RP Data’s Trade­able Aus­tralian House Price Index

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RP Data has just released a daily index of Aus­tralian house prices which is designed to be trade­able on the ASX. I expressed my scep­ti­cism about this prod­uct on PM last night (the audio is below; the tran­script is avail­able here).

Steve Keen’s Debt­watch Pod­cast


The many hedge funds that have been look­ing for a way to short the Aus­tralian prop­erty mar­ket now have a vehi­cle. Of course, I would sug­gest care­ful assess­ment of the counter-party risk before tak­ing advan­tage of it!

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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  • hat­less

    Surely the biggest issue with the index is the lack of fun­gi­bil­ity of houses. The index implic­itly puts every prop­erty in exis­tence into one of those on-line val­u­a­tion tools based on num­ber of bed­rooms, sub­urb and if it “has a view”. 

    Who in their right mind would invest on the basis of such a sub­jec­tively-based index? 

    The only ana­logue I can think of is bas­ing an index off rat­ings agency data. Now don’t they have a great rep­u­ta­tion for trans­parency!

  • Greg Wood

    Con­sid­er­ing house prices more gen­er­ally, what capac­ity might for­eign invest­ment in hous­ing stock have to coun­ter­bal­ance price decline con­se­quen­tial to de-lever­ag­ing the domes­tic mort­gage debt?

    The point was made to me that, due to pop­u­la­tion growth, rents aren’t falling and a 2–3% return on invest­ment is an accept­able result, regard­less of cap­i­tal gain, to off­shore investors who are either cashed up or who are access­ing funds at 0–1%

  • Daniel Scol­lay

    Hi Steve,

    Been read­ing for a while, just signed up today so I can com­ment. I enjoy read­ing your work.

    Regard­ing this new ser­vice, it does seem like the per­fect vehi­cle to short the Aussie prop­erty mar­ket. Seri­ous spruik­ers can now push the “buy now or miss out for­ever mes­sage” while simul­ta­ne­ously short­ing the mar­ket. Make money on both ends.…smart.

    Ques­tion: Do you antic­i­pate that median house prices will rise slightly in the next cou­ple of months due to the FHOG being taken away?

    My thought was that a decent per­cent­age of sales last year were made up of peo­ple using the FHOG for prop­er­ties between $300k-$600k. Now the punch bowl has been taken away, do you expect a lower amount of buy­ers in the low end of the mar­ket? I would think even though big dis­counts are hap­pen­ing at pri­vate treaties and auc­tions, the over­all data group will be higher with the absence of first home­buy­ers price range of prop­er­ties. Thoughts? Could be some­thing for the spruik­ers to beat their chests about for the next few months.

    Also of inter­est was a newslet­ter from a real estate com­pany that spe­cialises in man­ag­ing rental prop­er­ties for investors that was in my mail­box this week. They had a big piece on the Real Estate Insti­tute of Aus­tralia (REIA) about pres­i­dent Ms Pamela Ben­nett lob­by­ing the gov­ern­ment on the fol­low­ing:

    * Reten­tion of cur­rent arrange­ments for neg­a­tive gear­ing of prop­erty invest­ments.
    * No Cap­i­tal gains taxes on the fam­ily home
    * No increase in Cap­i­tal Gains tax on prop­erty invest­ments
    * Removal of stamp duty on prop­erty trans­ac­tions
    * An increase in the First Home Own­ers Grant

    Quotes from Ms Ben­nett:

    Another extremely impor­tant issue for the hous­ing mar­ket is the cur­rent level of the FHOG avail­able to first home buy­ers. Intro­duced in July 2000, the grant is one of the most impor­tant hous­ing pol­icy instru­ments in assist­ing first home buy­ers with hous­ing.

    The lack of finan­cial assis­tance to first home buy­ers is an issue that requires con­sid­er­able atten­tion to ensure that prop­erty is afford­able for young Aus­tralians and that they can one day aspire to own a home. REIA urges the Gov­ern­ment to not only retain the grant but to review the amount cur­rently pro­vided as the rel­a­tive size of the grant has declined markedly in rela­tion to house prices”

    These quotes are quite out­ra­geous IMO as every­one knows includ­ing REIA that the FHOG is the vital cog in keep­ing the ponzi that is the Aus­tralia prop­erty mar­ket going. The dis­gust­ing part is the scheme actu­ally does the direct oppo­site of its stated inten­tion in con­tin­u­ing the bub­ble mak­ing prop­erty fur­ther out of reach to young Aus­tralians.

    Is there a site/organisation that will counter the lob­by­ing of the Real Estate indus­try on these vital issues?

    Finally I thought Kevin Rudd’s speech when announc­ing his lead­er­ship chal­lenge was actu­ally quite telling. The dra­matic nature of the whole issue meant that some dirty laun­dry was aired. What raised my eye­brows was when he said in the speech that the world is going to have the next GFC. This was not the usual bab­ble about Australia’s fun­da­men­tals and pos­i­tive eco­nomic future.

  • Good point about the sub­jec­tive index, Hat­less. It also seems pretty odd to be overly inter­ested in an extra bed­room when it seems to be the price of land that mostly deter­mines the total price. In my area, land prices have done a x6 since the late 90s, whereas an equiv­a­lent build seems to be only about x1.5 (the build used to cost about twice the land cost, now the land costs about twice the build).

  • Greg Wood

    Re the 6x increase in land cost, devel­op­ment costs haven’t gone up nearly that much. Developer’s have been mak­ing a filthy for­tune.

    And with that they con­tinue to lobby for reduced infra­struc­ture costs, stamp duty etc., so as to make land more afford­able. As though their final prod­uct is mar­keted ‘cost plus’ rather than for the best price achiev­able in the mar­ket. Dis­grace­ful that they’re let get away with it. Where is the pub­lic media on this issue — in nar­co­sis?

  • Frank

    A quick glance at the links sug­gests that it is just a sta­tis­ti­cal index — not trad­able. Where is the trad­able aspect of it? I can’t see it.

  • David Colquitt

    Steve, with all these type of prod­ucts beware the couter­party risk. We need look no fur­ther than the col­lapse of MF Global. I know lots of peo­ple who had in the money posi­tions with MF Global but when the bro­ker can’t pay the games up!

  • RickW


    The index is not yet being traded:


    quote 1st March — ASX prod­uct devel­op­ment man­ager Brian Good­man said today that the exchange is inves­ti­gat­ing “the cre­ation of exchange-traded prod­ucts with the objec­tive of allow­ing investors to repli­cate the per­for­mance char­ac­ter­is­tics of Aus­tralian res­i­den­tial prop­erty. The abil­ity to obtain and opti­mise res­i­den­tial prop­erty expo­sures with an exchange-traded prod­uct will enable investors to effi­ciently man­age expo­sure to this asset class.” end quote

  • Hi Daniel,

    I think we do need an organ­i­sa­tion to counter the prop­erty lobby’s attempt to have the FHVB extended, and I’d be happy to be part of that. At present Pros­per Aus­tralia prob­a­bly leads the cam­paign against such influ­ences:


  • This is an issue Greg,

    But it can cut both ways when a price fall sets in. For­eign­ers can suf­fer twice then–via falling prices and a falling exchange rate. This is what hap­pened to Japan­ese spec­u­la­tors on Aus­tralian land prices after the 1990s bust.

    How­ever the addi­tional wild­card is wealthy Chi­nese buy­ing not for eco­nomic rea­sons but polit­i­cal insur­ance against events turn­ing sour in China.

    This issue def­i­nitely clouds the oth­er­wise clearcut Ponzi aspects of our real estate bub­ble and burst.

  • Greg Wood

    Hi Steve
    My pre­vi­ous ques­tion was framed gen­er­ally but I did par­tic­u­larly have in mind the activ­ity of Chi­nese and Indian investors. 

    For­eign money from other sources tends to invest in new devel­op­ment projects, thus still need­ing domes­tic mort­gages to pur­chase fin­ished prod­uct. How­ever there seems to be a notable trend of wealthy Chi­nese and Indi­ans invest­ing as land­lords. My wife con­sults with peo­ple who are behind in their util­ity accounts. The num­ber of her low-income clients rent­ing from Chi­nese or Indian land­lords seems to be dis­pro­por­tion­ate to what one might expect. This ran­dom sam­pling indi­cates instances of this investor class own­ing whole streets and blocks of houses. 

    Such con­sol­i­da­tion of own­er­ship might be antic­i­pat­ing a future re-devel­op­ment ambi­tion. How­ever the rental arrange­ments seem almost feu­dal in char­ac­ter and that may rea­son­ably be con­sid­ered to be the intent. Given the global finan­cial sit­u­a­tion its a rel­a­tively safe haven for cash that has to go some­where.

    It cer­tainly is a wild­card to the pure finan­cial analy­sis of domes­tic debt lev­els. I have no idea regard­ing the res­i­den­tial sta­tus of these land­lords, or the legit­i­macy of their ‘invest­ments’ under for­eign own­er­ship pur­chas­ing guide­lines. I bet the Govt doesn’t have a clue either. They’ll hap­pily sell the farm to keep things look­ing ‘sta­ble’ in the short term.

  • alain­ton

    Surely there is a much more obvi­ous way to short prop­erty — invest in buy to let. With inter­est rates going down in a prop­erty reces­sion, rental prices going up — because of the short­age of house­build­ing, and land prices com­ing down its a no brainer. The trick is to avoid the mort­gage famine that delever­ag­ing brings — and which killed many over­lever­aged BTL com­pa­nies inn the UK in 2008–9, but if you arnt lever­aged and your balence sheets are burn­ing a hole in your pocket look­ing for a safe haven BTL is a good invest­ment for pen­sion funds/REITs etc. for sev­eral years of a prop­erty down­swing, before switch­ing back to equi­ties in the upswing.

  • alain­ton

    Of course that only makes sense after the down­swing.

  • alain­ton

    In fact the his­tor­i­cal inabil­ity to short land — the only ratio­nal response is to increase liq­uid­ity — seems to be quite impor­tant macro­eco­nom­i­cally.

    Imag­ine a sit­u­a­tion where some ponzi investors had over­paid near the top of the mar­ket but then the ratio­nal expec­ta­tions fairy comes along and every­one gets per­fect fore­sight. Oh dear the price of hous­ing is going to decline — we cant short that so we have to go liq­uid. An increase in liq­uid­ity pref­er­ence leads to a col­lapse in aggre­gate demand, raised unem­ploy­ment and a a fall in prop­erty prices, delver­ag­ing etc. So in this toy sce­nario ratio­nal expec­ta­tions cre­ates a dis­e­qui­lib­rium process — because asset prices were so out of equi­lib­rium in the first place. 

    Now replace per­fect expec­ta­tion with a bell curve based on the rate of growth Near the top of the curve more peo­ple will expect growth so it will be pushed to the top and slightly beyond, after which the pres­sure will be down­wards as more peo­ple expect decline. What this shows is you don’t need a Min­sky like arbi­trary triple cat­e­gori­sa­tion of expec­ta­tions, or unre­al­is­tic rper­fectly ratio­nal expec­ta­tions in the face of uncer­tainty to drive the hous­ing (kun­znets) cycle, just a nor­mal curve of opti­mism in con­tin­ued growth of land prices.

  • Philip Sturm

    Wow, I’m sure glad you made this post. I signed up look­ing for some infor­ma­tion on the effects pri­vate hedge funds and deriv­a­tive instru­ments have on the debt and money sys­tems, what with tril­lions upon tril­lions of dol­lars in notional value sort of just float­ing around in spec­u­la­tive space. With the cre­ation so much “wealth” (as long as things are good), how would that impact debt activ­ity and accel­er­a­tion? Do you have a stupid-man’s blog post about the inter­ac­tion of the shadow bank­ing sys­tems and debt cre­ation? Thank you for your work.

  • Philip Sturm

    Adden­dum: My rough idea of the recent cri­sis was that pub­lic banks were pushed into direct com­pe­ti­tion with pri­vate invest­ment firms who were bypass­ing the tra­di­tional mort­gage mar­ket in favor of direct mort­gage orig­i­na­tion firms. Wall St. hedge funds became the direct finan­cial pool for financ­ing home loans, and they, as we all know, turned around and sold those secu­ri­tized deriv­a­tives to pub­lic banks, gov­ern­ments, pen­sions and so on. Since investors were look­ing for, above all else, ROI, pub­lic banks were los­ing out on investor dol­lars to the new-fan­gled finan­cial behe­moths who oper­ated almost com­pletely in the dark. This pushed them to open up new divi­sions, and of course the noto­ri­ous repeal of keep­ing the two kinds of bank­ing apart. So what this post is basi­cally show­ing is how these hedge funds can sim­ply bypass fund­ing mort­gage orig­i­na­tion alto­gether, and play the volatil­ity with­out any undue bur­dens of admin­is­tra­tion and orig­i­na­tion. Great. So basi­cally no one is going to put skin in the game and fund mort­gages, and you’re actu­ally going to have chumps bet­ting on the upside when no one can get a loan in the first place?

  • Hi Philip,

    Not a lot in detail, but I rec­om­mend watch­ing the recent Cap­i­tal Account pro­gram where the word of the day is “Rehy­poth­e­ca­tion”.


  • Amotzza

    Hi Steve — what a dis­as­ter we are head­ing for in Aus­tralia. We have iden­ti­fied a sit­u­a­tion where 3 real estate agents value a prop­erty at $2m+. It has been on the mar­ket with one of them for 1 year. It is zoned rural and has been used to breed thor­ough­bred horses which are very dif­fi­cult to sell. It is likely to be rezoned in 2013 when a free­way from Mel­bourne reaches it. There are no buy­ers for this prop­erty at any price. The prop­erty has a $700,000 mort­gage. What are peo­ple to do in this sit­u­a­tion.