Monday, December 22, 2003

John Quiggin - Political correctness at the PC

John Quiggin - Political correctness at the PC

After the PC had shut down any talk of doing something about negative gearing and the half-rate capital gains tax, and excused away the federal tax system’s $18 billion annual subsidy to owner-occupiers, its brave call for the abolition of stamp duty was the only significant proposal left.

Sunday, December 21, 2003

Peter Costello really couldn't care less about you

'There's an elephant in the living room that nobody in the official family feels comfortable talking about.'

The Productivity Commission's draft report on housing affordability is the most disillusioning document the econocrats have produced in a long time.

It leaves me concluding they've become little more than handmaidens to an overbearing minister - despite their supposed statutory independence.

It was clear at the outset that Mr Costello commissioned the inquiry without any genuine belief there was a policy failure at the heart of the housing boom to which he needed a solution. So the PC has produced a report consistent with the Boss's lack of fair dinkumness.

Mr Costello's main motive was merely to defuse the cyclically predictable burst of pseudo-concern about the plight of first-home buyers by shunting the topic off to an inquiry.

But his secondary motive was to shift the blame for the worsening in housing affordability to the premiers by carrying on about the growth in the states' collections from the stamp duty on conveyances.

And the truth that only a fool would announce a crackdown on negative gearing at a time when the bubble was about to burst can be portrayed either as an excuse for inaction or as a counter to the vested interests' claim that a crackdown is impossible: the key is getting your timing right.

This report is intellectually dishonest and cowardly. It's idle for the economic rationalists to keep carrying on about the politicians' "reform fatigue" when, in the face of someone as terrifying as Peter Costello, the bureaucratic leaders of the movement have lost their bottle.

Econocrats ignore the elephant in the living room -

Thursday, May 29, 2003

House of cards - The Economist

In many countries the stockmarket bubble has been replaced by a property-price bubble. Sooner or later it will burst, says Pam Woodall, our economics editor.

“BUYING property is by far the safest investment you can make. House prices will never fall like share prices.” This is the advice offered by countless estate agents around the globe. In the absence of attractive investment opportunities elsewhere, home buyers have needed little encouragement: from London to Madrid and from Washington to Sydney, rising house prices have been the hot topic of conversation at dinner parties. Over the past seven years, house prices in many countries have risen at their fastest rate ever in real terms. And now institutional investors are also eagerly shifting money from equities into commercial property. Many property analysts scoff at the suggestion that another bubble is in the making. House prices may have fallen after previous booms, but “this time is different”, they insist. That is precisely what equity analysts said when share prices soared in the late 1990s. They were proved wrong. Will the property experts suffer the same fate?

This survey will conclude that the latest housing boom has inflated bubbles in several countries, notably America, Australia, Britain, Ireland, the Netherlands and Spain. Within the next year or so those bubbles are likely to burst, leading to falls in average real house prices of 15-20% in America and 30% or more elsewhere over the next few years, in line with average price declines during past housing-market busts. This time, however, with inflation so low, house prices will fall more sharply in money terms than they did in the past. In Britain as a whole, for example, average nominal house prices are likely to drop by 20-25%, and in London by much more. Significant numbers of owners may be left with homes worth less than their mortgages—especially as the proportion of owner-occupiers with mortgages exceeding 80% of the value of their homes is higher now than it was in the previous bust in the early 1990s.

There are already signs in some cities, such as London, New York and Amsterdam, that the housing market is cooling fast, but estate agents still insist that prices are unlikely to fall by much. Tell that to the couple who bought a four-bedroom house in San Francisco for $2.1m in 2000, then divorced and had to sell the house only two years later for $1.45m.

House of cards - The Economist

Castles in hot air - The Economist

Castles in hot air - The Economist

THE rapid house-price inflation in many countries over the past few years is clearly unsustainable.

The p/e ratio helps to expose the fallacy that house prices are rising because of growing populations and fixed supply, because these factors should affect the rental as well as the owner-occupier markets. The fact that prices are rising much faster than rents suggests that homes are being bought in the expectation of capital appreciation rather than underlying fundamentals. That is the definition of a bubble.