Hand of Gov report on the Aus­tralian Hous­ing Bub­ble

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Late last year, the research and bro­ker­age firm CLSA com­mis­sioned me to write a report on the Aus­tralian hous­ing mar­ket. CLSA was founded 25 years ago  by jour­nal­ists who were dis­sat­is­fied with the qual­ity of exist­ing jour­nal­ism in finance–which then, like today, was often more pub­lic rela­tions than inves­tiga­tive jour­nal­ism. The com­pany ded­i­cated itself to inde­pen­dent research, and that tra­di­tion has been main­tained through own­er­ship changes that now see it oper­at­ing as a sub­sidiary of Credit Lyon­nais SA.

I became aware of CLSA’s exis­tence via the work of its bank­ing research team in Aus­tralia, who pub­lished some very frank assess­ments of the Aus­tralian banks that stood out against the run of flat­ter pat­ter that dom­i­nates their cov­er­age in the Aus­tralian media (a recent instance of this inde­pen­dence is this inter­view of CLSA ana­lyst Brian John­son on ABC Late­line Busi­ness). With this prior knowl­edge of CLSA’s inde­pen­dence, I hap­pily accepted their com­mis­sion to write up my analy­sis of the Aus­tralian hous­ing mar­ket. The report, titled “Hand of Gov: The hous­ing bubble–fact or fic­tion?” was only avail­able to some of CLSA’s clients. Now that the hous­ing sta­tis­tics are mak­ing this a very hot topic once more, CLSA have given me per­mis­sion to post this report on my blog.

If you’d like a copy, click on this link or the image below. As noted in “Debtwatch: Still free, but…”, downloads are now only available to paying subscribers to Debtwatch–with payments starting at US$2 per year. Associates, Fellows or Partners of CfESI can download it from the CfESI website, where you’ll find it on the Research Page. Be sure to login to CfESI first.

The data in the report is up to date to Sep­tem­ber last year. If there’s suf­fi­cient interest–which I’ll gauge by the num­ber of downloads–then I will pro­duce an updated report, which will also con­tain addi­tional infor­ma­tion on the new met­ric I’ve devel­oped recently, the Mort­gage Credit Accel­er­a­tor.

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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  • almoodie

    Cor­rect URL for the Bloomberg arti­cle listed in the pre­vi­ous post is:

  • Yes, there have been a few server has­sles recently Alan. The site is now get­ting upwards of 200,000 hits a day and appar­ently has a machine ded­i­cated to it. Over­loads are pos­si­ble.

  • Thanks Almoodie,

    The tem­per­a­ture is def­i­nitely ris­ing again on the issue. I was just on ABC Busi­ness Today with Whit­ney Fitzsim­mon, and at 2.45pm I’ll be on Sky News on the same topic.

  • sj

    It is not point­less to do detail accu­rate frac­tal research.
    Any­body can say a ran­dom com­ment about a mar­ket and be right as Nas­sim Taleb has prove in his own mod­els.

    So your so call experts may just got lucky!

    We have seen in the USA hous­ing crash that cer­tain cities and sur­burbs held out bet­ter than oth­ers.
    Exam­ple Miami,Calfornia, Detriot have been shock­ers while mid west­ern sub­urbs and towns held up much bet­ter.

    Say­ing a crash in Aus­tralian of 40% with­out giv­ing detail infor­ma­tion and the dynam­ics of each area is just sloppy sen­sa­tional stuff for the une­d­u­cated plebes.

    Exam­ple of a 40% drop in Aus­tralia could be coastal and coun­try hol­i­day towns,mining towns,trendy inner city prop­er­ties gross rental yeilds under 3 per­cent, mil­l­lion­aire prop­er­ties and man­u­fac­tur­ing com­mer­cial real estate.
    Places with high unem­ploy­ment and a town with one large man­u­fac­tur­ing base.
    Wol­lon­gong bluescope steel is not a good exam­ple of a 40% drop, because your still close to Syd­ney and good infra­struc­ture.
    In other words Philip mar­ket is to com­plex to make a gen­eral call of 40% drop in ten years with­out some detail research to back it up.

    Mar­ket is frac­tal Philip start small each surburb,then town, then city.

  • Philip

    Steve, Derek

    A LVT based upon land rent rather than price does indeed make more sense. Accord­ing to ABS data, rents have tracked the CPI since 1972, with a sub­stan­tial uplift in 2006 when Australia’s pop­u­la­tion growth increased above his­tor­i­cal aver­ages. It appears that rents are based upon fun­da­men­tals, rather than prices, which are based upon debt-spec­u­la­tion.

    Debt can’t be used to spec­u­late on rents and are anchored by work­ers’ pay­checks, which makes it far more reli­able than hous­ing prices.

    I would assume that a LVT based upon land rent (not price) and com­bined with Steve’s pro­posed mort­gage debt limit of 10x annual imputed rent would ensure that the gov­ern­ment and bank­ing sys­tem couldn’t re-inflate land val­ues again.

  • Yes a rent based tax is def­i­nitely bet­ter.

  • Philip


    Have you ever come across a non-shel­ter infla­tion index? It would make plot­ting real house prices more accu­rate. The non-shel­ter index pro­vided by the ABS is almost the same as the full CPI which makes no sense con­sid­er­ing that hous­ing prices are greatly inflated beyond most other CPI groups.

  • RickW

    On page 23 of the report where there are com­par­isons made between States and the impact of the resource boom on hous­ing I expect that there is grow­ing influ­ence on FIFO to min­ing areas being across States and even inter­na­tional.

    The issue is one of cost to build houses in loca­tions like Kar­ratha and Glad­stone or nearby min­ing loca­tions ver­sus oper­at­ing FIFO from major inter­state and over­seas cen­tres. Here is some detail on flight sched­ules to accom­mo­date the grow­ing air travel:

    This is not new for the min­ing indus­try but there is sub­stan­tial growth in the dis­tance FIFO work­ers travel and num­ber doing it. It costs roughly AUD1M to build a 4-bed­room house in Kar­ratha so bet­ter to avoid this cap­i­tal cost; pro­vide basic dor­mi­tory type accom­mo­da­tion in the min­ing loca­tions and monthly or 3-weekly return air­fare as an oper­at­ing cost. The air travel can be across the coun­try or even inter­na­tional.

  • michael1982

    Hi steve,(long time reader very rare com­men­ta­tor on this blog) watched you on sky bizz chan­nel this arvo I would have thought that they would have given you at least 30 min­utes to debate the doomed hous­ing sec­tor?

  • 7 min­utes was pretty solid as a TV seg­ment goes Michael. It’s more the accu­mu­la­tion of points over time that mat­ters too, ver­sus what you get to say in one seg­ment. There I have to thank the oft-maligned MSM for giv­ing me the cov­er­age.

  • MMitchell

    Derek R
    Sep­tem­ber 12, 2011 at 4:38 am | #

    Derek and Steve,

    I am prob­a­bly the only per­son in the world to think this, but: One premise behind land taxes is that we should not tax pro­duc­tion (as I under­stand it). I think that in fact we SHOULD tax pro­duc­tion, as it is over­pro­duc­tion that has been one of the major prob­lems of indus­trial cap­i­tal­ism, and it is over­pro­duc­tion that is lead­ing to the rapid strip­ping of resources from Aus­tralia and else­where to build empty cities and new iPods every week. If we want to reduce car­bon emis­sions, lets look at reduc­ing pro­duc­tion. Why not leave some oil and min­er­als, that are eas­ily attain­able, for future gen­er­a­tions but cut­ting pro­duc­tion? By all means tax pro­duc­tion. On the other hand, if peo­ple can live off the land pro­duc­ing just what they need, and per­haps a lit­tle more, then why drive them off by insist­ing they pay land tax? Con­vince me that this land tax will not be backed with state coer­cion by forc­ing peo­ple off their land if they can­not pay, the same coer­cion that has lead to many of our cur­rent prob­lems. Con­vince me this coer­cive power will not be taken advan­tage of by politi­cians, devel­op­ers etc to the detri­ment of the poor and pow­er­less? If you tax pro­duc­tion, no-one will force you to work to pay the taxes. And believe me there are enough peo­ple out there who like wealth and lux­u­ries that no-one will need to forced to pro­duce, the rest can work just enough to pro­vide for them­selves — which will not be much if they own their land and do not have to pay taxes on it! And they might even have time for a novel con­cept called com­mu­nity.

  • MMitchell

    This might inter­est some peo­ple: Chile stu­dent protests and some com­men­tary on the role of the Chicago School of Eco­nom­ics (Mil­ton Fried­man et al).


  • Derek R

    @MMitchell, I’m not sure why I need to con­vince you that land tax will not be backed by state coer­cion. After all every tax, includ­ing a pro­duc­tion tax like income tax, is backed by state coer­cion. Why should land value tax be any dif­fer­ent? Stop pay­ing your income tax and you will quickly find that not only will you be forced off any land that you have but it is quite pos­si­ble that you will end up in prison if its sale price does not meet the tax bill. If you don’t have any land it’s even worse under an income tax than a land tax, since you will cer­tainly end up in prison if you can’t pay. Under a land tax you might well lose your land but it’s very unlikely that you will lose your per­sonal lib­erty since the sale price of the land will almost cer­tainly cover any land tax lia­bil­ity.

    So your state coer­cion point sounds like a red her­ring to me.

    Like­wise I’m not totally con­vinced by your over­pro­duc­tion point. The issue that you have described appears to me to be more a case of over-use of nat­ural resources rather than over-pro­duc­tion of goods per se. And the fact is that if we make nat­ural resources cheap (by not tax­ing them with LVT, car­bon taxes, min­ing roy­al­ties, etc.) and pro­duc­tion expen­sive (by tax­ing it with income tax, cor­po­ra­tion tax, poll tax, etc.) then that will encour­age indus­trial cap­i­tal­ism to pro­duce goods by using lav­ish amounts of nat­ural resources and economis­ing on labour. Thus lead­ing to big­ger car­bon emis­sions, more strip min­ing, etc. Which sounds to me like the exact oppo­site of what you want to hap­pen.

    No. The Henry Report got it right. Too bad that it wasn’t polit­i­cally accept­able.

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  • nobby

    Hi there. Paid sub­scrip­tion via Pay­pal on Sept 8 but no joy down­load­ing today.

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