Steve Keen's Debtwatch

As we head towards the fed­er­al elec­tion, the term ‘hous­ing short­age’ will be trot­ted out again and again by politi­cians. Their rhetoric will rely on the deeply ingrained received wis­dom that Aus­tralia has a ‘hous­ing short­age’, and no politi­cian will want to do the hard work of dif­fer­en­ti­at­ing between a gen­uine short­age in hous­ing stock (which we don’t have) and a short­age of ‘afford­able hous­ing’ which we do have.

And why won’t they acknowl­edge this dis­tinc­tion? Sim­ply, because admit­ting that it is only the prices of hous­es that are dys­func­tion­al, and not sim­ply the sup­ply, would be too much even for their loy­al vot­ers.

After Aus­tralian house prices rose 20 per­cent in one year, every­one’s talk­ing a bub­ble.  Chan­nel Ten’s new(ish) avant-garde cur­rent affairs pro­gram asked for my per­spec­tive on the day the RBA yet again increased inter­est rates.

After lead­ing in with the news and a fea­ture on Neil Rober­ston, the 26-year-old Aus­tralian snook­er play­er who won the World Cham­pi­onship, the sto­ry on house prices began 4 min­utes and 5 sec­onds into the video below.

The news that the Rudd Gov­ern­ment was rolling back its changes to Aus­trali­a’s for­eign invest­ment rules on hous­ing came as we were still on The Walk. Just pri­or to start­ing it, I received a note from Dr John Daffy, with the fol­low­ing let­ter from him to the PM attached. I asked John whether I could pub­lish his let­ter on the blog, and he agreed.

Just as the absence of sta­tis­tics on for­eign pur­chasers means we’ll nev­er real­ly know the impact they had on the mar­ket, we’ll prob­a­bly nev­er know how many indi­vid­u­als like Dr Daffy sent sim­i­lar let­ters to their MPs and the PM; but judg­ing from the rapid back­flip on that pol­i­cy, there must have been plen­ty.

Edward Full­brook, the edi­tor of the Real World Eco­nom­ics Review that cre­at­ed the Dyna­mite Prize in Eco­nom­ics and the Revere Award, has just sent out the mes­sage repro­duced below.

Vot­ing for the Revere Award for Eco­nom­ics for the three econ­o­mists who first and most clear­ly antic­i­pat­ed and gave pub­lic warn­ing of the Glob­al Finan­cial Col­lapse and whose work is most like­ly to pre­vent anoth­er GFC in the future, will close in a few days.  Please vote. So far the num­ber of peo­ple vot­ing has been dis­ap­point­ing.  To stim­u­late inter­est, the poll has now been set to reveal to you the cur­rent results once you have cast your votes.  You can vote for three. To view a time­line and to vote now, click here .  It takes only sec­onds.  By vot­ing you reward the deserv­ing.

On Thurs­day April 15th at 1pm, Steve Keen will begin a walk from Par­lia­ment House to Mt Kosciuszko, to ful­fill the famous bet with Rory Robert­son over house prices.

Keen claimed that, just as Japan­ese house prices had fall­en 40% since its Bub­ble Econ­o­my burst in 1990, so too would Aus­tralian house prices. In Octo­ber 2008, Robert­son chal­lenged him to a bet that this would nev­er hap­pen at a debate in the Par­lia­men­tary Library, where the los­er would have to walk from Par­lia­ment House to Mt Kosciuszko.

The T‑shirts have been print­ed and they look fan­tas­tic (if I do say so myself). There are 3 designs:

One high­lights the core issue that con­ven­tion­al eco­nom­ics ignores, and Debt Defla­tion the­o­ries take seriously–the ratio of pri­vate debt to GDP:

Debt to GDP Ratio from 1860 till 2010

Anoth­er shows the rela­tion­ship between the ratio of house prices to dis­pos­able incomes and the First Home Own­ers Grant. The Grant has been intro­duced, relaunched, or dou­bled on five occa­sions, and each time it made hous­ing less afford­able:

The FHOG and housing unaffordability

I’ll be post­ing a few links about the Walk to Kosciuszko here, main­ly for infor­ma­tion of those who will be tak­ing part. They will dupli­cate posts on the Keen­walk site itself, where the mem­bers are large­ly but not exclu­sive­ly those who will be join­ing me for the walk.

This post is large­ly about logis­tics: get­ting to Can­ber­ra, and pos­si­bly pool­ing resources to do so. Apolo­gies to those who are look­ing for ana­lyt­ic content–this post will have none what­so­ev­er. But if you are one of the walk­ers, please pop over to Keen­walk now and make your com­ments on this post there rather than here…

Debt­Watch No. 44 April 2010

House Prices Are Not Nor­mal

“I think it is a mis­take to assume that a risk­less, easy, guar­an­teed way to pros­per­i­ty is to be lever­aged into prop­er­ty. It isn’t going to be that easy.” (RBA Gov­er­nor Glenn Stevens, Sun­rise Pro­gram March 29 2010)

Vot­ing is now open for the Revere Award for Eco­nom­ics. The Revere Award is the pos­i­tive com­pan­ion to the Dyna­mite Award in Eco­nom­ics, which was devel­oped by the Real World Eco­nom­ics Review to rec­og­nize the fail­ure of the vast major­i­ty of econ­o­mists to fore­see the Glob­al Finan­cial Cri­sis. It was award­ed to the three econ­o­mists whose work most helped cause the GFC, with the even­tu­al win­ners being Alan Greenspan, Mil­ton Fried­man and Lar­ry Sum­mers (see Greenspan, Fried­man and Sum­mers win Dyna­mite Prize in Eco­nom­ics).

My Walk to Mt Kosciuszko is no longer a soli­tary affair: at last count, I will have a dozen com­pan­ions for the entire dis­tance, and anoth­er 16 join­ing me for at least one day.

One of those com­ing for the entire trip is the Com­men­tary Edi­tor from Busi­ness Spec­ta­tor, Rob Burgess. Rob will report from and on the Walk on a dai­ly basis, cov­er­ing it both as a news sto­ry, and as the basis for a dis­cus­sion of the wider issues fac­ing busi­ness and eco­nom­ics in the unchart­ed ter­rain of the sup­pos­ed­ly  ‘post-GFC’ world.