As is widely known, I will be walking from Australia’s Parliament House to Mount Kosciousko–a distance of 225km–as the result of losing part of a bet with a well-known “bull” on property in Australia, Rory Robertson. I am obliged to wear a T‑Shirt with the words “I was hopelessly wrong on house prices: ask me how” emblazoned on it.
As I explain on www.keenwalk.com.au, I was ambushed with this bet in front of an audience of 80–100 people at Parliament House. I have responded in kind by turning the walk into a protest about the manner in which keeping property prices high has come to dominate economic policy in Australia–with what I prefer to call the First Home Vendors Boost being the most outrageous example of that.
The designs for the T‑Shirt continue this theme. I will produce at least 3 of designs shown below.
Design No. 1 highlights the impact of the First Home Buyers Grant over the last 30 years. It was first introduced in 1983 by the Hawke Labor Government, then expanded in 1988 as a way of boosting the economy when it was feared that the economy could enter a recession. It was reincarnated by Howard in 2000 as a temporary boost to help the housing sector adjust to the GST, then temporarily doubled in 2001 as part of a stimulus package to avoid a recession, and of course most recently doubled again in September 2008 by the Rudd Government as part of its anti-GFC package.
- The First Home Owners Grant and House Prices
The graph shows the ratio of house prices to household disposable income from 1980 until now, with the dates on which the Grant was either introduced or doubled marked by the dotted lines. It’s obvious that the Grant triggered growth in the real cost of housing every time, with its most spectacular “successes” being in 1988 and 2001.
Unlike some commentators, I don’t blame the government entirely for the house price bubble–there I point the finger at a financial system which is always willing to finance a Ponzi Scheme when one can be found. But it’s clear that the First Home Owners Grant seeded the Ponzi Scheme by setting off a buying frenzy every time it was introduced.
Design No. 2 highlights what has always been the main game for me: the growth in Australia’s debt to GDP ratio, driven by lending for speculation rather than lending for productive investment. This is the third debt bubble in Australia’s economic history since 1860, and it is by far the biggest.
Debt: the engine beneath the bubble
Since nothing has been done about this debt level–in fact, Australia has in part got out of the GFC by encouraging debt levels to grow once more–this is still the force that I expect to see dominate Australia’s future economic performance. If private debt continues to rise, then the apparent post-GFC boom will continue. But if the household sector joins the business sector in deleveraging, then the change in debt will drive aggregate demand down and Australia will find that the GFC is not quite behind it.
The most recent data indicates that the bubble in household debt burst in the month that the First Home Vendors Boost expired. In “Home loans slump most in a decade”, Chris Zappone notes that the ABS has reported that:
The number of home loans plummeted by 7.9 per cent in January, the biggest fall since June 2000, after the phasing out of last year’s first-home buyers’ grant boost and interest rate rises sapped demand.
January’s result follows a revised 5.1 per cent drop in December, the Australian Bureau of Statistics reported, citing seasonally adjusted figures. Economists had been predicting a 2 per cent increase in January…
Total housing finance by value fell by 3.3 per cent in January, seasonally adjusted, to $21.2 billion.
Design No. 3 shows just how far out of line Australia’s house prices are with the rest of the world. Japan had its own Bubble Economy period in the 1990s, which drove Japanese real estate prices up to a peak from which they have spent the last 20 years descending; the USA’s bubble took off in 1998 and peaked in 2006; but both these are dwarfed by Australia’s roller coaster rise ever upwards.
The Kangaroo Bubble vs the Setting Sun and the Very Bald Eagle
Nominal prices only ever fell once–in 2008 prior to the First Home Vendors Boost, which set off the latest bubble. Unfortunately, both sides of Australian politics mistakenly identified falling house prices as the cause of the GFC, and therefore agreed to this policy to inflate house prices even further, which was disguised as a means of helping new buyers into the market.
(Of course, the real cause of both the apparent prosperity before the GFC, and the GFC itself, was not the bubble in house prices and its bursting, but the bubble in private debt that provided the leverage that drove house and share prices up, and its bursting in 2007-08. This real cause was ignored by all politicians–and all but a handful of economists–until it was too late.)
Design No. 4 shows that Australian house prices have fallen when adjusted for inflation, and Australia’s inflation rate has been higher than that of Japan or the USA. But even after adjusting for inflation, our house prices are twice as high as America’s, and 2.5 times as high as they were back in 1986 when the ABS began recording them.
The Kangaroo Bubble vs the Setting Sun and the Very Bald Eagle
Finally, Design No. 5 emphasises the folly of projecting current trends in asset prices into the infinite future. This is the famous Herengracht Index, which tracks the real price of housing on Amsterdam’s wealthiest canal from 1628–just before the Tulip Bubble–until 1973.
350 Years of data from the land of tulips
If you had been born in, say, 1735, you might have died as an 85-year-old, convinced that house prices always fall, compared to consumer prices, since for most of that period house prices did in fact fall in real terms. However if you had been born in 1820, you might have reached our modern retirement age convinced that you could live off rising wealth from your housing assets–since they would have risen since you were born–only to find them declining for the next 60 years.
Finally, after focusing on the housed on the front of the T‑shirt, the back turns its attention to those without homes: the logo is for Swags for Homeless, the brilliant Australian charity that is doing something now for the homeless, by providing a homeless person with a light, waterproof, fireproof portable bed for every A$60 donation that it receives. Click on the image below to make a donation to this very worthwhile cause.
As noted, I’ll produce at least three of the above designs. The minimum order I can make is for 15 copies of each T‑Shirt, and the production costs are roughly $50 each. I will need to wear about 14 of these myself on the run; the others will be available for anyone who is willing to do the whole Walk with me (so far there are 3 takers).
I will also produce more copies if people are interested in buying them. If you’d like to buy a T‑Shirt, then please make a donation to The Walk of $80 or more (for an Australian address) or $100 (for an overseas address) using the donate widget there. Be sure to specify which design (1 to 5) and your mailing address in the Comments field for the donation.
Designs 1 and 2 are certainties; I’ll also produce either Design 3 or Design 4, depending on feedback here. Design 5 may be produced if there is enough demand. If you want any of Designs 3–5, be sure to specify a fallback Design if we don’t get enough orders to go ahead with all 5 T‑shirts (if you specify Design 3 or 4 and we actually make the other, we’ll automatically swap over since there is not a lot of difference between them).
Finally, if you want some anti-bank paraphernalia that is a bit more general than what I’m offering here, take a look at the site “I hate the nab”, where there is a range of T‑shirts and other items for sale.
