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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69 Responses to Hand of Gov report on the Australian Housing Bubble

  1. Steve Keen says:

    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.

  2. Steve Keen says:

    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.

  3. sj says:

    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.

  4. Philip says:

    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.

  5. Steve Keen says:

    Yes a rent based tax is definitely better.

  6. Philip says:


    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.

  7. RickW says:

    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.

  8. michael1982 says:

    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?

  9. Steve Keen says:

    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.

  10. MMitchell says:

    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.

  11. MMitchell says:

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


  12. Derek R says:

    @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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  15. nobby says:

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

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