve?
5. 
   Steve Keen

   June 11, 2011, 10:35 am | #

   In Sep­tem­ber, Myopia–the 22nd is the launch date from mem­ory (in the UK).
6. 
   kys

   June 12, 2011, 12:28 am | #

   Alain­ton

   Obvi­ously most hous­ing experts in this blog aren’t avail­able to answer you, so please put up with a semi­lit­er­ate like me who may bring about more trou­bles than answers.

   1. pro­jec­tions are not pre­dic­tions or fore­casts, but are sim­ply illus­tra­tions of the growth and change which would occur if cer­tain assump­tions about future trends pre­vail over the pro­jec­tion period. ( from ABS explana­tory notes )

   2. While the assump­tions for the pro­jec­tions are for­mu­lated on the basis of an assess­ment of past trends in liv­ing arrange­ments, there is no cer­tainty that the assump­tions will or will not be realised. In addi­tion, it should be noted that no assess­ment has been made of changes in social and eco­nomic con­di­tions which may influ­ence future liv­ing arrange­ments. ( ABS explana­tory notes )

   3. Your link shows “house­hold & fam­ily pro­jec­tions 1996 — 2021″ is out­dated. Please try some­thing new:

   http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/4130.0Main%20Features22007-08?opendocument&tabname=Summary&prodno=4130.0&issue=2007–08&num=&view=

   4. 50% of the Increased House­hold for­ma­tion has been absorbed by rent­ing, the other half has gone to own­er­ship. ( some arith­metic from the link above )

   5. Now the prob­lem is about 1.5 mil­lion new house­holds were formed dur­ing 1995–2008, i.e. 115 k per year. Do we build enough? Please refer to the fol­low­ing link for an answer.

   http://economics.hia.com.au/media/October%202010%20%20Forecasts.pdf

   6. If as you stated, “the pro­jected aver­age annual house­hold growth rate for Aus­tralia in Series B (1.4%) is higher than the pro­jected rates for the United King­dom (0.6%).…”, then why do Aus­tralia and UK have had the same per­cent­age growth (300%) in house prices since 1995. Does this mean other than house­hold for­ma­tion, there must be some­thing else to consider?

   7. What Pro­fes­sor Keen said is peo­ple with mort­gages, not grow­ing pop­u­la­tion influ­ence house prices. That’s right! Think again, please.
7. 
   alainton

   June 12, 2011, 1:40 am | #

   @Kys

   Thanks,

   3. I was aware the house­hold data I used was out of date as my post was hur­riedly pre­pared before break­fast. Thanks for the update.

   1–2. One of the prob­lems of course with house­hold data is that it is only avail­able every few years and so you get the prob­lem­atic of using a fore­cast as a pre­dic­tion as cur­rent. But that doesn’t stop almost all west­ern nations set­ting the tar­gets for expan­sion of the hous­ing stock on the basis of house­hold pro­jec­tions as they are much more rel­e­vant, despite this pro­viso, than pop­u­la­tion data as a basis for esti­mat­ing hous­ing demand.

   4. Not rel­e­vant, changes in house­holds = demand for hous­ing of all tenures. There is build to let and buy to let. House­holds move into new houses and some of the old units are bought some by buy to let landlords.

   5. Hous­ing require­ment for a year =house­hold for­ma­tion in that year+realistic con­tri­bu­tion towards clear­ance of back­logs from pre­vi­ous years+induced house­hold for­ma­tion (that is con­cealed house­holds who form house­holds because of increased sup­ply dri­ving down prices, enabling them to afford to form a house­hold they couldn’t before)+frictional con­tri­bu­tion (to account for houses stand­ing empty because of death, peo­ple in nurs­ing homes etc) +replace­ment of worn out/demolished stock. You need to check out reports from hous­ing econ­o­mists such as Kate Barker http://en.wikipedia.org/wiki/Barker_Review.

   I will try to see if there is any aus data on all of this. But a num­ber of state gov­ern­ment reports I have read on hous­ing sup­ply sug­gest that starts are only just keep­ing up with require­ments and they haven’t dealt ade­quately with the back­log or affordability.

   The straight com­par­i­son is mis­lead­ing espe­cially when house prices are unaf­ford­able to most households.

   With com­ple­tion lev­els in Aus close to 1950s lev­els its seems instinc­tive to me that sup­ply issues pay a part. The way the HIA quote irrel­e­vant data I think has con­tributed to the confusion.

   One of the rea­sons peo­ple have been tak­ing out more credit than they can afford is because houses are expen­sive because not enough are built.

   6. Yes two other fac­tors, hous­ing starts and avail­abil­ity of credit. All I am argu­ing is that any expla­na­tion that only accounts for two or three fac­tors and not the third is incomplete.

   Imag­ine two coun­tries with dif­fer­ent house­hold for­ma­tion rates but the same rate of starts and same house­hold income. They would have very close to the same rate of house prices rise because

   a) new houses typ­i­cally only add 2–3% of the stock/annum, most house sales are of exist­ing houses

   b) So with the over­all stock near enough the same the ris­ing house­holds would not be able to afford the new houses and wouldnt enter the hous­ing mar­ket — there would be what is called enforced sharing.

   So the data you quote is exactly what would be expected. It takes a sus­tained and large increase in hous­ing over many years to push afford­abil­ity up.

   There is noth­ing exotic about this argu­ment it is the stan­dard eco­nomic geography/land eco­nom­ics approach (which by the way doesn’t have a lot to do with neo­clas­si­cal ortho­doxy — it owes more to Henry Hoyt, Henry George and Alonso/Ricardo/Sraffa). None of Steve’s argu­ments under­mine this approach, they add to it through a more robust con­cept of credit for housing.

   7. I agree but the first few slides don’t demon­strate that because cor­re­la­tion of pop­u­la­tion with house prices is a straw man — its house­hold change that mat­ters. I am not argu­ing with the the­sis just the method of proof. The HIAs flawed argu­ment doesn’t require a flawed dis­proof. The HIA might also be only part right but for the wrong reasons.
8. 
   Skichaser

   June 12, 2011, 3:01 am | #

   Steve, my apolo­gies for not express­ing the fol­low­ing in the aca­d­e­mic eco­nomic for­mat like your­self and posts from other con­trib­u­tors. But just to give some per­spec­tive to the state of the econ­omy now, from an ‘on the ground’ per­sonal per­spec­tive, even though I know there is a dearth of data sup­port­ing what I am about to say.

   Although I have a pro­fes­sional week type job, in the lame attempt to earn some more money, I took on a Sun­day sec­ond job 12 months ago. This hap­pened to be the same type of casual job I had when I was at uni­ver­sity in the late 90’s with a well known national electrical/home enter­tain­ment chain here in Ade­laide (a bunch of Good Guys they are to). Since Jan­u­ary of this year, it has been dire, it is clear peo­ple have pulled in their spend­ing. So much so, I was relieved of my token 6 hours, as I was told so to sup­port their per­ma­nent staff ( I have also been told staff leav­ing are not being replaced). The atmos­phere is exactly the same, when in the early 90’s as a young inex­pe­ri­enced 20 year old, I sold new Toy­otas, and with­out much trou­ble sell­ing 12–15 cars per month. Then ‘the reces­sion we had to have’ came in, and within 2 months I was strug­gling to do 5–6, and lost my job, and went back­pack­ing around Europe. The point I am try­ing to make is, with all this mas­sive record break­ing debt many are car­ry­ing, I can see how we are really set-up for a poten­tial melt down, and all thanks to the over heated prop­erty mar­ket here in AUS that we have created.
9. 
   Steve Keen

   June 12, 2011, 10:22 am | #

   Indeed Skichaser–that’s the sort of change I think we’re see­ing right now, cour­tesy of credit slow­ing and the Credit Accel­er­a­tor start­ing to turn neg­a­tive. That’s what caused The Reces­sion We Had to Have, and it will cause the next one too–with only China to save us, and that means (it seems) rely­ing one some­one else’s bub­ble to res­cue us when ours bursts.
10. 
    Amotzza

    June 13, 2011, 12:50 pm | #

    Steve, We had too much debt with 3 prop­er­ties two of which were in good Mel­bourne Sub­urbs such as Toorak and South Yarra. We now have one prop­erty on the Morn­ing­ton Penin­sua which we are endeav­our­ing to sell.
    How­ever the real tell in what the aus­tralian Pub­lic are doing is in the busi­ness we oper­ate on the third prop­erty — horse breed­ing. The costs con­tinue to go up but the prices have col­lapsed — when arti­fi­cial sup­port is taken out of the mar­ket they are down 70%. We have reduced staffing from 5 to 1 and that will go to zero asap. amongst my group I am an con­sid­ered an absolute pes­simist. The only pos­i­tive was when I was 1 of 4 VIP’s from Aus­tralia at a con­fer­ence in Mid China in June where John Howard was guest speaker and the pos­i­tive vibes all around Shang­hai and busi­nesses I vis­ited nearby. How­ever apart from the influ­ence of China whether I look at the horse busi­ness, your pre­sen­ta­tions, those of Harry Dent and Robert Prechter I come to the same con­clu­sion — depres­sion com­ing — am I a pessimist?
11. 
    Steve Keen

    June 13, 2011, 10:23 pm | #

    Hi Amotzza (like the byline BTW), I think you’re in the real­ist camp like me, but that does include the chance for occa­sional revivals, as this post points out–something I didn’t appre­ci­ate suf­fi­ciently before extend­ing my analy­sis to include the Credit Accelerator.

    Thanks for these infor­ma­tive anec­dotes too.
12. 
    Mich

    June 27, 2011, 12:34 am | #

    The Philadel­phia Story
    1940, Kather­ine Hep­burn, Cary Grant.

    Philadel­phia
    1993, Hanks, Washington.